Difference between Indemnity and Guarantee ?
Category : Contract – II
|BASIS FOR COMPARISON||INDEMNITY|
|1.Meaning||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 contract to perform the promise, or discharge the liability, of a third person in case of his default. it is the contract of guarantee.|
|2.Defined in||Section 124 of Indian Contract Act, 1872||Section 126 of Indian Contract Act, 1872|
|3.Parties||Two, i.e. indemnifier and indemnified|
It is a bipartite agreement between the indemnifier and indemnity-holder.
|Three, i.e. creditor, principal debtor and surety|
It is a tripartite agreement between the Creditor, Principal Debtor, and Surety.ety
|4.Number of Contracts||One|
There is only one contract in a contract of indemnity – between the indemnifier and the indemnity holder.
There are three contracts in a contract of guaratee – an original contract between Creditor and Principal Debtor, a contract of guarantee between creditor and surety, and an implied contract of indemnity between the surety and the principal debtor.
|5.Degree of liability of the promisor||Primary|
Liability of the indemnifier is primary to the contract.
Liability of the surety is co-extensive with that of the principal debtor although it remains in suspended animation until the principal debtor defaults. Thus, it is secondary to the contract and consequenty if the principal debtor is not liable, the surety will also not be liable.
|6.Purpose||To compensate for the loss|
The reason for a contract of indemnity is to make good on a loss if there is any.
|To give assurance to the promise|
the reason for a contract of guarantee is to enable a third person get credit.
|7.Maturity of Liability||The liability of the indemnifier arises only on the happening of a contingency.||Liability already exists.|
There is usually an existing debt or duty, the performance of which is guaranteed by the surety.
|8.RIGHT OVER THIRD PARTY||Once the indemnifier fulfills his liability, he does not get any right over any third party. He can only sue the indemnity-holder in his own name.||Once the guarantor fulfills his liabilty by paying any debt to the creditor, he steps into the shoes of the creditor and gets all the rights that the creditor had over the principal debtor.|
|9. Liability of third party||An indemnifier cannot sue a third party for loss in his own name, because there is no privity of contract. He can do so only if there is an assignment in his favour.||A surety, on discharging the debt due by the principal debtor, steps into the shoes of the creditor. He can proceed against the principal debtor in his own right|
|10. Initiative of contract||Contract gets formed upon indemnifier`s interest||Contract gets formed upon principal debtor`s interest|
|11.Type of contract||Contract between the indemnifier and the indemnity holder is express and specific.||Contract between surety and principal debtor is implied and between creditor and principal debtor is express.|