Contract of Indemnity and Guarantee

Kitatta Abdul- Islamic University In Uganda- LLB I-Law of Contract I – Contract Of Guarantee And Indemnity.
ISLAMIC UNIVERSITY IN UGANDA-KAMPALA CAMPUS
LLB I
LAW OF CONTRACT I
CONTRACT OF GUARANTEE AND INDEMNITY
1) CONTRACT OF INDEMNITY
For definition see S. 68 Contracts Act No. 7 of 2010.
Refer to Ss. 68, 69 & 85 Contracts Act No. 7 of 2010.
In the contract of indemnity the name of the parties are indemnifier and indemnity
holder. Indemnifier is a person who promises to the indemnity holder that in case
the indemnity holder suffers from some loss, the indemnifier will compensates the
loss.
Essentials for Contract of Indemnity

The contract of indemnity must have all the essentials of the valid contract like free
consent, consideration, object should be lawful etc. the second essential is that the
contract of indemnity can be expressed or implied.
A contract of indemnity can be expressed or implied. Another essential of contract

of indemnity is the loss should be caused to the indemnity holder because of the
behaviour of the promisor or the third party. The last but not the least is that
promisor is promising with the promisee who is indemnity holder in this contract to
save him from the loss.
Rights of Indemnity Holder

The rights of the indemnity holders are that indemnity holder can recover all
damages from the indemnifier, now damages which the indemnity holder has
suffered. He has got a right to recover all those damages. CASE OF SHELL
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2) CONTRACT OF GUARANTEE
For definition see S. 68 Contract Act No. 7 of 2010.
The contract of the guarantee is a contract in which there are three parties. You
should understand first of all the speciality of this contract is there are three parties
in a contract. One is known as the principal debtor another party is known as the
creditor and the third party is a surety. Now word surety here stands for the person
who gives the guarantee, principal debtor is a person who gets the loan from the
creditor and the creditor is a person who gives the loan to the debtor. So in the
contract of guarantee, when there are three parties there are three contracts. This
is the basic and very interesting feature of the contract of guarantee.
If we analyse the definition we find that in the contract of guarantee there is a

promise by one party. One party undertake a promise that in case the debtor makes
a default, he will compensate or he will fulfil the promise.
The surety promises to the creditor that in case the debtor makes a default in the
making the payment on a due date the surety will make the payment to the
creditor. one contract is between the debtor and the creditor ,another one between
the creditor and the surety and the third is between the surety and the debtor. And
the surety promises to the creditor that in case debtor make default in making the
payment on the due date, the surety will compensate on the due date or surety
fulfils his word and that he is undertaking that the promise that he will fulfil the
promise.
Kinds of Guarantee
The guarantee can be explained in two ways. One is known as the simple guarantee
another is known as the continuous guarantee. Simple guarantee is a guarantee
which is given for a single transaction, and continuous guarantee is a guarantee
which is given for series of transaction.
Essentials of Contract of Guarantee

The contract of guarantee must fulfill all the valid essentials for the first in the
foremost essential of the contract of guarantee is the contract of guarantee must
have all the essentials of the valid contract. Second is the party should be
competent to contract. We have studied that parties to contract should be
competent to enter into the contract. In the contract of guarantee, party should also
be competent to contract, because if the surety is not competent to contract and if
he gives the guarantee and suppose the principal debtor commits a fault then who
will be at the disadvantageous position, very simple creditor will be a at
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disadvantageous position, because when creditor will go to the debtor to get the
money.
The promise to pay must be conditional is another essential in the contract of

guarantee. This says that the payment by the surety should be conditional meaning
thereby when on the due date the debtor commits a fault, then the surety comes
into the picture. If the surety wants to make the payment for that the debtor should
commit the default. It is the condition that on the default of the debtor the surety
will make the payment to the creditor. On the due date the creditor cannot directly
go to the surety. He has to go to the debtor and will ask for the loan and if the
debtor commits a fault then he will go to the surety.
CONTRACT OF BAILMENT
Bailment arises from delivery of the goods. In the contract of bailment there are
two parties, one is known as the bailer and another is known as the bailee. The
bailer is a person who delivers the goods and the bailee is a person to whom the
goods are delivered. So in the contract of bailment the parties are two and there is
a one contract but remember in the contract of guarantee I mentioned that there
are three parties and there are three contracts. Now in the contract of bailment the
bailer delivers the goods to the bailee for particular purpose or for particular time. In
the contract of bailment it arises by delivery of the goods and the purpose of
delivering the goods is there but the possession of the goods which goes to the
bailee is a temporarily possession.
The bailer remains the owner of the goods but the possession of the goods goes not
the ownership. Ownership is always with the bailer.
Contract of Bailment : Essentials

So in the contract of bailment there has to be delivery by a bailer to the bailee.
Goods should go in the possession of the bailee. The delivery can be of two types
actual and constructive. Actual delivery is a delivery in which the possession is
actually going from bailer to the bailee and the constructive delivery means the
delivery when there is no change of physical possession but some act on the part of
the bailer has the effect of putting the goods into the possession of the bailee.
Another essential of the contract of the bailment is the delivery should be on the
basis of some contract. This says in the contract of bailment there should be a
contract between the bailer and the bailee. The third essential is that there should
be some purpose of the bailment. So in the contract of bailment there is some
purpose in the contract and then it should be on some condition to return. These
are the essentials of contract of bailment.
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Classification of Bailment
Bailment can be classified broadly under the two headings for the benefit of the
bailer and the bailee and on the basis of the charges. The first basis is for the
benefit of the bailer or the bailee when the goods are lent to somebody without any
charge that is known as the gratuitous bailment. Gratuitous bailment is a bailment
in which when one person gives the delivery of the goods to another person then he
doesn’t take a charge of that delivery.
Duties of Bailor
It is the prime duty of the bailer to disclose the fault in the goods which is bailing
with the bailee. If he does not disclose the default or if he does not mention the
weaknesses or any defect with the goods is he is going to bail with the bailee then
he will compensate for the loss caused to the bailee.
Duties of Bailee
The prime duty of the bailee is to take care of the goods bailed. Now bailer when he
has delivered the goods to the bailee it is the duty of the bailee to look after the
goods. To take care of the goods as a prudent man, as a rational man he should
look after those goods as if he is looking after his own goods.
Port Swettenham Authority V. T.W Wu and Co (1979) AC 580 Lord Salmon

held that,
In all cases of bailment, the bailee is bound to take as much care of the goods
bailed to him as a man of ordinary prudence would, under similar circumstances,
take of his own goods of the same bulk, quality, and value as the goods bailed.
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Kitatta Abdul- Islamic University In Uganda- LLB I-Law of Contract I – Contract Of Guarantee And Indemnity.

ISLAMIC UNIVERSITY IN UGANDA-KAMPALA CAMPUS

CONTRACT OF GUARANTEE AND INDEMNITY

For definition see S. 68 Contracts Act No. 7 of 2010.

Refer to Ss. 68, 69 & 85 Contracts Act No. 7 of 2010.

Essentials for Contract of Indemnity

A contract of indemnity can be expressed or implied. Another essential of contract

Rights of Indemnity Holder

For definition see S. 68 Contract Act No. 7 of 2010.

If we analyse the definition we find that in the contract of guarantee there is a

Essentials of Contract of Guarantee

The promise to pay must be conditional is another essential in the contract of

Contract of Bailment : Essentials

Port Swettenham Authority V. T.W Wu and Co (1979) AC 580 Lord Salmon

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