What is a contract of indemnity?
A contract where one party promises to save the other from loss caused by the promisor or others under Section 124.
Who is the indemnifier in a contract of indemnity?
The party who promises to compensate for the loss.
Who is the indemnity-holder in a contract of indemnity?
The party whose loss is to be made good.
Does a contract of indemnity cover loss caused by an accident without human conduct?
No, such loss is not covered under the statutory definition.
Can a contract of indemnity be implied?
Yes, it may be express or implied.
What must a contract of indemnity satisfy?
The essentials of a valid contract.
Are fire insurance and marine insurance contracts of indemnity?
Yes, both are contracts of indemnity.
Is life insurance a contract of indemnity?
No, life insurance is not a contract of indemnity.
What damages can an indemnity-holder recover when acting within authority?
All damages the holder is compelled to pay in a suit.
What costs may an indemnity-holder recover related to a suit?
All costs compelled to pay in bringing or defending the suit.
Can an indemnity-holder recover sums paid under a compromise of the suit?
Yes, the indemnity-holder may recover those sums.
When does the indemnifier’s liability begin according to the Act?
When the indemnity-holder’s liability becomes absolute and certain.
What is a contract of guarantee under Section 126 of the Indian Contract Act?
It is a contract to perform a third person's promise or discharge their liability on default.
Who gives the guarantee in a contract of guarantee?
The surety gives the guarantee.
Who is the principal debtor in a contract of guarantee?
The principal debtor is the person whose default is guaranteed.
Who is the creditor in a contract of guarantee?
The creditor is the person to whom the guarantee is given.
How many contracts are involved in a contract of guarantee?
Three contracts are involved in a contract of guarantee.
What are the three contracts in a contract of guarantee?
Principal contract, secondary contract, and implied indemnity contract.
Does a creditor’s refusal to sue the principal debtor affect the surety’s liability?
No, it does not affect the surety’s right or liability by itself.
What does a guarantee require to be valid?
A recoverable principal debt or an enforceable promise.
Is a time-barred liability legally enforceable as a guarantee?
No, it is not legally enforceable.
What is sufficient consideration for a surety's promise under Section 127?
Consideration received by the principal debtor.
When is a guarantee void due to incompetence?
When the surety is incompetent to contract.
Can a guarantee remain valid if the principal debtor is incompetent?
Yes, it may remain valid.
When is a guarantee invalid due to creditor's conduct?
If obtained by material misrepresentation or concealment of material circumstances.
What invalidates a guarantee related to co-surety participation?
Failure of a required co-surety to join.
How does a specific guarantee differ from a continuing guarantee?
A specific guarantee covers one debt and ends when discharged; a continuing guarantee covers a series until revoked.
How many parties are involved in an indemnity?
Two parties are involved in an indemnity.
How many parties are involved in a guarantee?
Three parties are involved in a guarantee.
What type of liability does the indemnifier have?
The indemnifier has primary and unconditional liability.
What type of liability does the surety have?
The surety has secondary liability conditional on the principal debtor's default.
What does indemnity reimburse?
Indemnity reimburses loss.
What does a guarantee secure the creditor against?
A guarantee secures the creditor against non-performance or non-payment by the principal debtor.
Why can a surety proceed against the principal debtor after payment?
Because the surety obtains the creditor's rights.
Can an indemnifier sue a third party without an assignment?
No, an indemnifier cannot sue a third party without an assignment.
Under Section 128, how does surety’s liability compare to principal debtor’s liability?
It is co-extensive with the principal debtor’s liability unless the contract states otherwise.
Why is the surety’s liability considered secondary?
Because it arises only when the principal debtor defaults.
Can a creditor proceed against the surety before the principal debtor?
Yes, unless the parties agreed otherwise.
What happens to surety’s liability if the principal debtor cannot be held liable due to a document defect?
The surety’s liability also ceases.
What is a surety guaranteeing a bill of exchange liable for?
The bill amount plus interest and charges due after dishonour.
How can a continuing guarantee be revoked by the surety?
By the surety’s notice to the creditor as to future transactions.
Does a surety remain liable for transactions before revocation notice?
Yes, the surety remains liable for transactions before the notice.
What effect does a surety's death have on a continuing guarantee?
It revokes the guarantee for future transactions unless contract states otherwise.
Is the surety’s estate liable for transactions before the surety’s death?
Yes, the estate remains liable for prior transactions.
When is a surety discharged by novation?
When a fresh contract replaces and mutually discharges the original contract.
Under what condition can a specific guarantee be revoked?
Only if liability to the principal debtor has not accrued.
What happens if contract terms vary without surety's consent?
The surety is discharged for transactions after the variance.
When is a surety discharged due to creditor's release of principal debtor?
When the creditor discharges the principal debtor by contract or act with legal effect.
What discharges the surety if the creditor promises to give time to the principal debtor?
A creditor’s promise to give time discharges the surety unless the surety agrees.
Does a creditor's agreement with a third person to give time discharge the surety?
No, it does not discharge the surety.
Does mere forbearance to sue discharge the surety?
No, mere forbearance to sue does not discharge the surety.
What effect does a creditor's act impairing surety's remedy have?
It discharges the surety to the extent affected.
When is a guarantee considered invalid due to misrepresentation?
When obtained through material misrepresentation or concealment of material facts.
Why is a guarantee invalid if a co-surety condition is unmet?
Because requiring a co-surety who does not join invalidates the guarantee.
What right does a surety gain after paying the debtor's liability?
The surety is subrogated to every right the creditor had against the principal debtor.
What promise does the principal debtor have towards the surety?
An implied promise to indemnify the surety for sums rightfully paid under the guarantee.
Can the surety recover sums paid wrongfully under the guarantee?
No, the surety may not recover sums paid wrongfully.
What happens if the creditor loses or surrenders security against the principal debtor?
The surety is discharged to the value of the lost or surrendered security.
What rights can the surety claim related to the principal debtor's set-off?
The surety may claim the principal debtor’s set-off against the creditor.
Who are co-sureties?
Two or more persons who guarantee the same debt or duty.
How must co-sureties contribute if not otherwise agreed?
They must contribute equally toward the whole debt or unpaid part of it.
How do co-sureties bound in different sums contribute?
They contribute equally only within their respective maximum limits.
Test your knowledge with 28 questions on Contracts of Indemnity and Guarantee.
1. Which situation falls within the statutory definition of a contract of indemnity?
2. In a contract of indemnity, who is responsible for promising compensation, and who receives protection against the loss?
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