Difference between Contract of Indemnity and Guarantee – Business Law | Management Notes

Contract of Indemnity Vs. Guarantee
Business Law
Management Notes

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

S.No. Contract of indemnity Contract of guarantee
1 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.
2 In contract of indemnity, there are two parties, indemnifier and indemnity holder. In contract of guarantee, there are three parties involved;debtor, creditor, and surety.
3 In contract of indemnity,liability of indemnifier is primary and unconditional. In contrect of guarantee,liability of principal debtor is primary and liability of surety is secondary.
4 In this contract, the indemnifier has no right of reimbursement of the amount paid to the indemnity holder. In this contract, the surety has right of reimbursement of the amount from the principal debtor, which is paid to the creditor.
5 Purpose of this contract is to save the indemnity holder from any contingent loss. Purpose of this contract is to provide necessary security to the creditor.
6 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.

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