Indemnity and Guarantee are a type of contingent contracts, which are governed by Contract Law. These are a common way in which creditors protect themselves from the risk of debt default.
Distinguish between a contract of guarantee and guarantee of indemnity are given in below:
Contract of Guarantee: It is a contract in which a party promises to another party that he will perform the contract or compensate the loss, in case of the default of their person, it is the contract of guarantee.
- A number of parties: In case of guarantee there are three party’s viz, the principal debtor, the creditor, and the surety.
- A number of contacts: In case of guarantee there are two contracts one between the principal debtor and the creditor and the second between the surety and the creditor.
- Request: In a contract of guarantee, the guarantor undertakes his obligation at the request, express or implied, of the principal debtor.
- Nature of liability: In a contract of guarantee the labiality of the principal debtor is primary and that of surety is secondary.
- Purpose of contracts: A contract of guarantee is to provide the necessary security to the creditor against the loan.
- The right of parties: The surety has the right to recover from the principal debtor the amount paid by him under the contract of guarantee.
Guarantee of Indemnity: It is a contract in which one party promises to another that he will compensate him for any loss suffered by him by the act of the promisor or the third party.
- A number of parties: In case of indemnity there are only two party’s viz., indemnified and indemnifier.
- A number of contacts: In a contract of indemnity, there is only one contract between the indemnifier and the beneficiary.
- Request: No such request is necessary for respect of an indemnity.
- Nature of liability: The person giving an indemnity is primarily and independently liable.
- Purpose of contracts: But a contract of indemnity is made for reimbursement of loss.
- The right of parties: The indemnified cannot claim reimbursement anybody else.