Contract of Indemnity Contract of Guarantee

Contract of Indemnity Contract of Guarantee
A contract where one party A contract of guarantee is a contract of perform the

promises to save the other from any promise or discharge the liability, of a third person in
case of his default. The person who gives a guarantee is
loss caused to him by the conduct of called the surety; the persons in respect of those
promissor himself or any other default the guarantee is given is called the principal
person is called contract of debtor, and the person the whom the guarantee is given
is called the creditor. A guarantee may be either oral or
indemnity, (Section 124) Indian written. Sec 126.
Contract Act, 1872. Essential parts of guarantee contract
Section 124 of law deals with this
contract. 1. Existance of Creditor, Surety, and Principal
Debtor - there must exist a principal debtor for a
Essential parts of Indeminity
recoverable debt for which the surety is liable in case of
Contract the default of the principal debtor.
1. Contract has to be valid.
2. There must be a loss.
3. The loss must be caused either by the promisor
2. Distinct promise of surety - There must be a distinct
or by any other person.
promise by the surety to be answerable for the liability of
4. Indemnifier is liable only for the loss. the Principal Debtor.
1. Rights of the indemnity holder 3. Liability must be legally enforceable - Only if the
2. i. Right of recovering Damages liability of the principal debtor is legally enforceable, the
Indeminity holder can recover damages from surety can be made liable.
indemnifier. Indemnifier is oblige to pay the
4. Consideration - As with any valid contract, the
damages in a suit in respect of any matter to
contract of guarantee also must have a
which the promise of indemnity applies.
consideration. The consideration in such contract is
nothing but any thing done or the promise to do
ii. Right of recovering Costs of suit: -
something for the benefit of the principal debor.
3. Indemnity can also recover the cost of the suit
which he has filed against the indemnifier 5. It should be without mispresentation or
concealment - Section 142 specifies that a guarantee
iii. Right of recovering Sums -all sums obtained by misrepresenting facts that are material to the
which he may have paid under the terms of a agreement is invalid, and section 143 specifies that a
settlement in any such suite, if the settlement guarantee obtained by concealing a material fact is
was not against to the orders of the promisor invalid as well.
and was one which would have been actingfor
the promisee to make in the absence of the Concealment; -The creditor must disclose all the material
contract of indemnity, or if the promisor facts regarding the contract to the surety before entering
authorized him to compromize the suit. into a contract. but if the creditor conceals fact of contract
It is a bipartite agreement between the indemnifier and from the surety, and thus obtains consent the contract is
indemnity-holder. invalid
Liability of the indemnifier is contingent upon the loss. It is a tripartite agreement between the Creditor, Principal
4. Liability of the indemnifier is primary to the Debtor, and Surety.
contract. Liability of the surety is not contingent upon any loss
5. There is only one contract in a contract of Liability of the surety is co-extensive with that of the
indemnity - between the indemnifier and the principal debtor although it remains in suspended
indemnity holder. animation until the principal debtor defaults. Thus, it is
The reason for a contract of indemnity is to make good secondary to the contract and consequenty if the
on a loss if there is any. principal debtor is not liable, the surety will also not be
6. Once the indemnifier fulfills his liability, he does laible
not get any right over any third party. He can The undertaking in a guarantee is collateral to the
only sue the indemnity-holder in his own name. original contract between the creditor and the
principal debtor\
There are three contracts in a contract of guaratee - an
original contract between Creditor and Principal Debtor,
a contract of guarantee between creditor and surety, and
an implied contract of indemnity between the surety and
the principal debtor
The reason for a contract of guarantee is to enable a
third person get credit
the guarantor fulfills his liabilty by paying any debt to the
creditor, he steps into the shoes of the creditor and gets
all the rights that the creditor had over the principal
debtor

Contract of Indemnity Contract of Guarantee

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Contract of Indemnity Contract of Guarantee

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Contract of Indemnity Contract of Guarantee

A contract where one party A contract of guarantee is a contract of perform the

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