Indemnity and Guarantee

2. 
A contract by which one party promises to
save the other from loss caused to him by the
conduct of the promisor himself or by the
conduct of any other person is called a
contract of indemnity.

3. 

The person who promises to save the other
from loss is called indemnifier.
The person whose loss is to be made good is
called indemnified or indemnity holder.

4. 
Example- A lost his share certificates. He
applied to the company for the issue of
duplicate certificate. The company asked A to
furnish an ‘indemnity bond’ to protect the
company against any claim that may be
made by any person on the original
certificates. Here, A is the indemnifier and B
is the indemnity holder.

5. 
Example- The receipt pertaining to certain
goods is lost B while travelling through Indian
Railways. Now, A claims the goods from
Railway company. The Railway Co. asked A to
give an ‘indemnity bond’. A gets the goods.
Here A is indemnifier and Railway Co is the
indemnity holder. Later, B the real owner
sues the Railway Co.. Now, the co. can claim
indemnity from A, for the loss caused by his
conduct.

6. 


1. All damages which he may be compelled to
pay in any sued in respect of any matter to which
the promise to indemnify applies.
2. All cost which he may be compelled to pay in
defending such sued provided he acted
prudently or with the authority of the
indemnifier.
3. All sum which he may have paid upon
compromise of such sued provided the
compromise was not contrary to the order of the
indemnifier and was prudent or was authorized
by the indemnifier.

8. 
“A contract of guarantee is a contract to
perform the promise or discharge the liability
of a third person in case of his default.”

Eg- A advances a loan of Rs 5000 to B and C
promises to A that if B doesn’t repay the loan,
C will do so. This is a contract of guarantee.

9. 


The person who gives the guarantee is called
the ‘surety’.
The person in respect of whose default the
guarantee is given is called ‘principal debtor’.
The person to whom the guarantee is given is
called ‘creditor’.

10. 

A contract of guarantee must satisfy all the
essential elements of a contract.
It is tripartite agreement. One is principal
debtor and creditor. Second is creditor &
surety and the third btwn principal debtor
and surety.

11. 

In guarantee, the primary liability is of
principal debtor. The liability of surety arises
only in case of default by principal debtor.
A contract of guarantee is invalid where
guarantee has been obtained by means of
misrepresentation made by creditor.

12. INDEMNITY
GUARANTEE
In indemnity , there are two parties
In guarantee, there are three parties
i.e. indemnifier and indemnity holder. i.e. creditor, principal debtor and
surety.
There is only one contract btw
indemnifier and indemnity holder.
There are three contracts, one btw
principal debtor and creditor, second
btw creditor and surety and third
between surety and principal debtor.
The liability of indemnifier is primary. The liability of the surety is
secondary and arises only if the
principal debtors fails to perform his
obligations.

13. INDEMNITY
GUARANTEE
The liability of indemnifier arises only There is a existing legal debt, the
on the happening of contingency.
performance of which is guaranteed
by the surety.
The indemnifier act independently
without any request of the debtor or
third party.
Under guarantee, it is necessary that
surety should give guarantee at the
request of debtor.
The indemnifier can’t sue the third
party for loss in his own name.
Surety after discharging the debt can
sue the principal debtor.
Indemnity is for reimbursement of
loss.
The contract of guarantee is for
surety of debt .

14. 

The liability of surety is secondary i.e he is
liable only on default of principal debtor.
The liability of surety arises immediately on
the default of principal debtor unless there is
a provision in the contract that the creditor
must first proceed against principal debtor or
must give a notice of default to surety.

15. 


If creditor holds security from principal
debtor for his debt, the creditor need not first
resort to those securities before suing surety.
Surety is not liable if guarantee has been
obtained by misrepresentation.
Surety is liable even if the principal debtor
has been discharged like Principal debtor
being discharged.

16.  1. Ordinary Guarantee
 2. Continuing Guarantee

17. Ordinary Guarantee
When a guarantee is given for a single specific
debt or transaction, it is called ordinary
transaction.
 Continuing Guarantee
When a guarantee extends to a series of
distinct and separable transactions, it is
continuing guarantee.


18. The guarantee may be discharged in the
following manner:
 1. Notice of Revokation
 2. Death of Surety
 3. Variation of Contract
 4. Release or discharge of Principal Debtor
 5. Loss of Security
 6.Creditors act or commission impairing surety’s
eventual remedy.
 7. By Composition with the Principal Debtor


19. Right of Surety against the Creditor


1. Right to benefit of creditors securities
2. Right to claim set off, if any

20. Right against Principal Debtor


1. Right of Subrogation
2. Right to claim Indemnity

21. Right against Cosurety


1. Liabilities of cosurety when contributing
equally.
2. When the cosurety’s have agreed to
guarantee diff. sums