Indeminity And Guarantee Flashcards
Contract of indeminity
Defined under sec 124
Where I promises to save the IH from loss caused to him by the conduct of promisor or any other person
Contract of guarantee
Sec 126
Contract to perform the promise or discharge the liablity of a 3rd person in case of his default
Difference between COI and COG
- Def
- No of people 2,3
- No of contracts - 1 3 ( 2 express and one implied)
- Primary liablity - promisor vs principal debtor
- Purpose- reimbursement of loss vs security of the creditor
- Primary debt is pre-existing in contract of guarantee but not on contract of indeminity
For COG - pre existence of primary debt/ principal debtor
- If no such debt exists, there is nothing left for the surety to secure
- Swan vs bank of Scotland held that of there is no PD no valid guarantee can exist.
- Sec 134 - a surety will be discharged when
-Creditor makes any contract with PD by which the latter is discharged
- Creditor does any act or omission, the legal consequence of which is the discharge of PD
Ex: contract for ship building, creditor had to supply timber
Invalid agreement
Sec 142 to 144
- Misrepresentation of creditor wrt material part
- By means of keeping silence as to material circumstances
- Co surety
Liablity of surety is coextensive with liablity of PD
- Sec 128- coextensive
- Maybe made less, but never greater. When the surety has undertook liablity only for principal amount , cannot be made liable for interest ( SN PRASAD vs MONNET FINANCE )
- Released when principal debtor is released ( note from prev flash) - sec 134
- Liability of principal debtor and surety is joint and several -
- Liability of surety is secondary
- Liability of pd and surety is joint and several
- Put it simply, Surety’s liability is secondary and not primary, therefore, his liability arises immediately on default of the principal debtor:
- But once the default arises - The liability of the surety is joint and connected with the principal debtor. It is the choice of the creditor to recover the amount either from the principal debtor after his default or from surety
- In BANK OF BIHAR vs DAMODAR PRASAD - it was held that the view that creditor can move aganist surety only after he has exhausted his remedies against PD was held to be wrong.
- Medisetti Ravi vs Pramida chit funds - even in the first instance , creditor can move against the surety to the same extent as if he were himself the PD. Would not be necessary to first realise the amount from PD
Circumstances where surety is discharged of liability
- 134- agreement
- 134 - act or omission of the creditor
- Performance of obligation
- Expiration of time
- Material alteration ( sec 133) without surety’s consent
- Novation, unless the surety assents to such new contract
Rights of surety in a contract of guarantee
Intro - sec 126 of ICA 1872
- Right of surety against the creditor- on payment of the debt by surety, entitles to all the securities with the creditor against the Pd, if he loses or parts away with security without the consent of surety, S is discharged off his liabilities to the extent of the value of security
- Right against PD
A. Right of subrogation - he comes into the shoe of creditor upon payment of guaranteed debt or discharge of guaranteed promise
B. Right to indemnity- in every cog there is an implied COI ,, reviver from PD whatever he has lawfully paid to the creditor - Right against co- sureties
If had to discharge pd debt on his own, entitled to get compensation from co- sureties who are equally liable to pay, along with him
Right even before discharge of liabilities by surety
The Court granted an injunction to the surety in the case of Mamta Ghose vs. United Industrial Bank (1987), where the principal debtor began selling off his property after discovering that the obligation had become due in order to avoid seizure by the surety.
