Rough Draft Submission for Project Work of Law of Contract for

3rd Semester, Session 2020-21

TOPIC: INDEMNITY AND GUARANTEE

NAME: SHUBAM PANDEY

ROLL NO.: 19OO3

GROUP NO.: 1

SEMESTER: 3

1. INTRODUCTION
Indemnity and Guarantee are both closely related and often confused concepts. Parties rarely
stop to consider whether they should be seeking a guarantee from the third party or both
guarantee and indemnity, or even realize that there is a distinction between the respective
obligations. In general an indemnity creates a primary obligation and a guarantee creates a
secondary obligation. The contract of indemnity is for compensating the loss suffered by one
person, either by the person causing the loss or a third party. Whereas, guarantee is a contract
to perform the promise or discharge the liability of a third person, in case of his/her default.
Unlike guarantee under indemnity, there is no direct right of action on the original contract to
the person whose conduct has caused loss. The indemnity holder can only sue in the name of
the promisee.

2. CONTRACT OF INDEMNITY AND GUARANTEE

I. CONTRACT OF INDEMNITY

Section 124 in the Indian Contract Act, 1872 encapsulates the concept of Indemnity: 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.‟ Illustration: 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.

II. CONTRACT OF GUARANTEE:

Section 126 in the Indian Contract Act, 1872 encapsulates the concepts of „guarantee‟,
„surety‟, Principal-debtor‟, and „creditor‟ as follows:

A contract of guarantee is a contract to perform the promise or to discharge the liability of a

third person in case of his default. The person who gives the guarantee is called the „surety‟;
the person in respect of whose default the guarantee is called the „principle-debtor‟, and the
person to whom the guarantee is given is called the „creditor‟. A guarantee may be oral or
written.

3. DISTINCTION BETWEEN INDEMNITY AND GUARANTEE

The term „indemnity‟ is used to denote a contract by which the promisor undertakes an
original and independent obligation to indemnify, as distinct from a collateral contract in the
nature of a guarantee by which the promisor undertakes to answer for the default of another
person who is to be primarily liable to the promise.

While a guarantee is a tripartite contract between three persons: the principal-debtor, creditor
and surety, a contract of indemnity is bilateral.

4. CASE LAWS

5. CONCLUSION

6. BIBLIOGRAPHY