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

Under the Indian Contract Act, 1872, a contract by which one party 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, is called a:

It is a contract of indemnity. Section 124 describes it as a contract in which one party promises to save the other from loss caused by the promisor's own conduct or by the conduct of any other person. It is not a guarantee, which concerns a third person's default.

  1. AContract of guarantee
  2. BContract of indemnityCorrect
  3. CContract of pledge
  4. DContingent contract

Explanation

Section 124 defines a contract of indemnity as a promise to save the other party from loss caused by the promisor's own conduct or by the conduct of any other person. A guarantee under Section 126 is different: it is a promise to perform the obligation or discharge the liability of a third person on his default.

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