This document provides an overview of indemnity and guarantee contracts under business law. It defines indemnity as a contract where one party promises to save the other from loss caused by the promisor or a third party. Guarantee is defined as a contract to perform a third party's promise in case of default. The key differences between the two are that indemnity provides compensation for loss while guarantee provides relief to the debtor, and guarantee requires an existing liability while indemnity does not. The document outlines the parties involved, features, rights and discharge conditions for both indemnity and guarantee agreements.
2. INDEMNITY
Definition: SEC. 124-
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. INDEMNITY
Features
TWO parties- Indemnity holder
Indemnifier
Sec. 10- essentials should be satisfied
All insurance contracts are
contracts of indemnity except life
insurance.
5. GUARANTEE
Definition: SEC. 126-
A “Contract of Guarantee” is a
contract to perform the
promise, or discharge the
liability, of a third person in
case of his default.
E.g. Guarantee for credit sales
7. GUARANTEE
Features
Valid Contract ( essentials of
Sec-10)
Consideration for surety is loan
given by creditor.
Liability arises immediately
when debtor makes default.
8. GUARANTEE
Implied Indemnity
Right Of Subrogation
Disclosure of Facts
Form- Oral or Written
Existence of Principal Debt.
9. Difference b/w Indemnity &
Guarantee
Basis Indemnity Guarantee
Meaning 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”.
A “Contract of
Guarantee” is
a contract to
perform the
promise, or
discharge the
liability, of a
third person
in case of his
default.
Section 124 126
10. Difference b/w Indemnity &
Guarantee
Basis Indemnity Guarantee
Object Compensation of
loss
Relief to Debtor
Existence of
Liability
Not necessary Necessary
Interest No real interest Real interest for
surety
Consideration Consideration is
present
No consideration
for surety or
SUFFICIENT
consideration
for surety in the
form of loan
given to the
debtor.
13. Nature & Extent of surety’s
liability
Secondary in nature
Contingent
Immediate in nature
Co- extensive
Surety may limit his liability
Liability in continuing guarantee
In case of void agreement,
surety will still be liable. E.g.
surety for agreement by a
minor.
14. RIGHTS OF SURETY
Right against the principal
debtor
Right of SUBROGATION
Right of INDEMNITY
15. RIGHTS OF SURETY
Right against the Creditor
Right to Claim Securities
Right of set off
Right to share reduction
Right to demand termination of
employee (fedelity insurance)
16. RIGHTS OF SURETY
Right of contribution against
Co- Sureties
Guarantee for equal amount:
Equal Contribution
Guarantee for different
amounts:
Burden of default to be shared
equally up to respective
amount of guarantee.
18. DISCHARGE OF SURETY
By conduct of creditor
By variation in the terms
Release or discharge of debtor
Compounding with principal
debtor
Impairing Surety’s remedy
By loss of security
19. DISCHARGE OF SURETY
By Invalidation of Contract of
Guarantee
Guarantee obtained by
misrepresentation
By concealment
Failure of Consideration
Failure of Co-Surety to join