Difference between Indemnity and Gurantee

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Difference between Indemnity and Guarantee In Contract Law Ayesha Majid 3/5/18 Corporate Law Contract of Indemnity and contract of Guarantee are the contingent contracts under the contract law. Guarantees and indemnities are a common way in which creditors protect themselves from the risk of debt default. Lenders will often seek a guarantee and indemnity if they have doubts about a borrower's ability to fulfil its obligations under a loan agreement. Indemnity under the law means protection of the losses or financial burden in the form of money. It is when one party promises to compensate for the losses that will occur due to the act of the promisor or other party. Whereas guarantee is when a person gives the assurity to the other party that if the third party defaults he/she will be held responsible for that and will fulfil the obligations. The English law definition of a contract of guarantee is “A Contract to perform the promise, or discharge the liability, of a third person in case of his default is called Contract of Guarantee” as per Section 126 of Contract Act 1872. The definition of a contract of indemnity as laid down in Section 124 – “A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity." A guarantee may be either oral or written. A Contract of Guarantee is also called surety. There can be no contract of guarantee without a liability enforceable a law. The primary idea of surety ship is an undertaking to indemnify if some other person does not fulfill his promise. Guarantee is a legal term more comprehensive and of higher import than either warranty or "security". A common example of guarantee is bank guarantee. In guarantee there are three parties involved, creditor, surety and principal debtor. Creditor is the one to whom the guarantee is given, surety is the party who gives the guarantee and principal


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Commercial Law, Common Law.



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