Contract act 124 to 133

   Chapter 8

Of indemnity and guarantee 

Section 124."contract of indemnity"defined -----

contact by which on party promise to save the other from loss caused to him by the contract of the promisor himself or by the contact of any other person 

Is called a contract of indemnity

Illustrations 

1.a contract to indemnity B against the consequences of any proceedings which c may take against b in respect of a   certain sum of 200 rupees .this is a contract of indemnity 

A ------indeminifier 

B------indeminified 

Important facts 

1.all the insurance policy is known as contract of indemnity except for life insurance and individual accident insurance .the promise of defendant is absolute 

 

Case name 

The new India insurance company limited versus state trading corporation of India 

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Such losses are included in contract of indemnity 

If losses or damage had been happend by act of promisor or by any other person .

1.natural calamity and accidents are not covered in contract of indemnity 

2.the promise of indemnity may be expressed or implied 

Case laws 

Shellfield versus Barclay 

A corporation had registered some dividends at recommendation of a bank .but this transfer was fabricated .so corporation had got indeminity from bank 

Andmson versus jarvis 

The plaintiff was an auctioneer .the had auctioned some cows at the instructions of respondent .but the cows belonged to do e other persons .they person had got price of cattle having filed a suit .now plaintiff had filed a suit over respondent .plaintiff had done this work on behest of respondent .now respondent was responsible to pay compensation.

Section 125 -------Right of indemnity holder when sued ----

The promise in a contract of indemnity acting within the scope of his authority ,is entitled to recover from the promisor ---

1.all damages which may be compelled to pay in any suit in respect of any matter to which the promise to indemnity applies 

2.all costs which he may be compelled to pay in any suit if ,in  bringing or defending it ,he did not contravene the orders of the promisor and acted as it would have been prudent for him to act in the absence of any contract of indemnity or if the promisor authorised him to bring or defend the suit .

3.all sums which he may have paid under the terms of any compromise of any suit .if the compromise was not contrary to the orders of the promisor and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity or if the promisor authorised him to compromise the suit 

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Starting of responsibility 

Gajanan versus moreshewar madan 

As soon as responsibility of indemnified is proved he has right to demand compensation from indeminifier .the indemnified should not pay from his money .

Usmaan jamal and sons limited versus Gopal purshottam 

A company is agent of respondent firm . It had purchased some things for respondent.the respondent company had not paid for this .the company started to dissolving .

The dissolved company can get compensation from respondent 

 

Section 126.contract of guarantee surety,principal debtor and creditor ----a contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default the person who gives the guarantee is called the surety the person in respect of whose default the guarantee is given is called the principal debtor and the person to whom the guarantee is given is called the.  Creditor .a guarantee may be either oral or written .

Important points

1.if debtor is not paid debt of a bank then such debt can be taken from bank account of guaranter 

Case name .

L Narhari singh versus state of Manipur 

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Section 127-----any thing done or any promise made for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee 

Land mark case 

Brickmire versus Darnel

Two person has went to a shopkeeper .one person has purchased some things on the guarantee of second  person .the second person said that if he would not pay for these things than I will pay 

This is contract of guarantee .

2.taylor versus lee

A land lord and his tenant had went to a shopkeeper .the land lord had told he will live for very long time in our house so you will give him any thing he will pay you time to time 

Illustrations 

A.B requests A to sell and deliver to him goods on credit .A agrees to do so ,provided c will guarantee  the payment of the price of the goods .c promise to guarantee the payment in consideration of A 's promise to deliver the goods .this is a sufficient consideration for c 's promise 

B.A sells and delivers goods to B.c afterwards requests A to forbearer to sue B for the debt for a year and promises that if he does so .c will pay for them in default of payment by B .a agrees to forbearer as requested  .this is sufficient consideration for c promise 

C.A sells and delivers goods to B.c afterwards without consideraton agrees to pay for them in default of B .this agreement is void 

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Section 128----surety 's liability 

The liability of the surety is co extensive with that of the the principal debtor ,unless it is otherwise provided by the contact 

Important points 

1.the  liability  of surety arises immediately as principal debtor creates default 

2 . creditor can  file a suit over surety without file a suit over principal debtor 

Related case and explanation 

This is not essential that creditor first file the suit over principal debtor whenever it is mentioned clearly in contract it is depend on alternate of creditor 

Nikunj kishor pradhan versus SBI 

 In this case some trucks had been mortgaged and some money has been recovered .court decree had been given regarding remaining money .Now surety cannot  give argument that money  should be taken from principal debtor first . Creditor  can take his money from anyone at his choice .

3.the liability of principal debtor is primary and liability of surety is secondary .

4.the liability of surety is co extensive with principal debtor

Explanation 

This section determines maximum liability of surety .the money can be covered from surety equal to principal debtor not more.

If any condition is exist in contract for surety .then that conditions must be fulfilled 

 When any previous condition is exist in contract of guarantee then surety is liable under that condition 

Orang kaya versus quang yik bank behraad  1989 

There was condition in contract of guarantee that surety must be informed in the default of principal debtor to make surety liable .

Decision -----surety is not liable in this case .because  demand letter must be sent seperately .but a photocopy had been send to him only .which original copy had been sent to principal debtor 

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Illustrations 

A guarantee to B the payment ment of a bill of exchange by c the acceptor .the bill is dishonoured by c .a is liable not only for the amount of the bill,but also for any interest and charges which may have become due on it 

A -----surety 

C-------principal debtor 

B------creditor 

Liability of guarantee co extensive with principal debtor 

Central Bank of India versus c.l.Vimla A.I.R.2015

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Section 129 

Continuing guarantee ----

A guarantee which extends to a series of transactions is called a continuing guarantee .

