Indemnity
and Guarantee
By
Asok Nadhani
11.1
Contracts of Indemnity and Guarantee
i.
Indemnity
means making good (to identify / compensate) the loss incurred by another
person. A wider meaning of ‘indemnity’
is to protect (i.e., save) a party from incurring a loss.
ii. Guarantee
means promise to perform or discharge of liability of a third person, in case
of his default.
iii. Contracts
of indemnity and guarantee are a kind general contract and the general
principles & law of contract are also applicable to them.
11.2
Contract of Indemnity (Sec.
124)
i. In a
contract of indemnity, one party (the promisor, called the indemnifier)
promises to save the other (the promisee, called the indemnified ) from
loss caused to him. So, a contract of indemnity may be viewed as a special
class of contingent contracts. (sec. 124) [Goulston
Discount Co.Ltd. v. Clark ]
ii. A
contract of indemnity may be express or implied.
a. Express
contract of Indemnity : The indemnifier expressly undertakes
to indemnify the loss. Ex.11.1
b. Implied
contract of indemnity : The undertaking of indemnification
may be inferred from the circumstances of the case or from relationship of the
parties. [Adamson v. Jarvis]
11.2.1 Essential elements of a contract
of indemnity (Sec. 124)
a.
Valid Contract: All the essentials of a valid contract
must also be present in the contract of indemnity.
b.
Loss to one party: A person indemnities another
person only when such other person incurs some loss (or is about to incur some loss).
c.
Indemnity from the future loss: The purpose of
contract of indemnity is to protect the indemnity holder from any loss that may be caused to the indemnity holder in
future.
d.
Not control on loss: Indemnity holder shall be
protected from the loss caused due to action of the promisor or event which is
not in the control of parties.
11.2.2 Contract of indemnity is a kind of contingent contract
a.
Contract
of indemnity: A contract
is called a ‘contract of indemnity’ if one party promises to save the other
from loss caused to him by the conduct of the promisor himself, or by the
conduct of any other person. (s. 124)
b.
Contingent
Contract: A ‘contingent
contract’ is a contract to do or not to do something, if some event, collateral
to such contract, does or does not happen. Thus, performance of a contingent
contract depends upon happening or non-happening of some event.
c.
Contract
of indemnity is a contingent contract
i.
A
contract of indemnity contains a promise to save the other person, if loss is
caused to him. It is entered into with the object of protecting the promisee
against any anticipated loss. The contingency upon which the whole contract of
indemnity depends is the happening of the loss.
ii.
So,
contract of indemnity, is conditional contract like contingent contract. Their
performance depends upon happening or non-happening of certain specified but
uncertain event. So, a contract of indemnity is also a type of contingent
contracts.
11.2.3
Rights of indemnity holder (Sec.125)
i. An
indemnity-holder (i.e., indemnified), when sued, is entitled to recover
from the promisor (i.e., indemnifier) in following cases:
a. all
damages which he may be compelled to pay in any suit in respect of any
matter to which the indemnity applies
[Sec. 125(1)]
b. all
costs which he may be compelled to pay in bringing or defending such
suits.
c. all
sums which he may have paid under the terms of any compromise of any
such suit.
ii. When Indemnified has incurred a liability and that
liability is absolute, he is entitled to call upon the indemnifier to pay off
to discharge his liability.
11.3
Contract of Guarantee
i. A
contract of guarantee' is a contract to perform the promise, or discharge the
liability, of a third person in case of his default, between the following parties
[Birkmyr v. Darnell],
(Sec. 126)
a.
Surety: The person who gives the
guarantee (henceforth referred as S),
b.
Principal Debtor: The
person in respect of whose default the guarantee is given (henceforth referred
as P)
c.
