By Ruchika Sharma

 According to the definition given by Halsbury,

the term “indemnity” is a contract that expressly
or impliedly protects a person who entered into a
contract or is about to enter from any losses,
irrespective of the fact that those losses were due
to the actions of a third party. As mentioned
above, the word indemnity is derived from the
Latin word “indemnis”, which means freedom
from loss. According to Longman’s dictionary, it
is protection against any kind of loss, expense,
etc., in the form of a promise to pay for those
losses.
 A promises to indemnify B if his car is
damaged in an accident. B met with a minor
accident in which he did not suffer any injury,
but his car was damaged completely. Here, A
is obliged to indemnify B for the damage.
 A asks B to invest money in C’s business and
contract to indemnify him if he suffers any
loss. B suffered a loss of Rs 1,00,000/-.
According to the contract of indemnity
entered into by A and B, A must indemnify
the damages and other costs to B.
1. Express or Implied :
The courts view that a contract of indemnity
may either express or implied. Implied
contracts are inferred from the circumstances
of the case or from the conduct of the parties.
 There must be a loss.
 The loss must be caused either by promisor
or by any other person.
 There are two parties :

I) Indemnifier
II) Indemnity – holder
 Must contain all the essentials of valid
contract.
 It is enforceable only when the loss occurs.
1. Right to recover damages:
the indemnity holder is entitled to recover all
damages which he may be compelled to pay in
any suit in respect of any matter covered by
the contract of indemnity. (Sec 125)
2. Right to recover costs:
He is also entitled to recover all costs which he
may be compelled to pay in bringing or
defending the suit for indemnity.
He is also entitled to recover all the sums
which he may have paid under the terms of any
compromise of any such suit.
Introduction

 A contract of guarantee is governed by the Indian Contract

Act,1872 and includes 3 parties in which one of the parties
acts as the surety in case the defaulting party fails to fulfill
his obligations. Contracts of guarantee are mostly required in
cases when a party requires a loan, goods or employment.
The guarantor in such contracts assures the creditor that the
person in need may be trusted and in case of any default, he
shall undertake the responsibility to pay. Thus we can say
contract of guarantee is invisible security given to the
creditor.
 Section 126 of the Indian contract act defines
a contract of guarantee as a contract to
perform the promise or discharge the liability
of the defaulting party in case he fails to
fulfill his promise.
 Principal Debtor – The one who borrows or is
liable to pay and on whose default the
guarantee is given.
 Creditor – The party who has given
something of value to borrow and stands to
receive the payment for such a thing and to
whom the guarantee is given.
 Surety/Guarantor – The person who gives the
guarantee to pay in case of default of the
principal debtor.
 Radhika advances a loan of INR 20000 to
Pallav. Srishti who is the boss of Radhika
promises that in case Pallav fails to repay the
loan, then she will repay the same. In this
case of a contract of guarantee, Radhika is
the Creditor, Pallav the principal debtor and
Srishti is the Surety.