Distinguish or Difference between the Contract of Indemnity and Contract of Guarantee

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Distinguish or Difference between the Contract of Indemnity and Contract of Guarantee


Section 125 of the Indian Contract Act, 1872 explain the provisions about "Contract of Indemnity".
Section 124: 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".
Section 126 to 147 of the indian Contract Act, 1872 explain about " Contract of Guarantee". Section 126 defines " Contract of Guarantee".
Section 126: A Contract of quarantee is a contract to perform the promise, or to discharge the liability, of a third person in case of his default.
1. It Provides Security

2. A risk of loss is an indemnity anticipated. It may occur or may not occur. The risk arises in future, and not at or before the date of contract.
1. It Provides surety

2. The debt, for which guarantee is sought, is existing one.Such guarantee can be sought for existing or previous debts.

Meaning :-
In the contract of indemnity one person promises to save the other from any loss.

In the contract of guarantee one person gives guarantee for the performance of the contract.
The Number of Parties :-
Under the contract of indemnity there are two parties.
Under the contract of guarantee there are three parties. The obligation arises only on the default of the principal debtor.
The Liability :-
1. Under indemnity contract the basic liability falls on the indemnifier.
2. The indemnifier does not undertake to be answerable for the debt of obligation of another.
1. In case of guarantee contract surety has the secondary liability.
2. The guarantor gives an undertaking to be answerable for the debtor or obligation of another.
1. Mr. X executed to Mr.Y a note, agreeing to reimburse Y to the extent of Rs.1,000 if loss occurs. It is only an indemnity. It is called an original obligation.
1. Mr. X executes a pronote for Rs.1,000 in favour of Mr.Y. Mr. Z stands as a guarantor for the repayment. It is called a guarantee.
The Number Of Contracts :-
Under the indemnity contract there is one contract only.

Under the contract of guarantee there must be at least three contracts.

The Nature of Interest :-
1. In an indemnity, there is only a risk of loss, which is sought to be indemnified.

2. In case of indemnity contract, indemnifies has the interest in earning commission and premium.
1. In a guarantee, the debt is guaranteed as to payment.

2. In case of guarantor he has no any other interest except guarantee.

The Right of Claim :-
1. The indemnifier cannot sue the third party.

2. He may have the right of action against the person on whose account his liability arises.
1. Guarantor is entitled to proceed against the principal debtor in his own name. If he has paid the debt.

2. In a contract of guarantee, the right of subrogation arises. However it is similar to that of indemnity.
The Performance of Contract :-
Contract of indemnity depends upon the possibility of risk or loss.
In case of guarantee there is an existing debt or duty performance about which guarantee is given.

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