DIFFERENCE BETWEEN INDEMNITY & GUARANTEE
BASIS | CONTRACT OF INDEMNITY | CONTRACT OF GUARANTEE |
1 Definition | Section 124 of ICA, “A contract by which one party promises to save the other from the loss caused to him by the conduct of the promisor himself or by the conduct of any person is called a contract of Indemnity” | Section 126 of ICA “contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. |
1. parties | There are two parties-indemnifierand the indemnity-holder. | There are three parties-principaldebtor, creditor and surety. |
2. contracts | There is only one contract between indemnifier and indemnity-holder. | There are three contracts, one between creditor and principal debtor, second between surety and principal debtor, and thirdbetween surety and the creditor |
3.Undertaking | The indemnifier undertakes to save the indemnity-holder from any loss. | The surety undertakes for thepayment of debts of principal debtor. |
4. Nature of liability | The liability of indemnifier is primary and unconditional | The liability of surety is secondary and conditional. Surety’s liability is secondary in the sense that the primary liability is of principal debtor. Surety’s liability is conditional in the sense that it arises only on default of principalDebtor |
5. Nature of event. | The liability arises only on the happening of a contingency. | The liability arises only on the. non-performance of an existing promise or non-payment of an existing debt. |
6. Request | The indemnifier need not act at therequest of indemnity-holder. | The surety acts at the request of theprincipal debtor. |
7. Right to sue | The indemnifier cannot sue a third party in his own name because of absence of privity of contract between him and a third party. He can sue the third party in his own name if there in an assignment inhis favour. | A surety, on discharging the debt of principal debtor, can sue ‘the principal debtor in his own |
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