What is the main distinction between a contract of indemnity and a contract of guarantee?

Indemnity compensates losses; guarantee ensures obligations.

• Indemnity covers direct losses.

• Guarantee involves a third party.

• Indemnity requires no default.

Fill in the blank: The liability of a surety is ___ in nature, meaning they are only responsible when the principal debtor defaults.

Secondary

In the context of indemnity, what are the rights of an indemnity-holder when sued?

Indemnity-holder's rights include recovery.

• Recover damages from suits.

• Cover costs of defense.

• Reimbursements for compromises.

True or False: A contract of indemnity can cover losses caused by natural disasters.

False. A contract of indemnity only covers losses caused by the conduct of the promisor or another person, not by accidents or acts of God.

What is meant by the term 'continuing guarantee'?

A continuing guarantee extends to a series of transactions, maintaining the surety's liability until the guarantee is revoked.

Riddle: I promise to pay if you cannot, but my obligation only arises when you fail. What am I?

A surety in a contract of guarantee.

Explain the concept of 'right of subrogation' for a surety.

Right of subrogation explained.

• Allows surety to recover funds.

• Surety steps into creditor's shoes.

• Ensures accountability of principal debtor.

Fill in the blank: A contract of guarantee is a ___ agreement involving three parties: the principal debtor, the creditor, and the surety.

Tripartite

What happens to a surety's liability if the creditor varies the terms of the contract without the surety's consent?

The surety is discharged from liability for all subsequent transactions after the variation.

What are the essential requirements for a valid contract of guarantee?

A valid contract of guarantee requires a recoverable debt, consideration, an existing liability, and the absence of misrepresentation or concealment.

True or False: A guarantee can be valid even if there is no consideration for the surety.

False. A guarantee must be supported by consideration, which can be the consideration provided to the principal debtor.

What is the role of the indemnifier in a contract of indemnity?

Indemnifier compensates for losses.

• Promises to pay for losses.

• Protects against third-party actions.

• Ensures financial security in contracts.

Fill in the blank: A contract of guarantee may be either ___ or implied based on the circumstances surrounding the agreement.

Express

What does Section 130 of the Indian Contract Act state about the revocation of a continuing guarantee?

Section 130 states that a continuing guarantee can be revoked by notice, and the surety is not liable for transactions made after the notice is given.

What are the essential elements that define a contract of indemnity under the Indian Contract Act, 1872?

A contract of indemnity has essential elements.

• Involves two parties: indemnifier and indemnified.

• Covers losses from the promisor's actions.

• Excludes losses from accidents or acts of God.