Creditor: The person to
whom the guarantee is given (henceforth referred as C)
ii. It is
a tripartite agreement contemplating the
principal debtor P, the creditor C, and the surety S, creating a triangular relationship,
giving rise to three collateral contracts :
a. Between
C and P, a contract out of which the guaranteed debt arises.
b. Between
S and C, a contract by which S guarantees to pay to C, Ps debt in
case of his [P’s] default.
c. Between
S and P, a contract that P shall indemnify S in case S pays in the
event of a default by P. This contract, if not expressed between the parties,
is always implied.
iii.
A Guarantee may be expressed or implied
and may even be inferred from the course of conduct of the parties
concerned. Ex 11.2
11.3.1
Essential features of a contract of Guarantee
i. Concurrence: A contract
of guarantee requires the concurrence of all the three parties to it, viz., the
principal debtor, the creditor, and the surety.
ii. Liability: There must be a liability enforceable by law.
The primary liability is of the principal debtor. The liability of the surety
is secondary. It arises only when the principal debtor defaults.
iii. Valid
Contract: A contract of
guarantee must have all the essential elements of a valid contract.
iv. Capacity to
Contract : All
the parties must be capable of entering into a valid contract. However, the
principal debtor may be incapable to contract (e.g. a minor) and in such
case, the surety is regarded as the principal debtor and is liable to pay
personally even though the principal debtor is not liable to pay.
v. Consideration (sec.127): It
is sufficient that principal debtor has received some consideration. It is not
necessary that surety himself must get some benefit. Ex.11.3
11.3.2
Kinds of Guarantee
i. Guarantee
can be broadly classified as –
Guarantee on Money
Guarantee on Person
ii. Guarantee
on Money can be further divided on the basis of nature of payment and effective
time of payment.
a. On
basis of nature of payment guarantee, of money can be -
i.
Specific guarantee:
This type of guarantee is for single transaction. It ends with the
performance of promise or when an debt is discharged. Ex.11.4.
ii.
Continuing guarantee (Sec.
129): This is for series of transaction. The liability of such guarantee
extends till the revocation of guarantee. [Kay
v. Groves
b. On
basis of effective time of payment, guarantee of money can be -
i. Retrospective
guarantee: This type of guarantee is for an existing debt or
obligation.
ii. Prospective
guarantee: It is for future debt or obligation.
iii.
Guarantee on Person: This type of
guarantee is based on a person’s nature (i.e, good conduct or honesty) employed
in an organisation.
11.3.3 Continuing Guarantee
a.
A
guarantee which extends to a series of transactions is called as 'continuing
guarantee'. It is not confined to a single transaction.
b.
Continuing
guarantee covers a number of transactions over a period of time. Instead of a
specific single transaction, it applies to a series of transactions, making the
surety liable until the guarantee is revoked. [Wingfield
vs de St Croix ]
c.
The
surety may limit his liability by making an express provision in the contract
that the surety shall not be liable:
i.
beyond
a fixed amount (i.e., a ceiling may be fixed on the liability of
surety); or
ii.
for
any amount due after a fixed date (i.e., a time period may be specified
during which the guarantee shall remain effective).
Examples.
1.
A
guarantees payment to B, to the extent of Rs.10,000 for any supplies made by
him
to C. B supplies C worth Rs.12,000, and C pays B for it. Afterwards, B
supplies C worth Rs.15,000, but C
fails to pay. The guarantee given by A was a continuing guarantee, and he is
accordingly liable to B to the extent of Rs.10,000.
2.
A
guarantees payment to B 100 Bags of cement to be delivered by B to C and to be
paid for in a month. B delivers 100 Bags of cement to C. C pays for them.
Afterwards B delivers another 50 Bags cement to C, C does not pay for. The
guarantee given by A was not a continuing guarantee, and accordingly. A is not
liable for the price of 50 Bags.
11.3.3.1 Revocation of Continuing Guarantee
Following are the
circumstances in which the continuing guarantee can be revoked:-
i.
By
notice: Continuing
guarantee may be revoked at any time by the surety as to future transactions by
due notice to the creditor. (s. 130)
ii.
By
death: Death of the surety
operates as revocation of the continuing guarantee with reference to the future
transactions unless the contract otherwise provide. (sec. 131)
iii.
