Question

Identify the wrong statement from the following

• A. An indemnity is for reimbursement of a loss, while a guarantee is for security of the creditor.
• B. In a contract of indemnity the liability of the indemnifier is secondary and arises when the contingent event occurs. In case of contract of guarantee the liability of surety is primary and arises when the principal debtor defaults.
• C. The indemnifier after performing his part of the promise has no rights against the third party and he can sue the third party only if there is an assignment in his favor. Whereas in a contract of guarantee, the surety steps into the shoes of the creditor on discharge of his liability, and may sue the principal debtor.
• D. In a contract of indemnity the liability of the indemnifier is primary and arises when the contingent event occurs. In case of contract of guarantee the liability of surety is secondary and arises when the principal debtor defaults.

Hint:

The key difference between indemnity and guarantee lies in the nature of liability. Indemnity = 2 parties, primary liability. Guarantee = 3 parties, secondary (contingent) liability for the surety. Memorizing this core distinction will help solve most related questions.

Answer 1

The Correct Option is B

The fastest way to spot the false statement is to count the parties involved in each contract and see who bears liability first.

1. Indemnity: Only two parties, the indemnifier and the promisee. There is no one else whose default needs to happen first, so the indemnifier's own liability is primary, triggered directly by the contingent event.
2. Guarantee: Three parties, the surety only steps in after the principal debtor has already failed to pay, so the surety's liability is inherently secondary and dependent on someone else's default first.
3. Statement (B): Swaps these two, calling the indemnifier's liability secondary and the surety's liability primary, which is the exact opposite of how liability actually flows in each contract.
4. Statements (A), (C), (D): All correctly describe the purpose, the subrogation/assignment position, and the true primary/secondary liability split, so none of them contain an error.

Since counting the parties confirms liability runs the opposite way from what statement (B) claims, the correct answer is (B).

Answer 2

Testing the statements against a simple factual illustration for each contract type helps confirm which one is wrong.

1. Indemnity illustration: Suppose X promises to indemnify Y against any loss Y suffers from a particular transaction. The moment that loss (the contingent event) actually occurs, X's obligation to pay Y arises immediately and directly, there is no third person whose failure must occur first. This shows the indemnifier's liability is primary.
2. Guarantee illustration: Suppose S guarantees to C that D will repay a loan. S's obligation to pay C arises only once D, the principal debtor, has failed to repay. S's liability is thus contingent on and secondary to D's own primary liability.
3. Statement (B) tested against these illustrations: It claims the opposite of both illustrations, secondary liability for the indemnifier and primary liability for the surety, which the examples directly contradict.
4. Statements (A), (C), (D): Checked against the same illustrations, each of these correctly describes the purpose, the subrogation position, and the true liability sequence, so they hold up.

The illustrations confirm that statement (B) alone misdescribes how liability arises in each contract.

Therefore, the correct answer is (B).