Page 101 - DMGT102_MERCANTILE_LAWS_I

Unit 7: Contracts of Guarantee and Indemnity

Notes

Task P contracts to indemnify R against the consequences of the proceedings which S
might take against R in respect of a debt due by R. S obtains judgement against R for the
amount. Without paying any portion of the decreed amount, R sues P for its recovery.
Decide. [Hint: R can claim the amount from P before having actually paid the same.]

Caselet United India Insurance Co. Ltd. vs. Manubhai
Dharmshibhai Gajera

nsured availed indemnity under 1st mediclaim cover-obtained subsequent mediclaim
cover with enhanced amount-second cover amounted o renewal of old mediclaim
Ipolicy:
The insured had taken a mediclaim policy with the above insurer for a sum of `55000/- for
the period 1-7-98 to 30-6-99 and the insured availed of indemnity under the said policy
in respect of the angioplasty undergone by him during November and December 1998.
The insured again took a mediclaim policy in January 1999 for `2.5 lacs in which it was
duly disclosed the ailment of heart and angioplasty having been undergone under the
previous policy. Inspite of this fact the insurer issued a new policy for `2.5 lacs. The
insured thereafter had undergone angiography and bye-pass surgery in April 1999 and he
remained hospitalized between 17-4-99 to 26-4-99. It was this operation which resulted into
submission of the claim in question to the insurer. The insurer repudiated the claim on the

ground of exclusion clause being operative. The insured filed a complaint with the district
forum which allowed the same with an order directing the insurer to pay `151845/- to
the insured/complainant. The insurer preferred a appeal against the order with the state
commission. The said exclusion clause read: “all diseases, injuries which are preexisting

when the cover incepts for the first time”. It was submitted that the new policy for `2.5
lacs taken by the insured was fresh policy and therefore the pre-existing ailment of heart
was excluded. The court observed that at least to the extent of `55000/- for which insured
already had cover, the second cover amounted to the renewal of the mediclaim policy or it

can well be said that the cover did not incept for the first time to that extent.
Held: The court directed the insurer to pay the complainant `55000/- with interest @10%
p.a. with costs `1250/- within 8 weeks of the order.
7.6 Summary

z Contract of guarantee is defined as “a contract to perform the promise, or discharge the

liability, of a third person in case of his default”.
z The person who gives the guarantee is called ‘surety’; the person for whom the guarantee
is given is called the ‘principal debtor’, and the person to whom the guarantee is given is
called the ‘creditor’.

z A contract of guarantee may be either oral or in writing. Oral or written, specifi c and
continuing guarantee are the kinds of guarantee.
z The creditor is entitled to demand payment from the surety as soon as the principal debtor
refuses to pay or makes default in payment.

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