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Difference between Indemnity and Guarantee – 6 Major Differences Explained | Business Law

Difference between Indemnity and Guarantee ?

Contract of Indemnity

Contract of Indemnity

➥Indemnity and Guarantee are a type of contingent contracts, which are governed by Contract Law.

➥Simply put, indemnity implies protection against loss, in terms of money to be paid for the loss.

➥Indemnity is when one party promises to compensate for the loss that occurred to the other party, due to the act of the promisor or any other party.

Contract of Guarantee

Contract of Guarantee

➥On the other hand, the guarantee is when a person assures the other party that he/she will perform the promise or fulfill the obligation of the third party, in case he/she defaults.

➥A contract of guarantee is often employed in various business transactions, such as loans, leases, and trade credit arrangements, offering an additional layer of security to creditors and fostering trust among parties involved in the transaction.

➥terms and conditions of the guarantee, including the extent of the guarantor’s liability and any specific conditions triggering the guarantee, are typically outlined in the contractual agreement.

Difference between Indemnity and Guarantee

The difference between a contract of indemnity and contract of the guarantee are explained below:

Contract of Indemnity

Contract of Guarantee

In the contract of indemnity, one party makes a promise to the other that he will compensate for any loss occurred to the other party because of the act of the promisor or any other person.  In the contract of guarantee, one party makes a promise to the other party that he will perform the obligation or pay for the liability, in the case of default by a third party.
In the contract of indemnity, there are two parties, indemnifier and indemnity holder. In the contract of guarantee, there are three parties involved; debtor, creditor, and surety.
In the contract of indemnity, the liability of indemnifier is primary and unconditional. In the contract of guarantee, the liability of principal debtor is primary and liability of the surety is secondary.
In this contract, the indemnifier has no right to reimbursement of the amount paid to the indemnity holder. In this contract, the surety has the right to reimbursement of the amount from the principal debtor, which is paid to the creditor.
The purpose of this contract is to save the indemnity holder from any contingent loss. The purpose of this contract is to provide necessary security to the creditor.
Under this contract, the indemnifier is the only one promisor for the loss of the indemnified party.

Under this contract, the surety and principal debtor is the two promisors for the debt of the creditor.

Difference between Contract of Indemnity and Guarantee

References 

  • Indemnity – Definition, What is Indemnity, Advantages of Indemnity, and Latest News – ClearTax. (n.d.). Cleartax. https://cleartax.in/glossary/indemnity/
  • https://unacademy.com/content/ca-foundation/study-material/business-laws/contract-of-guarantee/

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