Contracts of

Indemnity &
Guarantee
 Contracts of indemnity
 Acc. To sec. 124 of Indian contract act—A
Contract by which one party promises to save the
another from losses caused to him by the conduct of the
promisor himself or by the conduct of any other person ,
it is called a contract of indemnity.
 The person who promises to protect another---
indemnifier.
 The person who is so protected is –indemnity-
holder.
 Essentials of contracts of
indemnity.
1. Essentials of a valid contract.
2.Indemnifier promises to save indemnity holder from the
loss caused to him by the conduct of the promisor , or
by the conduct of any other person.
3.Contract may be expressed or implied.
4.Liability of indemnifier commences when the indemnifier
suffers some loss according to the terms and
conditions of the contract.
5. Contracts of insurance are also covered in this.
 Rights of indemnity holder
Section 125 states rights ---
1. Claim for damages.-SEC 125(1)
2. Claim for cost of suit.-sec125(2)
3. Recovery of sums paid under conditions
of compromise.-sec125(3)
 Rights of indemnifier
 Rights under doctrine of subrogation.
 To sue against third party after
indemnifying the indemnity holder.
 Not to compensate for losses not covered
under con. Of indemnity.
 Contracts of guarantee
 Acc. To sec. 126 of I.C.Act-A contact of
guarantee is a contract to perform the
promise or discharge the liability of a third
person in case of default.
 PARTIES—surety, principal debtor,&
creditor.
 Essentials of C. OF G.
 Three parties.
 Three contracts.
 Secondary liability of surety.
 Existence of principal debt—enforceability by
law.
 Consideration-no need for separate
consideration.
 No misrepresentation or concealment.
 Contractual capacity of parties.
 Rights of surety
 Rights against debtor-  Rights against
 Right of subrogation. creditor-
 Right to be  Right to securities.
indemnified.  Right to get
information about
debtor’s conduct.
 Right to set off-if he
has to settle his own
amt. from creditor.
 Rights against co-surities-
 Right to claim contribution—
 IN CASE OF CO-SURITIES OF EQUAL AMT.
 IN CASE OF CO-SURITIES FOR
DIFFERENT SUMS.
 IN CASE OF DISCHARGED CO-SURETY.
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