By
variation in contract: If
any variation is done in the terms of contract of guarantee between the
creditor and the principal debtor without the knowledge of the surety, the
contract of guarantee is revoked.
iv.
By
Novation: The contract of
guarantee will be revoked when the parties agree to substitute a new contract
for the old contract or rescind or alter the old contract. (sec. 62)
v.
By
creditors act of omission: Any
omission by the creditor which impairs the eventual remedy of the surety against
the debtor amounts to revocation of the contract of guarantee.
Example
A stands as surety
to C for any money lent by C to B during the next 3 months subject to a maximum
liability of Rs.50,000. Afterwards,
A revokes the guarantee. As on the date of revocation of guarantee, C has
already lent Rs.5,000 to B.
i.
A is discharged from all liabilities to C
for any subsequent loan.
ii.
If B makes a default in payment of Rs.
5,000 to C already lent, A cannot deny his liability in respect of Rs. 5,000,
lent by C to B before revocation of continuing guarantee. In that case, C can
sue B or A or both, since liability of surety is co-extensive with liability of
principal debtor.
11.3.4
Guarantee is not a contract of uberrimae fidei
A
contract of guarantee is not a contract of uberrimae fidei, the principal
debtor need not disclose all material facts or creditor to the surety
before the contract is entered into. Fraud on part of the principal debtor is
not enough to set aside the contract, unless the surety proves that the
creditor or his agent knew of the fraud and is a party to it,
1. In
case of guarantee given to a banker, the banker need not disclose all facts to
the surety. Ex.11.8.
2. In
case of guarantee in the nature of an insurance, all material facts must be
disclosed
otherwise the
surety can avoid the contract. Ex.11.9.
11.3.5
Distinction between contract of indemnity and guarantee
|
Contract of indemnity
|
Contract
of guarantee
|
|
There
are two parties to the contract, the indemnifier (promisor) and
the indemnified (promisee).
|
There
are three parties to the contract, the creditor, the principal
debtor and the surety.
|
|
The
liability of the indemnifier to the indemnified is primary and
independent.
|
The
liability of the surety to the creditor is collateral or secondary,
the primary liability being that of the principal debtor.
|
|
There
is only one contract in the case of a contract of indemnity, i.e.,
between the indemnifier and the indemnified.
|
In
a contract of guarantee, there are three collateral contracts between
a) principal debtor and the creditor, b) creditor and the surety c) surety
and the principal debtor.
|
|
It
is not necessary for the indemnifier to act at the request of the
indemnified.
|
Surety
should give the guarantee only at the request of the debtor.
|
|
The
liability of the indemnifier arises only on the happening of a
contingency.
|
There is
usually an existing debt or duty, the performance of which is
guaranteed by the surety.
|
|
An
indemnifier cannot himself sue a
third party unless there is an assignment in his favour.
|
A
surety, on discharging the debt due by the principal debtor, steps into the
shoes of the creditor. He can proceed against the principal debtor in
his own right.
|
11.4
Surety's Liability
i. The
liability of Surety arises only when the principal debtor does not pay. His
liability is thus secondary, so Surety is treated with favour both in law and
equity, and the following rules apply:
a. The
liability of the surety is co-extensive
with that of the principal debtor, unless it is otherwise provided by
the contract. Ex.
11.10, Ex.11.11
b. The surety is liable for what the principal debtor
is liable. The surety must not be made liable beyond the terms of his
engagement. A creditor can sue the surety without suing the principal debtor.
c. Although
liability of the surety is co-extensive with that of the principal debtor, he may
limit his liability. Ex.11.12, Ex 11.13
d. In
case of continuing guarantee, the liability of surety extends to all
transactions contemplated until revocation of guarantee (sec.129).
ii. The surety is liable for all the debts
payable by the principal debtor to the creditor. Accordingly, interest,
damages, costs etc. which may
be recovered from the principal debtor, may also be recovered from the surety.
iii. The liability must be proved against the surety in the
same way as against the principal debtor. The surety is liable to the same extent as the
principal debtor. So, the principal debtor and surety are jointly and severally
liable. If the principal debtor is not liable on the principal debt (principal
debt is illegal or is unenforceable), the principal debtor is discharged by
creditor's breach and the surety shall also be discharged.
iv. If the principal debtor cannot be held
liable due to any defect in the document executed by him, the surety also ceases to
be liable on the contract entered into by, him.
v. Thus, ordinarily, the liability of the surety shall be same and co extensive with
that of the principal debtor.
