Explain any four differences between Contract of Indemnity and Contract of Guarantee.

Distinction between a Contract of Indemnity and a Contract of Guarantee Point of distinction Contract of Indemnity Contract of Guarantee Number of party/ parties to the contract There are only two parties namely the indemnifier [promisor] and the indemnified [promisee] There are three parties - creditor, principal debtor and surety. Nature of liability The liability of the indemnifier is primary and unconditional. The liability of the surety is secondary and conditional as the primary liability is that of the principal debtor. Time of liability The liability of the indemnifier 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. Time to Act The indemnifier need not act at the request of indemnity holder. The surety acts at the request of principal debtor. Right to sue third party Indemnifier cannot sue a third party for loss in his own name as there is no privity of contract. Such a right would arise only if there is an assignment in his favour. Surety can proceed against principal debtor in his own right because he gets all the right of a creditor after discharging the debts. Purpose Reimbursement of loss For the security of the creditor Competency to contract All parties must be competent to contract. In the case of a contract of guarantee, where a minor is a principal debtor, the contract is still valid.