This slide covers the Contract of Indemnity and Contract of Guarantee. What is a contract of Indemnity What is a contract of Guarantee Case studies Special types of contracts form legal aspects of management or business law. This slide is very useful for the students studying business law covering in-depth information.

1. SPECIAL CONTRACTS
Presented by
Ashmeet Singh
2K20/UMBA/08
Saransh Jain
2K20/UMBA/34
CONTRACTS OF
INDEMNITY AND
GUARANTEE

2. INDEMNITY
Meaning of

3. MEANING OF INDEMNITY
Indemnity means enact to compensate or protect
somebody from the loss or make good to the loss.
When one person promises to another person that in
case another person suffers from some loss the first
person will compensate the loss.

4. CONTRACT OF INDEMNITY
(Section 124)
A Contract by which one party promises to another to
save him 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

5. EXAMPLE
Contract of Indemnity

6. Parties to the Contract of Indemnity
?
The person who is so
protected
INDEMNITY-HOLDER/
INDEMNIFIED
The person who promises to
protect another
INDEMNIFIER

7. Essentials of Contract of
Indemnity
1Essentials of a Valid Contract.
Free consent,
consideration, lawful object,
competency of the parties etc.
2There must be a loss
There must be loss either by the
promisor’s conduct or by any
other person’s conduct
3Expressed or Implied
Contract may be expressed or
implied.

8. Essentials of Contract of
Indemnity
5Terms and Conditions
Liability of indemnifier commences
when the indemnified suffers some
loss according to the terms and
conditions of the contract.
4Contracts of Insurance
Covered
Contracts of Insurance are also
covered in this.
All Contracts of Insurance are
Contracts of Indemnity except
life insurance
6Contingent Nature
It is a Contingent Contract by
nature

9. RIGHTS OF
INDEMINITY HOLDER
(SEC 125)

10. Claim For Damage
Sec. 125(1)
All the damages that he may have been compelled to pay in any
suit in respect of any matter to which the promise of the
indemnifier applies.
For example, if A contracts to indemnify B against the
consequences of any proceedings which C may take against
B in respect of a particular transaction. If C does institute legal
proceeding against B in that matter and B pays damages to C
, A will be liable to make

11. Claim for Cost of Suit
Sec.125 (2)
All the costs of suits that he may have had to pay to the third
party provided he acted as a man of ordinary prudence and he
did not act in contravention of the directions of the indemnifier or
if he had acted under the authority of the indemnifier to contest
such a suit.

12. ADAMSON V. JARVIS (1827)
In the case of Adamson versus Jarvis, Adamson was an auctioneer who was given cattle by Jervis. Here, the
auctioneer was represented with the fact of principal that he was the real owner of the cattle as well as goods. The
auctioneer was unaware of the fact that the principal had no right to sell the goods.
The Judgement of this case was that Jervis
was ordered to pay damages to Adamson as
he did not told the true fact about his
ownership.
It was held that the defendant was libel for
loss of plaintiff and compel to compensate
him as per Section-125 of the 2nd rule
JUDGEMENT OF THE CASE
1. Whether all the damages that indemnity
holder have been compelled to pay in
any suit in respect of any matter to which
the promise if indemnifier applies?
2. Whether Adamson was entitled to pay
damages as he was completely unaware
of the fact that Jervis is not the real
owner?
ISSUES RAISED
01 02

13. Recovery of Sums paid under conditions
of compromise
Sec.125(3)
All the sums that he may have paid under the terms of any compromise
of any such suit provided such compromise is not contrary to the
indemnifier’s orders and was a prudent one or if he acted under
authority of the indemnifier to compromise the suit.
The indemnity holder is also entitled to losses due to change
of law not foreseen by the parties when they entered in such a
contract

14. RIGHTS OF INDEMNIFIER
• To sue against third party after indemnifying the indemnity
holder.
• Not to compensate for losses not covered under Contract
of Indemnity.
• Not Liable to pay if indemnity holder is acting against the
instructions of the other party (promisor).
• Not liable to pay if indemnity-holder is acting with the
intention of causing any loss or damage.

