Question

A tells B, the shopkeeper, “Give Z the Goods, I will see you paid" – this contract is

• A. Bailment
• B. Agency
• C. Guarantee
• D. Indemnity

Hint:

The key to distinguishing between Indemnity and Guarantee is the number of parties and the nature of liability. Indemnity = 2 parties, primary liability. Guarantee = 3 parties, secondary liability (arises only on default of the principal debtor).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The question describes a scenario with three parties and asks to identify the type of special contract it represents. We need to distinguish between Indemnity and Guarantee.
Step 2: Detailed Explanation:
Let's analyze the transaction:
- B (the shopkeeper) is the Creditor, who is giving the goods.
- Z is the Principal Debtor, who receives the goods and has the primary liability to pay for them.
- A is the Surety (or Guarantor), who promises to pay if Z defaults.
This tripartite relationship is the hallmark of a Contract of Guarantee, as defined in Section 126 of the Indian Contract Act. A's promise ("I will see you paid") is a promise to discharge the liability of a third person (Z) in case of his default.
- It is not a Contract of Indemnity because indemnity is a bipartite contract where 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. There is no existing primary liability of a third person.
- It is not Bailment (delivery of goods for a purpose) or Agency (representative relationship).
Step 3: Final Answer:
The scenario describes a tripartite agreement where one party promises to pay on behalf of a third party if they default, which is a contract of guarantee. Therefore, option (C) is correct.