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BBS 3rd year business law important Question | Unit 7 (Introduction to Law and Business)



INDEMNITY AND GUARANTEE

👉🏻CONTRACT OF INDEMNITY

An indemnity is a specific contract where a person promises or gives an assurance to another to save him from loss caused to him in the dealing between them in such circumstances as promised by the promisor. Therefore, in case of loss occurring in the dealing or loss suffered as per the terms of the contract, the promisor is bound to make good for such loss or compensate the injured party.

👉🏻RIGHT OF INDEMNITY HOLDER

  1. To recover the entire amount mentioned in the contract as indemnity.
  2. To recover all damages which he may be compelled to pay in any suit.
  3. To recover the amount incurred on the case filed or defended by him.
  4. To recover all costs incurred on the legal action.
  5. To recover all sums which he may have paid under the terms of any compromise of any suit.

👉🏻CONTRACT OF GUARANTEE

A guarantee is a contract where a person promises to another that he shall be responsible for the act or default of a third person. In fact, it is a promise or assurance given by one to save another from loss caused to him because of some act, default, or miscarriage of a third person mentioned in the promise. In every guarantee contract, there are three parties. They are:

  1. Surety: The person who gives a guarantee to another.
  2. Creditor: The person to whom such guarantee is given.
  3. Principal debtor: The person in respect of whose default the guarantee is given.

👉🏻CHARACTERISTICS OR ESSENTIAL FEATURES OF A GUARANTEE

  1. Three parties (Tripartite agreement).
  2. Three separate contracts.
  3. One party is liable for the acts or default or miscarriage of another.
  4. It creates primary and secondary liability among the parties.
  5. The essentials of a valid contract must be present.
  6. It may be expressed or implied and must be in writing.

👉🏻KINDS OF GUARANTEE

  1. On the basis of the limit of surety's liability:
    • Limited guarantee
    • Unlimited guarantee
  2. On the basis of the purpose of liability:
    • Guarantee for the repayment of a debt.
    • Guarantee for the payment of the price of the goods sold on credit.
    • Guarantee for good conduct.
  3. On the basis of a guarantee given for an existing or future debt or obligation:
    • Retrospective guarantee
    • Prospective guarantee
    • Specific guarantee
  4. On the basis of the series of transactions to which the guarantee applies:
    • Continuing guarantee

👉🏻REVOCATION OF CONTINUING GUARANTEE

  1. By notice
  2. By the death of surety
  3. By novation
  4. By alteration
  5. By release or discharge of the principal debtor
  6. By compounding with the principal debtor
  7. By creditor's act or omission impairing surety's remedy
  8. Of the loss of security

👉🏻RIGHTS AND DUTIES OF SURETY

Rights of Surety:

  1. Rights as against security:
    • Right, to recover the security.
    • Right to sell the security.
  2. Rights as against creditor:
    • Right to get notice of default of the principal debtor.
    • Right before payment
    • The right to ask for the recovery of security held by the creditor is also available.
    • Right of subrogation
  3. Rights as against principal debtor:
    • Right to be relieved from liability.
    • Right to be indemnified.
    • Right of a general creditor
  4. Rights as against co-sureties:
    • Right of contribution
    • Right to divide security.
    • Right in case of release of a co-surety

Duties and Liabilities of Surety:

  1. Duty to ensure the creditor
  2. Duty to inform as to the creditworthiness of the debtor
  3. Duty to discharge liability on behalf of the principal debtor
  4. Duty to be liable even if the principal debtor is relieved from obligation
  5. Duty to be liable until the principal debtor is discharged

👉🏻DISCHARGE OF SURETY

When the obligations of a surety come to an end or he becomes free from his liability under a contract of guarantee, the surety is said to be discharged or terminated. The modes of discharge of surety are as follows:

  1. Discharge of surety by revocation:
    • Revocation by surety by giving notice
    • Revocation by death of surety
    • Revocation by novation
  2. Discharge of surety by the conduct of the creditor:
    • Variance in terms of the contract
    • Release or discharge of the principal debtor
    • Compounding by a creditor with the principal debtor
    • Creditor's act or omission impairing surety's eventual remedy
    • Loss of security
  3. Discharge of surety by the invalidation of contract:
    • Guarantee obtained by misrepresentation
    • Guarantee obtained by concealment of fact
    • Guarantee on the contract that the creditor shall not act on it until a co-surety joins
    • Failure of consideration

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