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  1. Indian Contract Act Sns 124 to 181

​1. a) Contract of Indemnity Sns. 124,125 b) Contract of Guarantee Sns. 126,127 2. Surety's Liability Sn. 128. Continuing Guarantee, Revocation, Discharge of SuretyCo-sureties-Sns. 129 to 147. 3. Bailment-Bailer-Bailee. Lien-Pledge-Pawnor-Pawnee Sns. 141 to 181.

​Chapters list

1. Indemnity & Guarantee

1. Contract of Indemnity

2. Comparison

3. Rights of Indemnity Holder

4. Continuing Guarantee.

2. Bailment and Pledge

1. Bailment

2. Finder of goods

3. Pledge

4. Pledge by non-owner

5. Lien

6. Bailor's duties

3. Discharge of surety

1. Discharge

2. Rights of surety

3.Co- Sureties


The term ‘Indemnity` Simply means ‘Making Somebody Safe` or ‘Paying Somebody back`. Section 124 of contract Act defines that ‘‘A contract by which one party. Promises to save the other from loss caused to him by the conduct of the promise himself by the conduct of any other person, is called a conduct of indemnity”. The party who gives indemnity or who promises to compensate for or to make good the loss, is called. Indemnifier and the party for whose protection or safety the indemnity is given or the party whose loss is made good is called ‘Indemnified’ or ‘indemnity holder’.

Important features of an indemnity contract –

Rights of Indemnified (Indemnity-Holder)

​Liabilities/Duties of Indemnified

​1. Rights to claim for all damages/losses. 2. Rights to claim for all costs which is related to contract. 3. Rights to claim for all sums which his may have paid for the contract.

1. Liabilities to pay all damages/losses. 2. Liabilities to pay all costs related to the contract. 3. Liabilities to pay all sum which is received by sell for contract from indemnified.

Contract of Indemnity : (Sn. 124)

It is a contract by which one party (promisor) 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. A contract to indemnify B, against the consequences of any proceedings which C may take against B in respect of a claim of Rs. 12,000/-. A is the indemnifier; B is indemnified in respect of the consequence of the suit.

Contract of Guarantee : (Sn. 126)

The object of the contract of guarantee is to enable. A person to obtain employment, or a loan, or some goods or service on credit. It is a contract to perform the promise or discharge the liability of a third person in case of his default. The guarantee is given by the surety to the creditor in respect of the principal debtor. S becomes a surety to A (seller) in respect of goods given on credit to B. B fails to pay, S becomes liable.

According to section 126 of the contract Act ‘‘A contract of guarantee is a contract to perform The person who gives the guarantee is called the ‘Surety’ or ‘guarantor’ & the person in respect of whose default the guarantee is given is called the principal debtor or he is the party on whose behalf. Guarantee is given and the person to whom the guarantee is given is called the ‘Creditor’.

The essentials of a guarantee are

Essential features of a Guarantee Contract

1. Three parties

2. Three agreement

3. Concurrence of the three parties

4. Control may be experts or implies

5. It may be oral or written

6. Liability of surety is secondary is dependent on principal debtor’s default.

7. Guarantee must be in the knowledge of debtor.

8. All essential of a valid contract.

9. Guarantee must not be obtained by means of misrepresentation.

10. Existence of a primary liability

​Contract of Indemnity

​Contract of Guarantee

​1. There are two parties. (The Indemnifier and the person indemnified).

2. There is the direct and engagement

3. There is a direct liability, for eg., the Landlord to indemnify the tenant of the municipal taxes paid by the tenant on behalf of Land lord.

4. The promisee may recover from the promisor

a) All damages which he may be compelled to pay.

b) All costs

c) All sums paid under an authorized compromise.

1 There are three parties. (Creditor, Principal Debtor, and Surety).

2 There are 3 separate contracts. Contracts between Creditor & Principal Debtor, Creditor, and Surety, Principal debtor and


3 Surety becomes liable on the failure of the principal debtor. 4 Surety need not pay if the debt is barred by limitation. If the principal debtor is discharged, the security is also discharged.

Rights of the Indemnity holder : Sn. 125

The rights of the indemnified (Indemnity holder) when used are as follows. He is entitled to recover :

i) All damages which he is compelled to pay in the suit.

ii) All costs, he incurs, as a prudent man.

iii) All sums paid under any compromise reasonably made under authority.

Continuing Guarantee :

If the guarantee is for a single transaction, it is called a specific guarantee. A guarantee which extends to a series of transactions is called a 'Continuing Guarantee'. According to Sn. 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.

1. A in consideration that B will employ C in collecting the rents of B's lands, promises B, to be responsible up to Rs. 5,000/- This is a continuing guarantee.

2. B is tea-dealer. S stands as a surety to B for supply of tea to C from time to time for Rs. 10,000/- B supplies up to Rs.15,000/- S is liable only upto Rs.10,000"/-

3. S is surety to B for 5 bags of flour to be supplied to C. B supplied to C, 5 bags. Later he supplies 2 more bags. This is not a continuing guarantee. Ordinarily a guarantee is in respect of a particular transaction, whereas a continuing guarantee extends to a series of transactions. The intention of the parties is relevant to decide whether a continuing guarantee subsists.


1. Revocation: Revocation may be made at any time by the surety as to future transactions by notice to the creditor. In a contract of a continuing guarantee, there are a series of distinct and separate transactions; the consideration is divisible. The revocation can be made only when consideration is divisible, in respect of future transactions. However, if the consideration is indivisible, the surety cannot revoke.

This does not apply to a special contract which is entered into by a surety to an administration bond or to a surety bond given in case of a guardian of a minor's property. A in consideration of B's discounting at A's request, Bill of Exchange for C, guarantees to B for 12 months, the due payment of all such bills to the extent of Rs. 50,000/- B discounts Bill for C to the extent of Rs. 20,000/- Afterwards, at the end of 3 months, A revoke the guarantee.

This discharges A from all liability, but he is liable up to Rs.20,000/-

2. Death : The death of the surety operates as a revocation of a continuing guarantee, so far as regards future transactions. (This is subject to agreement). No notice of death is necessary. Revocation is effective on death. Where parties agree for a special notice of revocation on death of the surety, "the estate of the deceased becomes subject to the continuing guarantee.

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