11.4.1
Liability of surety in a void or voidable contract (sec.128)
The
contract between the surety and the creditor is an independent contract.
a.
If the contract between the principal
debtor and the creditor is found to be void or voidable, the creditor can
enforce the liability of the surety,
b.
Where the creditor does not sue the
principal debtor within the period of limitation, the surety is not discharged.
c.
Discharge of the principal debtor by
operation of law does not discharge the surety. The death of the principal
debtor also does not release the surety from his obligations incurred during
his lifetime.
d.
In the case of a minor's agreement, the
surety is liable as a principal debtor.
11.4.2
Rights of Surety
A
surety has rights against:
1. the
creditor.
2. the
principal debtor
3. the
co-sureties.
11.4.2.1 Rights of Surety against Creditor
1.
Sue the Principal before payment.
A surety may, after the guaranteed debt has become due but before he
is called upon to pay, ask the creditor to sue the principal debtor. The surety
will indemnify the creditor for any expenses or loss resulting therefrom. In
case of fidelity guarantee, the surety can ask the employer to dismiss the
employee in the event of his proven dishonesty.
2.
Right of set-off .On
being sued by the creditor, the surety can enforce any claim (set-off or
counter claim) which the debtor has against the creditor.
3.
Rights of Creditor subrogated. On payment of guaranteed debt, the surety
is subrogated to all the rights of the creditor and can demand from the
creditor all the securities (received before or after the creation of the
guarantee), whether known to the surety or not (sec.141). Ex.11.14.
4.
Right to equities. On
payment of the guaranteed debt, the surety is entitled to all equities which
the creditor could have enforced against the principal debtor himself and also
against persons claiming through him.
5.
Right of subrogation. Where
a guaranteed debt has become due and the surety has paid all that he is liable
for, the surety steps into the shoes of the creditor and acquires all the
rights the creditor had against the principal debtor (sec.140).
6.
Right to revoke the
guarantee (Sec.130). Surety may revoke at any time, a continuing guarantee as
to future transactions, by giving a notice to the Creditor.
11.4.2.2
Rights of Surety against principal debtor
A
surety has the following two rights against the principal Debtor :
1. Right
of liability ascertained. Before the
payment has been made, the debt must be ascertained. Once the principal
debtor's liability accrues as a fixed sum, the surety can make payment and ask
him to exonerate him from liability.
2. Right
to indemnity
(sec.145). The
principal debtor is liable to indemnify the surety and the surety is entitled
to recover from the principal debtor all payments properly made. The surety can
recover the amount paid under the guarantee and interest thereon from the principal
debtor, along with damage for any loss sustained. Ex.11.15.
11.4.2.3
Rights of Surety against co-sureties
When
a debt is guaranteed by two or more sureties (called the co-sureties), all of
them are liable to contribute towards the payment of the guaranteed debt. When
one of the co-sureties makes payment to the creditor, he has a right to claim
contribution from the other co-sureties, under following rules :
a. When
the principal debtor makes a default of a debt, all the extent of the default
(sec.146). Ex.11.16.
b.
If the co-sureties guarantee different
sums, they have to contribute equally subject to the
maximum amount
guaranteed by each one. (sec. 147) Ex.11.17
A
release by the creditor of one of the co-sureties does not discharge the other
co-sureties, the surety so released
is not discharged from his responsibility to the other sureties (Sec. 138).
11.4.2.4 Rights
& Duties between co-sureties
i.
Burden or Responsibilities:
a.
