Contracts – II

(SOL5A305)

Assignment on

Contract of Indemnity
vs
Contract of Guarantee

Submitted to: Submitted by:

Dr. Ritu Gupta Sairamvinay Godithi

Associate Professor 122033101002
Gitam School of Law Semester – III
BALLB (Hons.)
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 Declaration

I hereby declare that the project on “Contract of Indemnity vs Contract of

Guarantee” is being submitted by me in the partial fulfilment of the requirement for
my academic study of BALLB (HONS) 3rd semester.

The matter contained in this project report has not been submitted to any other
University or Institution for the award of degree. This project is my unique work and it
has not been presented earlier in any manner. This information is purely academic
interest.

Date
20 October 2021.
Signature
Sairamvinay Godithi
122033101002
BaLLB
Gitam School of Law.

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 Acknowledgment
The accomplishment of this project is only possible by the kind support and guidance
of many individuals. I express my truthful thanks to all of them.

It is my greatest pleasure to thank Prof. R. Anita Rao, Director GITAM school of law,
Visakhapatnam, for allowing us to do this project work.
I would express my respect and thanks to my professor Dr. Ritu Gupta for her guidance
and relentless supervision as well as for providing proper information regarding the
project and also for his support in completing this project.

With Gratitude
Sairamvinay Godithi.

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 Introduction:
Every individual in the modern globalised world will certainly encounter some or the other
forms of contract in their day-to-day life.

For example, we enter into a contract in many ways, like buying of goods from a shopkeeper,
making transaction with the banks, procurement and trade of land, using public transport, etc.

In most of the above transactions, individuals tend to enter into a contract that they are unaware
of. Therefore, it is important to know what contract in true sense is. .

Contract:
There are several essential processes that make-up a contract. They are:

• When one person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
Invitation proposal - Section 2(a), The Indian Contract Act, 1872.
to offer

• When the party to whom the proposal is made signifies his consent through expressed or
implies means to the offeror, is said to have accepted the offer. An accepted proposal is called a
Acceptance Promise - Section 2(b), The Indian Contract Act 1872.

• When the promisee or any other person at the desire of the promisor has done, or abstained
from doing, does or abstains from doing, promises to do, or abstain from doing, something,
such act or abstinence or promise is called a consideration for the promise - Section 2(d), The
Consideration
Indian Contract Act, 1872.

• Every promise and every set of promises, forming the consideration for each other, is an
agreement - Section 2(e), The Indian Contract Act, 1872.
Agreement

• An agreement enforceable by law is a contract - Section 2(h), The Indian Contract Act,
1872.
Contract

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Contract of Indemnity:
Indemnity in general sense can be termed as a protection against the loss of something –
commonly in way of a promise to pay or to pay for the loss of goods, etc.

“Indemnity” is a widespread expression used not only in a contractual context. It can be defined
as “[a] duty to make good any loss, damage or liability incurred by another,” or alternatively
“the right of an injured party to claim compensation for its loss, damage or liability from an
individual who has such duty.”1

The concept of indemnity was established under common law in Adamson v Jarvis Case2.

The plaintiff, who is an auctioneer, on the instruction of the defendant has sold certain amount
of cattle. It then seemed out that the cattle were not of defendants, but they were actually owned
by another person. The actual owner of the livestock made the auctioneer liable and the
auctioneer in turn sued the defendant for the loss he suffered by acting on the defendant’s
direction. The court established that the plaintiff having acted on the direction of the defendant
was authorized to accept that, if, what he did turned out to be unlawful, he would be
indemnified by the defendant.

The Indian Contract Act defined the ‘contract of indemnity’ as,

“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 3.”

Illustration

A and B enters into a contract where A agrees to deliver B goods worth rs2000 every month.
C, then promises to indemnify B for any loss that occurs if A fails to deliver the goods.

In the above illustration, C is called as the ‘indemnifier’, and B is known as ‘indemnified’ or

‘indemnity-holder’.

Nature of Contract of Indemnity:

1
Black’s Law Dictionary
2
[1827] 4 Bing. 66
3
Section 124, The Indian Contract Act, 1872

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There are several variations as regard to the purview of indemnity contract under English Law
and the Indian Law. Under English Law, the term ‘indemnity’ has a wider conception than
compared to the Indian Law. English Law includes also a contract to save the promisee from a
loss, whether it is caused by a human agency or any other natural incident like fire. Contract of
Indemnity under the common law also includes the contract of insurance (except to the life
insurance).

Unlike above, under Indian law, section 124 only includes those losses that has been caused by
the indemnifier or any other person, but not the losses occurred due to natural causes. Thus,
the definition of contract of indemnity under the Indian Contract Act is restricted to cases in
which there is a promise to indemnify against the losses that are caused by,

(i) the promisor himself,

(ii) any other person.

Hence, as held in the case of Gajanan Moreshwar Parelkar v Moreshwar Madan Mantri 4,
section 124 of the act, only deals with a particular kind of indemnity which has aroused from
the promise that has been made by the indemnifier to save the indemnified from various losses
caused to him either by the actions/conduct of the indemnifier himself, or by the
actions/conduct of any other person, or by reason of liability incurred by something done by
the indemnified at the request of the indemnifier.

Therefore, Indemnity under the Indian Contract Act does not include in it the contracts of
insurance.

Rights of Indemnity – holder:

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(1942) 44 BOMLR 703