Difference between contract of indemnity and contract of guarantee

[divyansh_jasoria]

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

Contract of Indemnity-
A contract of indemnity as per section 124 of the Indian contract Act 1872 is defined as: – a contract by which 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, is called a contract of indemnity. The person who makes a promise to indemnify against the loss or to make good the loss (promisor) is called an indemnifier. The person in whose favour such a promise to indemnify is made (promisee) is called indemnity-holder.

Example- Anil enters into a contract with Swapnil to indemnify him against the consequences of any proceedings which mrinal may initiate against Swapnil in respect of a certain sum of Rs. 2000/-. In this contract, Anil is the indemnifier and Swapnil is the indemnity-holder.

Contract of guarantee-
Contract of guarantee as per section 126 of the Indian contract Act 1872 is defined as: – A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the surety; the person in respect of whose default the guarantee is given is called the principal debtor, and the person to whom the guarantee is given is called the creditor. A guarantee may be either oral or written.

Differences-
• 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.

• The liability of the indemnifier in the contract of indemnity is primary whereas if we talk about guarantee the liability of the surety is secondary because the primary liability is of the debtor.

• The purpose of the contract of indemnity is to save the other party from suffering loss. However, in the case of a contract of guarantee, the aim is to assure the creditor that either the contract will be performed, or liability will be discharged.

• In the contract of indemnity, the liability arises when the contingency occurs while in the contract of guarantee, the liability already exists.

By Divyansh Jasoria

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