Illustrations 

A.a in consideration that B will employ C in collecting the rents of B 's zamindari promises B to be responsible,to the amount of 5000 rupees for the due collection and payment by C of those rents .this is a continuing guarantee.

B.a guarantee payment to B a tea dealer to the amount of Rs for any tea he may from time to time supply to c .B supplies C with tea to above the value of Rs.100 and C pays B for it . afterwards B supplies C with tea the value of rs.200.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.100/

C.A guarantee payment to B  of the price of five sacks of flour to be delivered by B to C and to be paid for in a month .B delivers five sacks to C .C pays for them .afterwards B delivers four sacks to C which C does not pay for..the guarantee given by A was not a continuing guarantee and accordingly he is not liable for the price of four sacks .

Some landmark decision 

Maharashtra state electricity board verses official liquidator Arnaculum 

 A bank promised to electricity board to give 48,000/ within 48 hours at demand . guarantee had been given by a supplier  company which had deposited sufficient security in bank .the company began to be dissolved.the surety wanted to stop  electricity company to take money and stop bank to take securities .

Decision ----in this case the surety cannot retract from his guarantee.so the bank can take its securities and board can take money 

2.coral versus takor 

The difference between guarantee and continuing guarantee had been mentioned in above case .

Normal guarantee had been related with only one transaction for a definite time and money .when this money had been paid ,this  guarantee is finished

But continuing guarantee is related with too many transactions. This is equal to current  account .when time is ended in that condition surety is liable to pay the money 

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Section 130 --a continuing guarantee may at any time before revoked by the surety ,as to future transactions by notice to the creditor .

a .A in consideration of B 's discounting at 's request bill of exchange for C 

Guarantees to B for twelve  months 

The due payment of all such bill for C to the extent of 2000 rupees 

After at the end of three months 

A revoker the guarantee .this revocation discharges A from all liability to B for any subsequent discount.but A is liable to B for the 2000 rupees on default of C 

b.A guarantee to B 

To the extent of 10,000/ rupees that C shall pay all the bills that B shall draw upon him 

B draws upon him C .C accepts the bill .A gives notice of revocation 

  C dishonours bill at maturity 

A is liable upon guarantee 

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Section 131 . Revocation of continuing guarantee by surety's death 

The death of the surety operates in the absence of any contract to the contrary as a revocation of a continuing guarantee so far as regards future transaction .but transaction before his death will be recovered from his legal heir 

Explanation ----according this section whenever there is no clear provision in contract if surety dies , guarantee is ended automatically.there is no liability of surety and his heir after his death .

Section 132.liability of two persons ,primarily liable ,not affected by agreement between them that one shall be surety on other 's default -----where two persons contract with a third person to undertake a certain liability 

And also contract with each other that one of them shall be liable only on the default of the other 

The third person not being a party to such of such two persons to third person under the  first contract is not affected by the existence of the second Contract 

Although such third person may have been of its existence.

Illustrations 

A and B make a joint and several promissory note to C.A makes it in fact as surety for B and C knows this at the time when the note is made .the fact that A to the knowledge of C made the note as surety for B is no answer to a suit by C against A upon the note .

Section 133.discharge of surety by variance in terms of contract 

Any variance ,made without the surety 's consent ,in the terms of contract between the principal debtor and the creditor , discharge the surety as to transaction subsequent to the variance

Landmark  decisions

Bonar versus macdonald 

Respondent had given guarantee for a bank manager . Bank had increased his salary .the bank manager will liable one fourth amount for the loss over discounting by him .manager had given overdraft which could not be got .surety had been sued  for this recovery

Decision -----surety is not liable because the condition of contract had been changed without his permission so he had been released from his responsibility.

Explanation ---if changes are beneficial for surety he cannot be discharged from his liability.if changes are against surety he can be discharged from his liability.

Illustrations 

A.a becomes surety to C for B 's conduct as a manager in C's bank .afterwards B and C contract without A 's consent 

That B 's salary shall be raised and that he shall become liable for one fourth of the lesses on overdrafts .B allows a customer to over draw and the bank loses a sum of money .

A is discharged from his suretyship by the variance made without consent and is not liable to make good this loss 

B.A guarantee C against  the misconduct of B in an office to which B is appointed by C and of which B is appointed by C and of which the duties are defined by an act of the legislature by a subsequent act the nature of the offer is materiallly altered 

Afterweeks B misconducts himself A is discharged by the change from future liability under his guarantee through the misconduct of B is in requests of a duty not affected by the later act 

C.C agrees to appoint B as his clerk to sell goods at a yearly salary upon A 's becoming surety to C for B 's duly accounting for moneys received by him as such clerk 

Afterwards without A 's knowledge or consent .C and B agree that B should be paid by a commission on the goods sold by him and not by a fixed salary .A is not liable for  subsequent misconduct of B 

D.A gives to C a continuing guarantee to the extent of 3000/ rupees for any oil supplied by C to B on credit .afterwards  B becomes embarassed and without the knowledge of A ,B and C contract that C shall continue to supply B with oil for ready money and that the payment shall be applied to the then existing debts between B and C .A is not liable on his guarantee for any goods supplied after the new arrangement

E.c contracts to lend B 5000/ rupees on 1 st march .A guarantee repayment C pays the 5000/ rupees to B on the 1st  January A is discharged from his liability as the contract has been varied inasmuch  as C might sue B for the money before the first march .

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