Indemnity and Guarantee Contract

Indemnity Contract: A contract where one party promises to save the other
from any loss caused to him by the conduct of promissor himself or any other
person is called contract of indemnity, (Section 124) Indian Contract Act, 1872.
Indemnity contract includes two parties namely; Indemnifier and Indemnity
holder. The person who is promising to pay compensation is called Indemnifier
and the person who`s loss is compensated is called Indemnity holder.

Example: There is a contract between X and Y according to which X has to

Sell a tape recorder (which is selected) to Y after three months. On the next day of
their contract Z has come to X and has insisted on selling the same tape recorder
to him (Z). Here Z is promising to compensate X for any loss faced by X, due to
selling the tape recorder to Z. X has agreed. Now the contract which has got
formed between X and Z is called indemnity contract, where Z is indemnifier and
X is indemnity holder.
Guarantee Contract: A contract to perform the obligation or to discharge the
liability of a third party in case of its default is called contract of guarantee,
(Section 126) Indian Contract Act, 1872.
Guarantee contract includes three parties namely; Creditor, Principal Debtor and
Surety. The person who is granting the loan, the person who is utilizing the
amount of loan is principal debtor and the person who is giving guarantee is
called surety or guarantor or favored debtor. In case of guarantee contract there
will be two types of liabilities namely; Primary liability and secondary liability.
Primary liability will be with principal debtor and Secondary liability goes to
surety.

Example: Y is in need of Rs. 10000/-. Upon guarantee by Z, Y has got the

amount from X. Here X, Y and Z are creditor, principal debtor and surety
respectively.

Definition of Condition

Certain terms, obligations and provisions are imposed by the buyer and
seller while entering into a contract of sale, which needs to be satisfied,
which are commonly known as Conditons. The conditions are
indispensable to the objective of the contract. There are two types of
conditions, in a contract of sale which are:
Expressed Condition: The conditions which are clearly defined
and agreed upon by the parties while entering into the contract.
Implied Condition: The conditions which are not expressly
provided, but as per law, some conditions are supposed to be
present at the time making the contract. However, these conditions
can be waived off through express agreement. Some examples of
implied conditions are:
o Condition relating to title of goods.
o Condition with respect to the quality and fitness of the goods.
o Condition as to wholesomeness.
o Sale by sample
o Sale by description.
Definition of Warranty

A warranty is a guarantee given by the seller to the buyer about the

quality, fitness and performance of the product. It is an assurance
provided by the manufacturer to the customer that the said facts about
the goods are true and at its best. Many times, if the warranty given,

proves false and the product does not function as described by the seller
then remedies like a return or exchange are also available to the buyer
i.e. as stated in the contract.
A warranty can be for lifetime or for a limited period. It may be either
expressed, i.e., which is specifically defined or implied, which is not
explicitly provided, but arises according to the nature of sale like:
Warranty related to undisturbed possession of the buyer.
Warranty that the goods are free from any charge.
Disclosure of harmful nature of goods.
Warranty as to quality and fitness

BASIS FOR

MEMORANDUM OF

ARTICLES OF

COMPARISON

ASSOCIATION

ASSOCIATION

Meaning

Memorandum of Association

Articles of Association

is a document that contains all

is a document

the fundamental information

containing all the rules

which are required for the

and regulations that

incorporation of the company.

governs the company.

Defined in

Section 2 (28)

Section 2 (2)

Type of

Powers and objects of the

Rules of the company.

Information

company.

contained
Status

It is subordinate to the

It is subordinate to the

Companies Act.

memorandum.

Retrospective

The memorandum of

The articles of

Effect

association of the company

association can be

cannot be amended

amended

retrospectively.

retrospectively.

BASIS FOR

MEMORANDUM OF

ARTICLES OF

COMPARISON

ASSOCIATION

ASSOCIATION

Major contents

A memorandum must contain

The articles can be

six clauses.

drafted as per the

choice of the company.

Obligatory

Yes, for all companies.

A public company
limited by shares can
adopt Table A in place
of articles.

Compulsory filing

Required

Not required at all.

Alteration can be done, after

Alteration can be don

passing Special Resolution

in the Articles by

(SR) in Annual General

passing Special

Meeting (AGM) and previous

Resolution (SR) at

approval of Central

Annual General

Government (CG) or Company

Meeting (AGM)

at the time of
Registration
Alteration

Law Board (CLB) is required.