Distinguish between a contract of guarantee and a contract of indemnity.

Difference or distinction between contract of a guarantee and a contract of inde mnity can be brought up by looking into following areas: 1. Difference in Meaning :Contract of indemnity : In the contract of indemnity one person promises to save the other from any loss. Section 124 of the Indian Contract Act 1872 defines a "contract of indemnity" as a contract by which one party promises to save the ot her from loss caused to him by the conduct of the Promisor himself, or by the co nduct of any other person. e.g = 'x' contracts to indemnify 'y' against the consequences of any legal proce edings which c may take against B in respect of a certain sum of Rs.200/=. Contract of guarantee : In the contract of guarantee one person gives guarantee for the performance of the contract. Section 126 of the Indian Contract Act 1872 defines a contract of guarantee is a contract to perform the promise or dischar ge the liability of a third person in case of his default. The person who gives t he guarantee is called the surety; the person in respect of whose default the guarantee is given is called th e principal debtor, and the person to whom the guarantee is given is called the cre ditor. A guarantee may be either oral or written. e.g, 'P' lends Rs. 5000/= to 'Q' and 'R' promises to 'P' that if 'Q' does not pa y the money back then 'R' will do so. 2. Difference in the Number of Parties:Contract of indemnity : Under the contract of indemnity there are two parties vi z., the indemni er and the insured or the promisee or the party indemni ed. Contract of guarantee : Under the contract of guarantee there are three parties i.e., the creditor, principal debtor, and surety. 3. Difference in the Liability :Contract of indemnity: Under indemnity contract the basic liability falls on the indemnifies. In contract of guarantee, the liability is secondary, the primary liability being that of the principal debtor. Contract of guarantee: In case of guarantee contract surety has the secondary li ability. in the contract of indemnity, the liability of a promisor is primary an d independent. 4. Difference in the Number of Contracts:Contract of indemnity: Under the indemnity contract there is one contract only i .e., b/w the indemnifier and indemnity holder. Contract of guarantee: Under the contract of guarantee there must be at least th ree contracts. a) Contract b/w the principal debtor and the creditor. b) Contract b/w the creditor and the surety.

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Contract b/w the surety and the principal debtor.

5. Difference in the Nature of Interest :Contract of indemnity: A person giving an indemnity may have some other interest in the contract. In case of indemnity contract, indemnifies has the interest in earning commission and premium. Contract of guarantee: In case of guarantor he has no any other interest except guarantee. The person giving the guarantee has no other interest in the transact ion apart from his guarantee. 6. Difference in the Right of Claim :Contract of indemnity: The indemnifies cannot sue the third party. In the Contra ct of indemnity the liability of the indemnifier arises only on the happening o f the contingency. Contract of guarantee: Guarantor is entitled to proceed against the principal de btor in his own name If he has paid the debt. In a contract of guarantee there i s an existing debts or duty, the performance of which is guaranteed by the suret y. 7. Difference in the Performance of Contract :Contract of indemnity : Contract of indemnity depends upon the possibility of ri sk or loss. In the contract of indemnity the loss falls on the indemnifier exce pt in certain special cases. Contract of guarantee : In case of guarantee there is an existing debt or duty p erformance about which guarantee is given. In the contract of guarantee the sure ty , after discharges the debts owing to the creditor, can proceed against the p rincipal debtor.