Six Differences between Contract of guarantee and contract of Indemnity

The Indian Contract Act defines both Contract of Guarantee and Contract of Indemnity as separate and distinct legal concepts.

Here are the six differences between these two types of contracts:

1. Definition:

A contract of guarantee is a contract where a third party agrees to be responsible for the repayment of a debt or the performance of an obligation, in case the primary debtor fails to do so. On the other hand, a contract of indemnity is a contract where one party agrees to compensate the other party for any loss or damage caused to him/her due to the actions of the indemnified party.

2. Number of parties:

A contract of guarantee involves three parties, namely the creditor, the debtor, and the guarantor. Whereas, a contract of indemnity involves only two parties, namely the indemnifier and the indemnified.

3. Primary liability:

In a contract of guarantee, the liability of the guarantor is secondary to that of the debtor. The creditor must first exhaust all legal remedies against the debtor before calling upon the guarantor to fulfill his obligations. In contrast, in a contract of indemnity, the indemnifier’s liability is primary and immediate.

4. Nature of liability:

The liability of the guarantor is conditional, meaning that it arises only when the debtor defaults on his obligations. On the other hand, the liability of the indemnifier is absolute, meaning that it arises regardless of whether the indemnified party has suffered any loss or damage.

5. Extent of liability:

In a contract of guarantee, the liability of the guarantor is limited to a specific amount or time period, as agreed upon in the contract. In contrast, the liability of the indemnifier is not limited in any way, and he/she is liable to compensate the indemnified party for any loss or damage suffered by him/her.

6. Notice of claim:

In a contract of guarantee, the guarantor is entitled to receive notice of any claim made by the creditor against the debtor, and he/she may also require the creditor to take certain actions to preserve his/her rights. On the other hand, in a contract of indemnity, the indemnifier may not necessarily be entitled to receive notice of any claim made against the indemnified party, unless specified in the contract.

Books Recommended:        Check it  Out

1. Beatsen (ed.)-Anson’s Law of Contract : (27th Ed. 1998)

2. Anson-Law of Contract (1998), Universal, Delhi

3. Pollock and Mulla-Indian Contract Act

4. Avtar Singh-Law of Contract, Eastern Book Co.(Lucknow)

5. S.K.Kapoor- Samvidha Vidhi (Hindi)