As a general rule, all co-sureties shall contribute
equally, subject to the maximum limit fixed by the co-sureties. If a co-surety
pays to the creditor more than his share of debt, he becomes entitled to claim
the amount from the other co-sureties.
b.
So, burden of all the co-sureties are equal .However, if
a creditor releases one of the co-sureties, the other co-sureties are not
discharged from its liabilities.
ii.
Benefits or Rights:
a.
If one co-surety has received security from the principal
debtor, all the other co-surety shall be entitled to share the benefit of such
security. Therefore co-sureties share the same benefit among themselves.
b.
As per Section 132, if there is any
understanding between two sureties that one of them only will be liable as a
surety, the rights of the creditor will not be effected even if the creditor
knew the arrangement between the debtor. The contract will be applicable only
when the liability is taken up jointly by two parties in relation of the same
debt. This provision will not be applicable if the debts are different.
Example: L
and M make a joint and several promissory note to N. L makes it, in fact, as
surety for M and N knows this at the time when the note is made. The fact that
L, to the knowledge of C, made the note as surety for M, is of no effect to a
suit by N against L upon the note.
11.4.3
Discharge of Surety
A surety is said to be discharged when his
liability comes to an end, in following ways:
1.
By Revocation
-
Notice (sec.130),
-
Death (sec.131),
-
Novation (sec.62).
2.
By Creditor
-
Variance in terms of contract
(sec.133),
-
Release or discharge of principal
debtor (sec.134),
-
Compounding by creditor with principal
debtor (sec.135),
-
Impairing rights of surety (sec.139),
-
Severance of security (sec.141).
3.
By Invalidation of Contract
-
Misrepresentation. (sec.
142),
-
Concealment (Sec.
143),
-
Joining of co-surety. (sec.
144),
-
Consideration.
11.4.3.1
Discharge of Surety by Revocation
i. Notice: A specific
guarantee cannot be revoked by the surety if the liability has already accrued.
The surety may revoke a continuing guarantee by notice to the creditor as to
future transactions (but remains liable for past transactions). (sec.130) [Wingfield v. de St. Croix]
ii. Death: On
death of the surety, his estate will not be liable for any transactions entered
into after his death, but his estate will be liable for contracts entered into
prior to his death. (sec.131)
iii. Novation: When
a contract of guarantee is substituted by a new one (called Novation), the
original contract of guarantee comes to an end (sec. 62).
11.4.3.2
Discharge of Surety by Creditor
i.
Variance in
terms of contract (sec. 133)
a. When
the terms of the contract between the principal debtor and the creditor are
varied without the surety's consent, the surety is discharged in respect of
transactions subsequent to the variance.
b. Where
the guarantee is for the performance of several distinct, duties or
obligations or for the payment of distinct debts, a variance in the nature of
one of them will not discharge the surety as to the rest.
c. Where
the guarantee is a continuing one, any such variance will discharge the surety
as to the transactions subsequent to variance. [Bacon
v. chesney]
ii.
Discharge of
principal debtor (s.134)
a.
If the Creditor discharges the
principal debtor, the surety is discharged.
b.
If the principal debtor is discharged
by any act or omission of the creditor, the surety is also discharged.
iii. Creditor compounding with Debtor:
(s.135) The surety is discharged when the creditor and the principal debtor,
without consent of the surety, makes a composition or promises to give time to
or not to sue the principal debtor. [Midland Motor
Showrooms, Ltd. V. Newman], [Kurian vs. The Alleppey C.C.M.S Society]
iv. Impairing rights of surety (s.139) : The surety is discharged when the
creditor does any act which impairs the remedial rights of the surety. [Hewison vs Ricket]
v. Severance of security.(s.141) If
the creditor, without the consent of the surety, parts with any security given to
him at the time of the contract of guarantee, the surety is discharged from
liability to the extent of the value of security. If there are two or more
debts each secured by separate security, the surety for one of the debts is not
discharged if the creditor parts with the security relating to other debts. [Hewison vs Ricket], [State of M.P
11.4.3.3
Discharge of Surety by Invalidation of contract
The
Surety is discharged in respect of guarantee given in the following cases:
i. Misrepresentation (sec.142).
