Page 49 - DMGT407Corporate and Business Laws
P. 49
Corporate and Business Laws
Notes 2.8.3 Rights of the Indemnifier
The Act makes no mention of the rights of indemnifier. However, his rights, in such cases, are
similar to the rights of a surety under s.141, viz., he becomes entitled to the benefit of all the
securities which the creditor has against the principal debtor whether he was aware of them or
not.
2.8.4 Commencement of Indemnifier’s Liability
Indemnity requires that the party to be indemnified shall never be called upon to pay. Indemnity
is not necessarily given by repayment after payment. The indemnified may compel the
indemnifier to place him in a position to meet liability that may be cast upon him without
waiting until the promisee (indemnified) has actually discharged it.
Self Assessment
Fill in the blanks:
15. A contract of indemnity may arise either by an express promise or…………………….
16. ……………….requires that the party to be indemnified shall never be called upon to pay.
2.9 Distinction between a Contract of Guarantee and a Contract
of Indemnity
L.C. Mather brought out the distinction between indemnity and guarantee by the following
illustration. A contract in which A says to B, ‘If you lend £20 to C, I will see that your money
comes back’ is an indemnity. On the other hand undertaking in these words, “If you lend £20 to
C and he does not pay you, I will is a guarantee. Thus, in a contract of indemnity, there are only
two parties, indemnifier and indemnified. In case of a guarantee, on the other hand, there are
three parties, the ‘principal debtor’, the ‘creditor’ and the ‘surety’. Other points of difference are:
1. The liability of a promisor is primary and independent in a contract of indemnity. In a
contract of guarantee, the liability of the surety is secondary, the primary liability being
that of the principal debtor.
2. In the case of guarantee, there is an existing debt or obligation, the performance of which
is guaranteed by the surety. In case of indemnity the possibility of any loss happening is
a contingency against which the indemnifier undertakes to indemnify.
3. In a contract of guarantee, after discharging the debt, the surety is entitled to proceed
against the principal debtor in his own name while in case of indemnity, the indemnifier
cannot proceed against third parties in his own name, unless there be an assignment in his
favour.
Self Assessment
Fill in the blanks:
17. The liability of a promisor is ……………….and independent in a contract of indemnity.
18. In a contract of guarantee, the liability of the surety is…………………....
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