15. Osman Jamal & Sons v. Gopal (1728)
Plaintiff company agreed to act as commission agent for the defendant firm for purchase and sale of Hess
ian and Gunnies and charge commission on all such purchases and the defendant firm agreed to indemnif
y the plaintiff against all losses in respect of such transactions. The plaintiff company purchased certain
Hessian from one Maliram Ramjidas. The defendant firm failed to pay for or take delivery of the Hessi
an. Then Maliram Ramjidas resoled it at lesser price and claimed the difference as damages from the plain
tiff company.
1. It was decided in plantiff’s favor with
a direction that the amount when rec
overed from the defendant firm shou
ld be paid to Maliram Ramjidas.
2. "Indemnity is not necessarily given b
y repayment after payment. Indemni
ty requires that the party to be inde
mnified shall never be called upon to
pay."
JUDGEMENT OF THE CASE
1. The plaintiff filed a suit to recover the
amount claimed by Maliram from the
defendant firm under the indemnity.
2. The defendant argued that in as much as
the plaintiff had not yet paid any amount
to Maliram in respect of their liability they
were not entitled to maintain the suit
under indemnity.
ISSUES RAISED
01 02

16. CONTRACT OF
GUARANTEE

17. Contract of Guarantee
(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 def
ault. The person who gives the guarantee is known as the
‘Surety’, the person in respect of whom the guarantee is
given is known as the ‘Principal Debtor’, and the person to
whom the guarantee is given is called the ‘Creditor’.

18. Essential Features of
Guarantee

19. Tripartite Agreement
Concurrence of three Contracts: The Contracts connecting
each-other as contract between:
• the Principal Debtor and Creditor,
• the Creditor and Surety, and
• the Surety and Principal Debtor

20. Liability
Under such contract the primary liability is of
the principal debtor and only secondary
liability is of the surety.

21. It should be a Valid Contract:
Requirements for Valid Contract i.e. free consent,
consideration, lawful object, competency of the parties
etc. are necessary to form this kind of contract.
A guarantee may be either oral or written.

22. Types of Guarantee
Specific Guarantee:
When a guarantee extends to a single transaction or debt, it
is known as a Specific or Simple Guarantee
Continuing Guarantee:
When a guarantee extends to a series of transactions, it is
called Continuing Guarantee

23. Revocation of Continuing Guarantee
1. By Notice of Revocation
2. By Surety’s Death
3. By Novation
4. By alteration in the terms of contract.
5. Release or discharge of Principal Debtor.
6. Arrangement between Principal Debtor and Creditor.
7. Loss of Security.

24. Nature & Extent of Surety’s Liability
1. In General circumstances, the liability of surety arises only
in case of default of Principal Debtor so his liability is
secondary.
2. When Creditor recovers a part of his loan from property of
principal debtor.

25. Nature & Extent of Surety’s Liability
3. If due to some reasons the Principal Debtor cannot be held liable,
still surety can be held liable in following situations
• If Principal Debtor is a minor
• If Principal Debtor is declared insolvent.
• If liability of Principal Debtor has become time-barred.
• Moreover, in certain cases a surety can restrict or limit his liability if
he wants

26. TEST YOUR KNOWLEDGE
Indemnity Contract
and
Guarantee Contract

27. Number of Parties
Guarantee Contract
TWO PARTIES
Indemnifier and
Indemnity Holder
Indemnity Contract
THREE PARTIES
Creditor, Principal Debt
or and Surety

28. Number of Contracts
Guarantee Contract
Two parties
ONE CONTRACT
Indemnity Contract
Three parties
THREE CONTRACT

29. NATURE
Guarantee Contract
Two Parties and One
Contract, it can be
said that indemnity
contract is
SIMPLE in nature
Indemnity Contract
Three Parties and
Three Sub-Contracts
hence it is
COMPLEX in nature
.

30. LIABILITY
Guarantee Contract
ABSOLUTE LIABILITY
rests with Indemnifier
Indemnity Contract
PRIMARY
AND SECONDARY
LIABILITIES
which will be with
Principal Debtor and
Surety respectively

31. ANY
QUESTIONS?

32. THANK YOU