Any guarantee which has been obtained by means of misrepresentation made by
the creditor.
ii. Concealment (sec.143). Any
guarantee which the creditor has obtained by means of keeping silence as to
material circumstances is invalid. [London General
Omnibus Co.vs Holloway], Ex.11.18.
iii. Joining of co-surety (sec.144). Where a person gives a
guarantee upon a contract that a creditor shall not act upon it until another
person has joined in it as co-surety, the guarantee is not valid if the
co-surety does not join. [National
Provincial Bank of England
iv. Consideration. The
surety is discharged in case of lack of consideration between creditor and the
principal debtor.
11.4.3.4
Surety not Discharged
The
Surety is not discharged in the following circumstances:
a. Grant
of Time (Sec. 136): The Surety is not discharged where the creditor
makes an agreement with the third person to grant time to Principal Debtor. Ex. 11.20
b. Creditors
forbearance to sue (Sec. 137): In absence of any provision to the
contrary in the guarantee, mere forbearance on the part of Creditor to sue
Principal Debtor or to enforce any remedy against him does not discharge the
Surety.
c. Surety
is not discharged by operation of law (e.g omission of the creditor to sue within
the period of limitation).
Examples:
Express Contract of Indemnity
Ex.11.1. A and B go
into a shop. B likes to buy goods on credit. The shopkeeper knows A only. A
agrees to indemnify the shopkeeper if B does not pay for the goods bought by B.
This is an express contract of indemnity. [Ref.
11.2{ii(a)}].
Contract of Guarantee
Ex.11.2. S requests
C to lend Rs. 5000 to P and guarantees that if P fails to pay the
amount, S will pay. This is a contract of guarantee. S, in this case, is the surety,
C, the creditor and P, the Principal debtor. [Ref. 11.3(iii)].
Ex.11.3. P
requests C to sell and deliver to him goods on credit. C agrees if S
guarantees the payment. S promises to guarantee the payment in consideration of
C's promise to deliver the goods. This is a sufficient consideration for S’s
promise. [Ref. 11.3.1(v)].
Specific Guarantee
Ex.11.4. X promised to Y
to deliver 100 quintals of wheat. X supplied the wheat. This is a specific
guarantee as the performance by X is discharged on delivery of the wheat. [Ref. 11.3.2{ii(ai)}].
Continuing Guarantee
Ex. 11.5 S, in
consideration that C will employ P in collecting the rents of C’s
zamindari, guarantees C upto Rs. 5,000 for the collection of Rent and payment
by P. This is a continuing guarantee. [Ref.
11.3.2{ii(aii)}].
Ex.
11.6. A guarantees payment
to B, to the extent of Rs.10,000 for any supplies made by him to C. B supplies
C worth Rs.12,000, and C pays B for it. Afterwards, B supplies C worth Rs.15,000, but C fails to pay. The
guarantee given by A was a continuing guarantee, and he is accordingly liable
to B to the extent of Rs.10,000. [Ref.
11.3.2{ii(aii)}].
Ex.
11.7. A guarantees payment
to B 100 Bags of cement to be delivered by B to C and to be paid for in a
month. B delivers 100 Bags of cement to C. C pays for them. Afterwards B
delivers another 50 Bags cement to C, C does not pay for. The guarantee given
by A was not a continuing guarantee, and accordingly A is not liable for the
price of 50 Bags. [Ref.
11.3.2{ii(aii)}].
Guarantee not a contract of
uberrimae fidei
Ex.11.8. S guaranteed the account of P
with the bank. P afterwards drew on that account and paid off an
overdraft with another bank. S is not discharged on the ground that Bank did
not inform S about their suspicion that P was defrauding. [Ref. 11.3.4(1)].
