Page 99 - DMGT102_MERCANTILE_LAWS_I

Unit 7: Contracts of Guarantee and Indemnity

4. If the installments shall be in arrears for more than three months or in the event Notes
of the termination of the service of the employee for any reason, whatsoever, the
whole sum remaining to the Management under this Deed on account of principal
and interest shall thereon become payable at once and the employee and the Surety
will be liable jointly and severally to pay the same and the Management shall be at
liberty to recover the entire sum under this Deed in any manner they deem proper
from the Employee and the Surety jointly and severally.

In Witness Thereof the Parties have Signed this Deed on the Day Mentioned Earlier
First Party Witness
Second Party 1.
Third Party 2.

Surety Undertaking on a stamp paper of ` 2.
I, .......S/o Shri..........., R/o............... New Delhi, do hereby declare that I stand
surety to the loan of ` ……. /- (Rupees …… only) taken by Mr......... S/o Shri......... I accept
that in the event of default on, the payment of instalment or the principal sum (including
interest if any) by Mr....... I shall become liable to pay such amounts as are outstanding. In
this event, I authorise the Management of The East India Hotels Ltd to deduct such amount
from my monthly salary or from my terminal dues (including Gratuity, Bonus, etc.) as and
when I leave the services of the Company.

Surety Witness:
Dated:

7.5 Meaning of Indemnity

Sections 124 and 125 provide for a contract of indemnity. Section 124 provides that a contract of
indemnity is a contract whereby one party promises to save the other from loss caused to him
(the promisee) by the conduct of the promisor himself or by the conduct of any other person. A
contract of insurance is a glaring example of such type of contracts.
A contract of indemnity may arise either by (i) an express promise or (ii) operation of law, e.g.,
the duty of a principal to indemnify an agent from consequences of all lawful acts done by him
as an agent. The contract of indemnity, like any other contract, must have all the essentials of a
valid contract. These are two parties in a contraction of identity indemnifier and indemnifi ed.

The indemnifier promises to make good the loss of the indemnified (i.e., the promisee).

Example: A contracts to indemnify B against the consequences of any preceding which C
may take against B in respect of a certain sum of ` 200. This is a contract of indemnity.

Note Indemnification is a type of insurance which protects the one party from the

expenses of other. Indemnification clause cannot usually be enforced for intentional
tortious conduct of the protected party.

7.5.1 Rights of the Indemnified (i.e., the Indemnity Holder)
He is entitled to recover from the promisor: (i) All damages which he may be compelled to pay
in any suit in respect of any matter to which the promise to indemnify applies; (ii) All costs of
suit which he may have to pay to such third party, provided in bringing or defending the suit

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