1. INDEMNITY AND GUARANTEE

2. Indemnity
 A contract of indemnity is special contract. Indemnity
means protect from loss. According to section 124
the contact by which one party promise to save the
other from the 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”
 The person who promise to make good the loss is
called the indemnifier (Promisor)and the person
whose loss is to be made good is called the
indemnified or indemnity-holder (promisee)
 For example-A and B go into a shop .B says to the
shopkeeper , “Let A have the goods ,I will see that you
are paid”. The contract is one of indemnity

3. Contracts of Guarantee
The term guarantee may be defined as an
undertaking by one person to pay the amount
due from another person
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 lends money to B and C promises A
that if B fails to repay he will pay the money.
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4. Continued…
• The person who gives the guarantee is called the
"surety“.
• The person in respect of whose default the
guarantee is given is called the "principal debtor “.
• The person to whom the guarantee is given is
called the "creditor“.
• A guarantee may be either oral or written.
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5. Essentials of a Guarantee
1. There must be a debt existing, which should
be recoverable.
2. Existence of 3 parties ie. Principal
debtor, creditor & surety.
3. There should be some consideration
4. The liability must be legally enforceable.
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6. Continued…
5. The principal debtor must be primarily liable.
Surety’s liability is secondary.
6. There must be a distinct promise, oral or written
by the surety to pay the debt in case of default
by principal debtor.
7. All essentials of a contract.
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7. Kinds of Guarantee
 Specific and simple guarantee
 Continuing guarantee

8. Revocation of continuing
guarantee
 By Notice (section130)
 By death of surety(section 131)

9. Rights of the surety
 Right against the principal debtor
 Right against the creditor-Right to claim
securities, setoff,
 Right against co –sureties-Right to contribution

10. Rights of Surety
• Rights of Subrogation (Right of surety against
principal debtor).-
When the surety pays gauranted sum to creditor
on behalf of principal debtor, he owns all the
rights of the Creditor.
• Rights to indemnity - Surety is entitled to recover
from the principal debtor whatever sum he has
rightfully paid under the guarantee, but, no sums
which he has paid wrongfully
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11. Discharge of surety from liability
 By notice
 By death
 By release or discharge of principal debtor
 By promise not to sue the principal debtor
 By invalidation of contract of guarantee
 By giving more time to the principal debtor
 By change in term of contract