Indemnity and Guarantee in Contract

Indemnity and Guarantee in Contract

Indemnity and Guarantee in Contract

A contract where one party promises to save the other from any loss caused to him by the conduct of promisor himself or any other person is called contract of indemnity.  ‘Indemnity’ is a widespread expression used not only in a contractual context. It can be defined as “[a] duty to make good any loss, damage or liability incurred by another,” or alternatively “the right of an injured party to claim reimbursement for its loss, damage or liability from a person who has such duty.”

A contract to perform the obligation or to discharge the liability of a third party in case of its default is called contract of guarantee.

If we see the literal meaning Indemnity means “Security from the loss”. This term was generally used for insurance contracts. But it may be noted here that Life insurances are not a contract of indemnity. Its legal connotation is when one person promises to another to save hint from the loss incurring from his performing any duty.

Indemnity contract includes two parties namely; Indemnifier and Indemnity holder. The person who is promising to pay compensation is called Indemnifier and the person who’s a loss is compensated is called Indemnity holder. Guarantee contract includes three parties namely; Creditor, Principal Debtor, and Surety. The person who is granting the loan, the person who is utilizing the amount of loan is a principal debtor and the person who is giving a guarantee is called surety or guarantor or favored debtor.

An agreement of indemnity, as a concept developed under common law, is an agreement wherein the promisor, promises to save the promisee harmless from loss caused by events or accidents which do not or may not depend on the conduct of any person or from liability for something done by the promisee at the request of the promisor.

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