2. Indemnity & Guarantee Cases

Case 1: Rights of a Surety (Co-Sureties & Contribution)

Scenario:

• A, B, and C jointly acted as sureties for a loan taken by D from a bank.
• D defaulted, and the bank forced A to pay the entire amount.
• A then sought contribution from B and C.

Legal Principle Applied:

• Section 146 of the Indian Contract Act, 1872: If multiple sureties have guaranteed a debt, they must share the liability equally unless agreed otherwise.

Outcome:

• The court ruled that B and C must reimburse A for their share of the loan repayment.
• This case confirms that a surety can claim contribution from co-sureties if they have paid more than their share.

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Case 2: Bank Guarantee & Performance Guarantee

Scenario:

• A construction company (X Ltd.) obtained a bank guarantee to ensure completion of a government project.
• The company failed to complete the project within the deadline.
• The government demanded payment from the bank, as per the guarantee.

Legal Principle Applied:

• A bank guarantee is a legally binding promise.
• If the principal party (X Ltd.) defaults, the bank is liable to pay the beneficiary (government).

Outcome:

• The bank was forced to pay the guarantee amount.
• This case shows that a bank guarantee is an enforceable security for contract performance.

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