Difference between Indemnity and Guarantee

Profit, loss, insurance, indemnity, marketing, etc., are some of the significant parts of a business. From small to large businessmen, everybody suffers profits and losses in business. There are times when the business is flourishing, while there is a time when business is incurring losses. The profits and losses of a business depend upon the marketing techniques that one uses. Nowadays, many businessmen are undertaking the concept of digital marketing, influencer marketing, etc., to save their business from losses.

Now, whether it is a business or a company, indemnity and guarantee are the two significant aspects. People in every field have undertaken contractual obligations from other parties due to certain reasons. Indemnity and guarantee are important for running a business or a company. Let us first understand the meaning of indemnity and guarantee.

Indemnity

Indemnity is defined as the contractual obligation/ agreement among two parties. When one party agrees to cover the losses of the other party, it is called as indemnity. The insurer indemnifies the other party, i.e., the insurer promises to cover up the losses made by the other party. One of the examples of indemnity is an insurance company. The insurer of the company agrees to compensate for the losses or damage incurred by the insured. Now, what is the purpose of indemnity? Well, indemnity plays an important role in shielding a particular party from any kind of liability caused due to the carelessness of that party. There are three significant kinds of indemnity, i.e., broad indemnification, intermediate indemnification, and limited indemnification.

Broad indemnification is when the insurer agrees to indemnify the insured against the negligence of the third party. Intermediate indemnification is when the insurer agrees to indemnify the insured against the negligence caused by either the insurer or the insured. There is no third party involved in intermediate indemnification. Limited indemnification is when the insurer agrees to indemnify the insured against the damage or loss incurred by the insurer. The actions of the third party or the insured do not matter in limited indemnification.

Now, how does an indemnity work? Well, indemnity can be best understood as the ability of the promiser to pay for the debts and liabilities of the promisee. For instance, when the seller agrees to pay the buyer for any tax liability. One of the important characteristics of indemnity is that the insurer either covers up for the loss or replaces what is lost.

Guarantee

A guarantee is considered as a legal term. It is used to represent a private transaction wherein a person obtains the trust and confidence of another party. Guarantee is basically a promise of security, payment, etc. For instance, a document stating that a particular gadget will be replaced or repaired free of cost for the first two years after its purchase. There are two significant kinds of guarantee, i.e., continuing guarantee and specific guarantee. A specific guarantee is defined as the guarantee used for a particular deal or agreement. Specific guarantee is provided just for one transaction. On the other hand, a continuing guarantee is defined as the guarantee in which a series of transactions takes place. In continuing guarantee, the guarantor's liability is not discharged. Now, what is the main aim of a guarantee? Well, the main aim of a guarantee is to enable a person to apply for a loan on goods. A guarantee is required for different purposes like repayment of the loan, the price on which the goods are sold on credit, etc. There are some basic points that have to be kept in mind during a guarantee. They are:

1. A guarantee is a particular contract.
2. The insurer promises to discharge any kind of liability caused by the insured or any third party.
3. A guarantee can either be written or oral.
4. The parties involved in the contract of the guarantee are called creditors, surety, and principal debtors.

Now, there are certain differences between guarantee and indemnity. So, let us have a look at them.

So, these are some of the contrasting points between indemnity and guarantee. Both these legal documents are required for the agreement among the parties. Now, there are certain characteristics/ elements associated with indemnity and guarantee. So, let us take a look at them.

Elements of Indemnity

1. Indemnitee: The person or a company making promises to indemnify.
2. Indemnifier: The person receiving the indemnity.
3. Activity: An agreement among the parties which can either lead to profit or loss.
4. Limitations of an Indemnity: Shortcomings like death, injury, etc., are included in this.
5. Notice Period: The promisee must convey information regarding claims to the promisor.

Elements of Guarantee

1. Liability: The liability of the surety is secondary, i.e., the creditor must first move forward against the debtor.
2. Debt Existence: The liability is existent in the contract of guarantee. Without liability, there is no guarantee.
3. Writing: Guarantee can be writer or oral.
4. Essentials: A contract of guarantee must have all the elements like the offer, acceptance, legal relationship, genuine/ free consent, certainty, legal formalities, etc.
5. Disclosure of Facts: The Creditor must disclose the facts regarding the surety's liability.

So, these are some of the elements of indemnity and guarantee. It is essential to note that both indemnity and guarantee are important legal documents required for the agreement among the parties. Thus, both indemnity and guarantee are significant aspects of legal consideration.