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Business lawFaculty : Nazneen Wasim

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Javeria Khan (5064)

Abdul Wahid (3453)

Syed Saqib ( )

Areeb Qasim (1217)

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Chapter # 11


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Contract Of IndemnityDefinition and Nature:

The term indemnity means to compensate or to make good loss. (sec.124)


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Essentials Of Contract Of Indemnity• 1 It must contains all essentials of valid contract .

• 2 Two parties

• 3 Loss may be caused

• 4 Express or implied

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Rights Of Indemnity

• 1 He can recover all the damages .

• 2 He can recover expenses in respect of any suit filed by him with the authority of indemnifier .

• 3 He can recover all expenses which might have paid as a result of any compromise which was made with the consent of indemnifier .

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Contract Of Guarantee

A contract to perform the promise or discharge the liability of the third part in case of their default is called Contract Of Guarantee .

• The person who gives the guarantee is called the Surety

• The person to whom the guarantee is given is called the Creditor

• The person on whose default the guarantee is given is called the Principal Debtor .

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There are 6 essential features of contract of guarantee .Tripartite Contract :

It is an agreement between three parties . Three separate contract exist among them . In tripartite contract the liability of the surety arises if the promise is not fulfilled by the principal debtor .Consideration :

Consideration is the concept of legal value in connection with contract . Like other contracts , a contract of guarantee must fulfill essentials of a valid contract . It must be supported by some consideration .

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Misrepresentation :Misrepresentation refers to a false statement of a fact made by a creditor . If the consent of surety is obtained by misrepresentation, the surety will be discharged from his liability .

Concealment :Concealment is the action of hiding something or preventing it from being known. Any guarantee which the creditor obtains by means of keeping silence regarding material circumstances is invalid.

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Capacity Of Parties :

The parties to a contract of guarantee must be competent to contract. However, incapacity of the principal debtor does not affect the validity of a contract of guarantee .

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Difference Between Indemnity And Guarantee

INDEMNITY• 1 Number Of Parties• 2 Number Of Contract• 3 Nature Of Liability• 4 Request• 5 Purpose

GUARANTEE• 1 Number Of Parties• 2 Number Of Contract• 3 Nature Of Liability• 4 Request• 5 Purpose

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Surety’s Liability

• Extent of Surety’s Liability

The liability of surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. The surety’s liability can be made less than that of the principal debtor but never greater.

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Kinds of Guarantee

1 Simple guarantee

A guarantee which extends to a single debt or transaction is called simple guarantee. It comes to an end as soon as the liability under the transaction ends.2 Continuing guarantee

A guarantee which extends to a series of transactions is called continuing guarantee. It is like a standing offer which is accepted by the creditor every time a subsequent transaction takes place

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b. Right to Claim Set-offIf the principal debtor has some claims against the creditor, the debtor can ask for adjustment of his debts to the extent of his claims. If creditor sues surety for repayment, the surety can claim set off, if any, which principal debtors had against creditor.2. Rights against Principal DebtorRight of SubrogationWhen surety has paid the guaranteed debt on default of principal debtor, he is entitled to all the rights which creditor had against the principal debtor. The surety is entitled to all the remedies which are available to creditor against principal debtor.

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b. Right of indemnityIn every contract of guarantee , there is an implied promise by principal debtor to indemnify the surety. The surety is entitled to recover from principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully.3. Rights against co-suretiesWhere a debt is guaranteed by more than one survey, they are called co-sureties. In such a case all the sureties are liable to make the payment to creditor according to the agreement among them. If there is no agreement and one of the co-sureties is compelled to pay the entire debt, he has a right to contribution from the co-surities.

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a. Similar accountWhen there are sureties for the same debt and the principal debtor has committed a default, each party is liable to contribute equally to the extent of the default.b. Different amountWhen there are sureties for the same debt for different sums, they are bound to contribute equally subject to the limit fixed by their guarantee. They will not contribute proportionately.