2. Indemnity and Guarantee
Contract of Indemnity
Meaning
The term 'Indemnity' means to make good the loss or to compensate the
party who has suffered some loss. "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"." 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.
Parties
The person who promises 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).
Course facilitator – Ms. Shilpi Gupta 2
3. Contract of Guarantee
Meaning
"A contract of guarantee is a contract to perform the promise or discharge the
liability of a third person in case of his default"." For example: A and B go into a
shop. A says to the shopkeeper, C, "Let B have the goods, and if he does not pay, I
will". This is a contract of guarantee.
Parties to a Contract. of Guarantee
There are three parties to a contract of guarantee.
Principal debtor: The person in respect of whose default the guarantee is given is
called the principal debtor. In the above example B is the principal debtor. ii.
Creditor: The person to whom the guarantee is given is called the' creditor'. C is
the creditor in the above said example.
iii. Surety: The person who gives the guarantee is called the 'surety'. A is the surety
in the above said example.
Course facilitator – Ms. Shilpi Gupta 3
