Question 5 (a)
Indemnity and guarantee distinguished
6 marks
- Time to write
- About 12 minutes
- Notes
- Crux notes
Question
Question 5 (a) · 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.
What the paper leaves open
Only a combined mark of 18 is printed for parts (a) to (c); each part is reckoned here at 6 marks (inferred).
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.
Both contracts protect one person against a loss, but they work differently. In an Indemnity (s. 124 of the Indian Contract Act, 1872), the promisor undertakes to make good a loss the promisee may suffer, whether that loss flows from the promisor's own conduct or from someone else's. In a Guarantee (s. 126), the 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.
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.
Example. A shipping firm promises a warehouse owner to cover any loss if a tenant's goods catch fire: that is an indemnity. A company director writes to a landlord, "If our firm does not pay the rent for this warehouse, I will": that is a guarantee.
| Basis | Indemnity | Guarantee |
|---|---|---|
| What it secures | Compensation for a possible loss | Payment or performance owed by a debtor |
| Who is involved | Two persons: indemnifier and indemnity-holder | Three: surety, principal debtor and creditor |
| When liability arises | When the loss covered by the promise occurs | Only when the principal debtor defaults |
| Whose liability comes first | The indemnifier's own, primary liability | The debtor's; the surety's liability is secondary |
| After paying | The indemnifier has no right in his own name against a third party unless it is assigned to him | The surety steps into the creditor's shoes against the principal debtor (s. 140) |
| Debtor's request | Not needed | The surety normally acts at the principal debtor's request |
| Capacity | Both parties must be competent to contract | The guarantee can stand even where the principal debtor is a minor |
Conclusion. An indemnity is a direct, two-party promise against loss; a guarantee is a three-party arrangement in which the surety backs another person's debt and, after paying, can recover from that person.
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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