Question 2 (b)
Indemnity and guarantee distinguished
6 marks
- Time to write
- About 12 minutes
- Notes
- Crux notes
Question
Question 2 (b) · 6 marksDifferentiate between indemnity and guarantee.
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- Differentiate betweenSet the differences out in a table, basis by basis, not as two separate essays.
Write it in this order
- Read; underline the asks; jot your points 1 min
- 1 Parties, nature and time of liability, request 3 marks 5 min
- 2 Right against third parties, purpose, competency; conclusion 3 marks 5 min
- Check: every ask answered, key terms underlined 1 min
Short on time? Trim steps 1 and 2 evenly rather than skip one: each is capped at its own marks.
Try it first. About 12 minutes for 6 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
A contract of Indemnity is one by which one party promises to save the other from loss; a contract of Guarantee is one “to perform the promise, or discharge the liability, of a third person in case of his default” (s. 126). They differ as follows:
1Rain ruins the stored crates; the godown keeper pays Dinesh for the loss himself, as promised.
IndemnityThe promisor undertakes to make good a loss the promisee may suffer.
2Three people now: the borrower comes up empty, and his surety steps forward to answer for him.
GuaranteeThe promisor (the surety) undertakes to answer for a third person, the principal debtor, if that person fails to pay or perform what he owes to the creditor.
| Point of distinction | Contract of Indemnity | Contract of Guarantee |
|---|---|---|
| Number of parties | Two: the indemnifier (promisor) and the indemnified (promisee) | Three: the creditor, the principal debtor and the surety |
| Nature of liability | The indemnifier's liability is primary and unconditional | The surety's liability is secondary and conditional, the primary liability being the principal debtor's |
| Time of liability | Arises only on the happening of a contingency | Arises only on non-performance of an existing promise or non-payment of an existing debt |
| Request | The indemnifier need not act at the request of the indemnity holder | The surety acts at the request of the principal debtor |
| Right against a third party | The indemnifier cannot sue a third party in his own name, there being no privity, unless the right is assigned to him | The surety, on discharging the debt, gets all the creditor's rights against the principal debtor |
| Purpose | Reimbursement of loss | Security for the creditor |
| Competency to contract | All parties must be competent | Valid even where the principal debtor is a minor |
Conclusion. Indemnity is a two-party, primary undertaking against loss; guarantee is a three-party, secondary undertaking that secures a creditor against a debtor's default.
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Parties, nature and time of liability, request | 3 |
| 2 | Right against third parties, purpose, competency; conclusion | 3 |
| Total | 6 |
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