Define “Guarantee” and explain its essential, element.

Distinction between Contract of Indemnity and Guarantee Contract of indemnity

Basis of Difference Contract of Indemnity Contract of Guarantee 1.

2. Number of parties Number of contracts In case of a contract of indemnity there are only two parties, viz. (i) one who is indemnified and (ii) the other the indemnifier. In case of contract of indemnity there is only one contract between the indemnity holder In case of a contract of Guarantee there are three parties, viz. (i) principal debtor, (ii) Creditor, and (iii) surety. In case of contract of Guarantee there are three contracts; one is between the creditor and the principal debtor; another between the (Indemnified) and indemnifier. surety and the creditor, and the third between the surety and the principal debtor.

3. Nature of In a contract of Ina contract ofguarantee the Liability Indemnity, the liability of Indemnifier is primary there is no secondary liability. primary liability is that of principal debtor, the surety is liable only secondarily, i.e. if the debtor does not pay.

4. Purpose of A contract of A contract of guarantee contract indemnity exists for the reimbursement of loss. stands for the security of the creditor.

5. Scope of The scope of The scope of contract of contract contract of Indemnity is marrrower than contract of Guarantee as it does not include the contract of Guarantee is wider than that of contract of indemnity as it includes contract ofindemnity also. Guarantee.

6. Consideration In case of contract of indemnity valuable consideration is available to the indemnifier from the very beginning. In case of contract of guarantee no valuable consideration is available to the surety from the very beginning. It may arise only in case of the default committed by the principal debtor.

7. Origin of The liability of the The liability of the surety Liability indemnifier a si ses only in case of the acutal loss suffered by the indemnity holder. arises only when the principal debtor commits the default in making the payment to the creditor. ‘

8. Remedy The Indemnity holder is not entitled to sue third party for whose sake the loss is caused. The creditor is entitled to sue the surety in case the principal debtor commits the default. The scope of contract of Indemnity is narrower than contract of Guarantee as it does not include the contract of Guarantee.  In case of contract of indemnity valuable consideration is available to the indemnifier from the very beginning. The liability of the indemnifier asises only in case of the actual loss suffered by the Indemnity holder The Indemnity holder is not entitled to sue third party for whose sake, the loss is caused. A contract of guarantee stands for the security of the creditor. The scope of contract of Guarantee is wider than that of contract of Indemnity as it includes contract of Indemnity also. In case of contract of guarantee no valuable consideration is available to the surety from the very beginning. It may arise only in case of the default committed by the principal debtor. The liability of the surety arises only when the principal debtor commits the defaul in making the payment to the creditor. The creditor is entitled to sue the surety in case the principal debtor commits the default.