Short Notes of the whole topic of Indemnity and Guarantee.

1. Business Law presentation on:
INDEMNITY
AND
GUARANTEE

2. INDEMNITY
Definition: SEC. 124-
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”.

3. INDEMNITY
Features
 TWO parties- Indemnity holder
Indemnifier
 Sec. 10- essentials should be satisfied
 All insurance contracts are
contracts of indemnity except life
insurance.

4. INDEMNITY
Rights of Indemnity
Holder:
o To claim damages
o To claim costs
o Other payments

5. INDEMNITY
When does liability of
Indemnifier arise?
Bombay & Madras High Courts:
Only when loss Arises
Calcutta, Allahabad, Patna &
Madras High Courts:
When loss is Likely to arise

6. GUARANTEE
Definition: 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 default.
E.g. Guarantee for credit sales

7. GUARANTEE
Parties to guarantee
Surety- Who gives Guarantee
Principal Debtor- For whom
guarantee is given
Creditor- To whom guarantee is
given

8. GUARANTEE
Features
 Valid Contract ( essentials of
Sec-10)
 Consideration for surety is loan
given by creditor.
 Liability arises immediately
when debtor makes default.

9. GUARANTEE
 Implied Indemnity
 Right Of Subrogation
 Disclosure of Facts
 Form- Oral or Written
 Existence of Principal Debt.

10. Difference b/w Indemnity &
Guarantee
Basis Indemnity Guarantee
Meaning 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”.
A “Contract of
Guarantee” is
a contract to
perform the
promise, or
discharge the
liability, of a
third person
in case of his
default.
Section 124 126

11. Difference b/w Indemnity &
Guarantee
Basis Indemnity Guarantee
Object Compensation of
loss
Relief to Debtor
Existence of
Liability
Not necessary Necessary
Interest No real interest Real interest for
surety
Consideration Consideration is
present
No consideration
for surety or
SUFFICIENT
consideration
for surety in the
form of loan
given to the
debtor.

12. KINDS OF GUARANTEE
 Perspective
 Retrospective
 Specific
 Continuing

13. Revocation of Continuing
Guarantee
By notice
By Death of Surety
By other modes :
Alteration without consent
Novation
Discharge of Debtor

14. Nature & Extent of surety’s
liability
Secondary in nature
Contingent
Immediate in nature
Co- extensive
Surety may limit his liability
Liability in continuing guarantee
In case of void agreement,
surety will still be liable. E.g.
surety for agreement by a
minor.

15. RIGHTS OF SURETY
Right against the principal
debtor
 Right of SUBROGATION
 Right of INDEMNITY

16. RIGHTS OF SURETY
Right against the Creditor
 Right to Claim Securities
 Right of set off
 Right to share reduction
 Right to demand termination of
employee (fedelity insurance)

17. RIGHTS OF SURETY
Right of contribution against
Co- Sureties
 Guarantee for equal amount:
Equal Contribution
 Guarantee for different
amounts:
Burden of default to be shared
equally up to respective
amount of guarantee.

18. DISCHARGE OF SURETY
By Revocation
By notice
By death of surety
By novation

19. DISCHARGE OF SURETY
By conduct of creditor
By variation in the terms
Release or discharge of debtor
Compounding with principal
debtor
Impairing Surety’s remedy
By loss of security

20. DISCHARGE OF SURETY
By Invalidation of Contract of
Guarantee
Guarantee obtained by
misrepresentation
By concealment
Failure of Consideration
Failure of Co-Surety to join

21. THANK
YOU!!
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