Difference between Indemnity and Guarantee – Business Law | Management Notes

Difference between Indemnity and Guarantee | Contract of indemnity  | Contract of guarantee | What is the difference between contract of guarantee and contract of indemnity? | Business Law
| What is the difference between indemnity and guarantee?

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

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.

Difference between Indemnity and Guarantee

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

S.No.

Contract of indemnity

Contract of guarantee

1In 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.
2In 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.
3In 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.
4In 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.
5The 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.
6Under 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.

 

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