difference between contract of guarantee and indemnity pdf

Difference Between Contract Of Guarantee And Indemnity Pdf

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Indemnity and Guarantee are a type of contingent contracts, which are governed by Contract Law.

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Difference between Indemnity and Guarantee In Contract Law

A contract by which one party promises to save the other from a loss caused to him by the conduct of the promisor himself or any other person, is called a contract of indemnity.

Section In other words, a contract of indemnity is a contract in which one person promises to protect or compensate the other for the loss suffered by him due to the conduct of the promisor or any other person. The person who promises to compensate is the indemnifier and the person who is protected against the loss is known as indemnity-holder or indemnified. Example : A contracts to indemnify B against consequences of any proceedings which C may take against B in respect of a certain sum of This is a contract of indemnity.

According to Section of the Indian Contract Act, A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. In a contract of guarantee, there are three parties:. Requirements of a valid contract : The essentials of a valid contract like competence of parties, free consent, consideration, etc. The contract must be supported by consideration : A contract of guarantee must be supported by consideration.

However, law presumes that consideration received by the principal debtor is sufficient consideration for the surety. There must be someone primarily liable : There must be a primary liability on someone other than the surety.

There must be someone liable as a principal debtor and the surety undertakes to be liable on his default. There should be no misrepresentation : The contract of guarantee is a contract of absolute good faith. It is the duty of the party taking a guarantee to put the surety in possession of all the facts likely to affect the degree of his responsibility.

A contract of guarantee may be oral or in writing. Concurrence : Such contract requires concurrence of all the three parties to it, i. Parties : In a contract of indemnity, there are two parties-indemnifier and indemnity-holder.

In a contract of guarantee, there are three parties-the principal debtor, the creditor and the surety. Number of contracts : In case of indemnity, there is one contract only, i. Liability : The nature of liability of the indemnifier is primary and independent.

The liability of the surety is collateral or secondary, the primary liability is of the principal debtor. Purpose : The purpose of a contract of indemity is the reimbursement of the loss. A contract of guarantee is made for the security of a debt. Existing liability : In case of indemnity, there is no existing liability. It is only a contingency. But in a contract of guarantee, the liability already subsists. There is an existing debt which is guaranteed by the surety.

Interest : In case of indemnity, the promisor has some interest in the transaction. But in a guarantee, the surety has no other interest. Right to sue : In indemnity, the indemnifier can not sue the third party for loss in his own name. He can sue in the name of the indemnity-holder. Request : It is not necessary for indemnifier to act on request by indemnity-holder.

But the surety should give guarantee at the request of the debtor. Tags: B. Com Bachelor of Business Administration. On the basis of the extent of their authority, agents may be : General agent: A general agent is one who is employed to transact all acts Partnership Deed. The document containing the respective rights and obligations of the members of a partnership is called a partnership deed. Provisions relating to deductions for services rendered under the Payment of Wages Act, A deduction shall not be made from the wages of an Special provisions of the Payment of Bonus Act, in respect of new establishment: The Payment of Bonus Act, makes special provisions You must be logged in to post a comment.

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Difference between Contract of Indemnity and Contract of Guarantee

Short title. Contract of indemnity defined. Rights and liabilities of indemnity holders. Contract of guarantee. Consideration for guarantee. Liability of surety. Continuing guarantee.

Difference between Contract of Indemnity and Contract of Guarantee

Guarantee is a legal term more comprehensive and of higher import than either warranty or "security". It most commonly designates a private transaction by means of which one person, to obtain some trust, confidence or credit for another, engages to be answerable for him. It may also designate a treaty through which claims, rights or possessions are secured. It is to be differentiated from the colloquial "personal guarantee" in that a guarantee is a legal concept which produces an economic effect.

The most common example of a contract of guarantee is where one person guarantor agrees to be responsible to a bank creditor for the debts of a friend, relative, business colleague, or related company debtor , who is borrowing money from the bank. The liability of a guarantor is a secondary obligation which is only enforceable if the debtor fails to perform the obligations which have been guaranteed. If the primary obligation of the debtor is discharged or becomes void, the guarantee falls away. An indemnity is often described as a contract by one party to keep the other harmless against loss. Indemnities can come in many different forms and will depend largely on how the parties to the contract have agreed to allocate risk.

Contract of Guarantee — Meaning, Essentials. Example: A advances a loan of Rs. This is a contract of guarantee.

Define and distinguish between a Contract of Indemnity and Contract of Guaranty.

Key Differences Between Indemnity and Guarantee

Black laws dictionary defines the term guarantee as the assurance that a legal contract will be duly enforced. A contract of guarantee is governed by the Indian Contract Act, and includes 3 parties in which one of the parties acts as the surety in case the defaulting party fails to fulfill his obligations. Contracts of guarantee are mostly required in cases when a party requires a loan, goods or employment. The guarantor in such contracts assures the creditor that the person in need may be trusted and in case of any default, he shall undertake the responsibility to pay. Thus we can say contract of guarantee is invisible security given to the creditor and shall be discussed further. Section of the Indian contract act defines a contract of guarantee as a contract to perform the promise or discharge the liability of the defaulting party in case he fails to fulfill his promise.

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3 comments

Bellamy C.

An indemnity is a contract by one party to keep the other harmless against loss, but a contract of guarantee is a contract to answer for the debt, default or miscarriage of another who is to be primarily liable to the promise.

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Oriol R.

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