Distinction between contracts of indemnity and guarantee

DIFFERENCE BETWEEN INDEMNITY AND GUARANTEE 

  1. Number of parties : There are two parties in contact of indemnity, whereas there are three parties involved in the Contract of guarantee. 
  2. Number of Contracts involved : Contract of indemnity involves only one Contract i.e. between indemnifier and indemnified, whereas contract of guarantee involves three Contract i.e. one between creditor and principal debtor, second between creditor and surety and third between surety and principal debtor. 
  3. Purpose or object : The contract of guarantee presupposes soke obligation on the the principal debtor and is made to provide security to the creditor, whereas the contract of indemnity is made to protect indemnity holder/promisee against some likely losses. 
  4. Liability : In the contract of guarantee, the liability of the surety is secondary one, whereas in the contract of indemnity, the liability of the indemnifier is primary one. 
  5. Arter the discharge of liability : In the contract of guarantee, after the surety discharged the liability, he is invested with all the rights that the creditor had against the principle debtor ( section 140) and the principal debtor is bound to indemnify the surety for whatever sum the surety has rightfully paid (section 145), whereas in the contract of indemnity, the indemnifier cannot recover any amount from anybody. 
  6. Position in England : In England, the contract of guarantee should be written, whereas the contract of indemnity may be either oral or written. Whereas in India, whether it is contract of indemnity or guarantee, both could either be oral or written. 



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