Indemnity and Guarantee Contract

Indemnity and Guarantee Contract

Indemnity Contract: A contract where one party promises to save the other from any loss caused to him by the conduct of promissor himself or any other person is called contract of indemnity, (Section 124) Indian Contract Act, 1872.

Indemnity contract includes two parties namely; Indemnifier and Indemnity holder. The person who is promising to pay compensation is called Indemnifier and the person who`s loss is compensated is called Indemnity holder. Example: There is a contract between X and Y according to which X has to Sell a tape recorder (which is selected) to Y after three months. On the next day of their contract Z has come to X and has insisted on selling the same tape recorder to him (Z). Here Z is promising to compensate X for any loss faced by X, due to selling the tape recorder to Z. X has agreed. Now the contract which has got formed between X and Z is called indemnity contract, where Z is indemnifier and X is indemnity holder.

Guarantee Contract: A contract to perform the obligation or to discharge the liability of a third party in case of its default is called contract of guarantee, (Section 126) Indian Contract Act, 1872.

Guarantee contract includes three parties namely; Creditor, Principal Debtor and Surety. The person who is granting the loan, the person who is utilizing the amount of loan is principal debtor and the person who is giving guarantee is called surety or guarantor or favored debtor. In case of guarantee contract there will be two types of liabilities namely; Primary liability and secondary liability. Primary liability will be with principal debtor and Secondary liability goes to surety. Example: Y is in need of Rs. 10000/-. Upon guarantee by Z, Y has got the amount from X. Here X, Y and Z are creditor, principal debtor and surety respectively.

Definition of Condition

Certain terms, obligations and provisions are imposed by the buyer and seller while entering into a contract of sale, which needs to be satisfied, which are commonly known as Conditons. The conditions are indispensable to the objective of the contract. There are two types of conditions, in a contract of sale which are:

Expressed Condition: The conditions which are clearly defined and agreed upon by the parties while entering into the contract.

Implied Condition: The conditions which are not expressly provided, but as per law, some conditions are supposed to be present at the time making the contract. However, these conditions can be waived off through express agreement. Some examples of implied conditions are:

Condition relating to title of goods. Condition with respect to the quality and fitness of

the goods. Condition as to wholesomeness. Sale by sample Sale by description.

Definition of Warranty

A warranty is a guarantee given by the seller to the buyer about the quality, fitness and performance of the product. It is an assurance provided by the manufacturer to the customer that the said facts about the goods are true and at its best. Many times, if the warranty given, proves false and the product does not function as described by the seller then remedies like a return or exchange are also available to the buyer i.e. as stated in the contract.

A warranty can be for lifetime or for a limited period. It may be either expressed, i.e., which is specifically defined or implied, which is not explicitly provided, but arises according to the nature of sale like:

Warranty related to undisturbed possession of the buyer. Warranty that the goods are free from any charge. Disclosure of harmful nature of goods. Warranty as to quality and fitness

BASIS FOR COMPARISON

MEMORANDUM OF ASSOCIATION

ARTICLES OF ASSOCIATION

Meaning Memorandum of Association is a document that contains all the fundamental information which are required for the incorporation of the company.

Articles of Association is a document containing all the rules and regulations that governs the company.

Defined in Section 2 (28) Section 2 (2)

Type of Information contained

Powers and objects of the company.

Rules of the company.

Status It is subordinate to the It is subordinate to




Companies Act. the memorandum.

Retrospective Effect

The memorandum of association of the company cannot be amended retrospectively.

The articles of association can be amended retrospectively.

Major contents A memorandum must contain six clauses.

The articles can be drafted as per the choice of the company.

Obligatory Yes, for all companies. A public company limited by shares can adopt Table A in place of articles.

Compulsory filing at the time of Registration

Required Not required at all.

Alteration Alteration can be done, after passing Special

Alteration can be don in the Articles




Resolution (SR) in Annual General Meeting (AGM) and previous approval of Central Government (CG) or Company Law Board (CLB) is required.

by passing Special Resolution (SR) at Annual General Meeting (AGM)

Documents

Indemnity and Guarantee Contract