Ex.11.9. C engaged
P as a clerk to collect money for him. P misappropriated some money which was
then made good by P’s relations and C agreed to retain P in his service on
having a fidelity guarantee provided by S. C did not tell S about P’s previous
dishonesty. Held, the guarantee could not be enforced against S owing to
the nondisclosure about P’s previous dishonesty. [Ref. 11.3.4(2)].
Surety’s Liability
Ex. 11.10. L and M make a joint and several
promissory note to N. L makes it, in fact, as surety for M and N knows this at
the time when the note is made. The fact that L, to the knowledge of C, made
the note as surety for M, is of no effect to a suit by N against L upon the
note. [Ref. 11.4{i(a)}].
Ex.11.11. S guarantees
to C the payment of a bill of exchange by P, the acceptor. The bill is
dishonoured by P. S is also liable along with P for the amount of the bill & interest and charges due on
it. [Ref. 11.4{i(a)}].
Extent of Surety’s Liability
Ex.11.12. P owes C Rs.
12,000. S gives guarantee of Rs 5000 only. If P defaults. C can recover
Rs. 5,000 from S (i.e., the full guaranteed amount). S after making
payment to C will step into Cs shoes and recover from P. [Ref. 11.4{i(c)}].
Ex.11.13. P owes C Rs.
15,000. S gives guarantee of Rs 5000 only. P is declared insolvent (and his
estate pays 25%), C can recover Rs. 5,000 from S (i.e., the full
guaranteed amount) and Rs. 2500 (l/4th of the balance of Rs. 10,000) from P's
estate. S after making payment to C, will step into Cs shoes and recover Rs.
1,250 (being l/4th of Rs. 5,000) from P’s estate. [Ref. 11.4{i(c)}].
Rights of creditor subrogated
Ex.11.14. C advances
to P, his tenant, Rs. 50000 on the guarantee of S. C has also a further
security for Rs. 20000 by a pledge of P’s Car. C cancels the pledge. P becomes
insolvent and C sues S on his guarantee. S is discharged from liability to the
amount of the value of the Car. [Ref.
11.4.2.1(3)].
Rights of Indemnity
Ex.11.15. P owes C, and
S is surety for the debt. C demands payment from S and, on his refusal, sues
him for the amount. S defends the suit for valid reasons but is compelled to
pay the amount of the debt with costs. S can recover from P the amount paid by
him for principal debt with costs. [Ref.
11.4.2.2(2)].
Rights of surety against co-sureties
Ex.11.16. S1, S2 and
S3 are sureties to C for the sum of Rs. 6,000 lent to P. P makes default
of Rs 3000 in
payment. S1, S2 and S3 are liable as between themselves to pay Rs. 1,000 each. [Ref. 11.4.2.3(a)].
Ex.11.17. S1, S2 and
S3 are sureties to C for the sum of Rs. 10000 lent to P, S1 & S2
guaranteeing to the extent of 25% each
and S3 to the extent of 50%. P makes
default in payment. S1 & S2 is liable to pay Rs. 2500 each S3 to pay Rs.
5000. [Ref. 11.4.2.3(b)].
Concealment
Ex.11.18. X, becomes a surety to Y
for payment of rent by Z under a lease, Y & Z contract (without X’s
consent) that Y will pay higher rent. In such a situation, X will be no longer
liable for his guarantee and the contract between X and Y will become invalid. [Ref. 11.4.3.3(ii)].
Joining of co-surety
Ex.11.19. A joint guarantee by A, B.
C and D is given to a mutual fund. All of them signed to the guarantee except D
he afterwards died. No individual can be held liable to the guarantee and the
contract Invalidates. [Ref.
11.4.3.3(iii)].
Surety not discharged
Ex. 11.20. F holding an overdue bill
drawn by A as surety for B, and accepted by B, contracts with Z to grant time
to B for its payment. A is not discharged. [Ref.
11.4.3.4(a)].
For more details, refer to
Business & Corporate Laws, by Asok Nadhani, BPB Publications,
www,bpbonline.com, bpbpublications@gmail.com
