Merchantile law

A contract of indemnity is one whereby a person promises to save the other from loss caused to him by the conduct of the promisor himself or of any third person.For example,a shareholder executes an indemnity bond favouring the company thereby agreeing to indemnify the company for any loss caused as a consequence of his own act.The person who gives the indemnity is called the 'indemnifier' and the person for whose protection it is given is called the 'indemnity-holder' or 'indemnified'. A contract of indemnity is restricted to cover the loss caused by the promisor himself or by a third person.The loss must be caused by some human agency.Loss arising from accidents like fire or perils of the sea are not covered by a contract of indemnity.

A contract of 'guarantee' is a contract,whether oral or written,to perform the promise,or discharge the liability,of a third person in case of his default. A contract of guarantee involves three persons,viz. a person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given called the 'principal debtor'; and the person to whom the guarantee is given is called the 'creditor'. A contract of guarantee is a conditional promise by the surety that if the principal debtor defaults he shall be liable to the creditor.