Contract of Indemnity and Contract of Guarantee


Explain and illustrate the differences between the contract of indemnity and a contract of guarantee.

Let's discuss the differences between a contract of indemnity and a contract of guarantee under Indian law.

Contract of Indemnity

A contract of indemnity is defined under Section 124 of the Indian Contract Act, 1872. It involves a promise by one party (the indemnifier) to save the other party (the indemnified or indemnity holder) from loss caused by the conduct of the promisor or any other person.

Key Features:

  1. Parties Involved: There are two parties - the indemnifier and the indemnified.

  2. Purpose: To compensate for the loss.

  3. Liability: The indemnifier's liability arises only when the indemnified suffers a loss.

  4. Example: If A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees, this is a contract of indemnity.

Case Law:

  • Gajanan Moreshwar v. Moreshwar Madan (1942): This case highlighted that the indemnifier's liability commences as soon as the loss is suffered by the indemnified.

Contract of Guarantee

A contract of guarantee is defined under Section 126 of the Indian Contract Act, 1872. It involves a promise to answer for the debt, default, or miscarriage of another person. It includes three parties: the creditor, the principal debtor, and the surety.

Key Features:

  1. Parties Involved: There are three parties - the creditor, the principal debtor, and the surety.

  2. Purpose: To ensure the performance of a promise or discharge of liability.

  3. Liability: The surety's liability is secondary and arises only when the principal debtor defaults.

  4. Example: If A lends 500 rupees to B, and C promises to A that if B does not repay the money, C will, this is a contract of guarantee.

Case Law:

  • Bank of Bihar v. Damodar Prasad (1969): This case established that the surety's liability is co-extensive with that of the principal debtor unless it is otherwise provided by the contract.

Differences at a Glance

FeatureContract of IndemnityContract of Guarantee
DefinitionPromise to save from lossPromise to answer for the debt, default, or miscarriage of another
Parties InvolvedTwo (Indemnifier and Indemnified)Three (Creditor, Principal Debtor, and Surety)
LiabilityPrimarySecondary
PurposeCompensation for lossAssurance of performance or discharge of liability
ExampleA indemnifies B against loss caused by CC guarantees A that B will repay the loan

This clarifies the differences between these two types of contracts. If you have any more questions or need further assistance, feel free to ask!

Comments

Post a Comment

Popular posts from this blog

Conditions and Warranties implied in the Contract of the Sale of Goods

 Briefly explain the conditions and warranties implied in the Contract of the Sale of Goods. Here is the break down the implied conditions and warranties in a contract of sale of goods under the Sale of Goods Act, 1930. Implied Conditions Condition as to Title : The seller has the right to sell the goods. Condition as to Description : The goods must correspond with the description provided by the seller. Condition as to Quality or Fitness : The goods must be fit for the purpose for which the buyer requires them, provided the buyer has made this purpose known to the seller. Condition as to Merchantable Quality : The goods must be of merchantable quality, meaning they should be fit for sale and use. Condition as to Sample : If the sale is by sample, the bulk of the goods must correspond with the sample in quality. Implied Warranties Warranty as to Quiet Possession : The buyer shall have and enjoy quiet possession of the goods. Warranty as to Freedom from Encumbrances : The goods shal...
Read more

Bailment - Duties and Rights of a Bailor

Image
  What is bailment? what are the duties and rights of a bailor? Bailment is a type of contract where one party, the bailor, delivers goods or property to another party, the bailee, for a specific purpose, such as repair, storage, or transportation. The bailee takes possession of the goods, but the ownership remains with the bailor. Duties of a Bailor 1. Delivery of Goods: The bailor must deliver the goods to the bailee in a reasonable condition. (Section 150, Indian Contract Act) 2. Disclosure of Faults: The bailor must disclose any known faults or defects in the goods. (Section 151, Indian Contract Act) 3. Payment of Expenses: The bailor is responsible for paying any expenses incurred by the bailee in the performance of the bailment. (Section 154, Indian Contract Act) Rights of a Bailor 1. Right to Recovery: The bailor has the right to recover the goods from the bailee at the end of the bailment period. (Section 155, Indian Contract Act) 2. Right to Compensation: The bail...
Read more