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CMA Foundation · Fundamentals of Business Laws and Business Communication · Meaning of Indemnity, Guarantee, Pledge, Agent

Arjun promises to indemnify Bhavna against any loss she may suffer if Chetan takes proceedings against her regarding a sum of Rs 200. Which of the following is true?

It is a contract of indemnity. Arjun promises to save Bhavna from the consequences of proceedings that Chetan may take against her. This matches the illustration to Section 124. Arjun is not undertaking Chetan's liability on default, so it is not a guarantee.

  1. AThe promise is a contract of guarantee because Chetan is a third person and may default
  2. BThe promise is void because indemnity can only protect against the promisor's own conduct
  3. CThe promise is a contract of indemnity, since Arjun promises to save Bhavna from the consequences of proceedings that another person may takeCorrect
  4. DThe promise is a contingent guarantee that is valid only if Chetan joins as co-surety

Explanation

This mirrors the illustration to Section 124: A indemnifies B against consequences of proceedings which C may take regarding Rs 200, and that is a contract of indemnity. Arjun is not promising to perform Chetan's liability on Chetan's default, so it is not a guarantee under Section 126. The co-surety rule in Section 144 is irrelevant here.

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