Indemnity means insurance or protection against loss or damage. A contract of indemnity involves two parties, where one party (the indemnifier) promises to compensate the other (the indemnity holder) for any loss or liability incurred. A contract of guarantee involves three parties, where one party (the surety) guarantees to a creditor that if a third party (the principal debtor) defaults on a debt, the surety will pay instead. The key differences are that a contract of indemnity reimburses losses after they occur, while a contract of guarantee provides security against a pre-existing liability in case of default.

3. Indemnity means Insurance or Security or Protection
• 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“.
Example
• A contracts to indemnify B against the consequences of any
proceedings which C may take against B in respect of a certain sum of
Rs 200. This is a contract of indemnity.
• Here A is the promisor i.e. ‘indemnifier’ and B is the promisee i.e.
‘indemnity-holder or indemnified’

4. • Contract of Guarantee is a contract to perform the
promise, or discharge the liability, of a third person in
case of his default. A guarantee may be either oral or
written.
Example
A gives a loan of Rs.1,000 to B and C promises to A that
if B does not repay the loan, he will pay.
A is the Creditor (to whom the guarantee is given)
B is the Principal debtors (whom the guarantee is given)
C is the surety (who gives the guarantee)

5. Example
A and B go into a shop. A says to the shopkeeper, “let
him(B) have the goods, I will see you paid”. This is a
Contract of Indemnity. If A says , “if B does not pay
you, I will pay”. It is a Contract of Guarantee.

6. Contract of Indemnity
 PARTIES – Two
1. Indemnifier
2. Indemnity holder
 DEGREE OF LIABILITY
Indemnifier is primary
Contract of Guarantee
 PARTIES – Three
1. Creditor
2. Principal Debtor
3. Surety
 DEGREE OF LIABILITY
Principal Debtor is primary and
Surety is secondary.

7. Contract of Indemnity
 Number of Contract – One
1.Indemnifier and Indemnified.
 REQUEST
Indemnifier need not act on the
request of the indemnified
Contract of Guarantee
 Number of Contract – Three
1. Creditor and Principal Debtor
2. Creditor and Surety
3. Surety and Principal Debtor
 REQUEST
Surety gives guarantee on the
request of the Principal Debtor.

8. Contract of Indemnity
 PURPOSE
Reimbursement of loss
 MATURITY
Happening of contingent event.
 INTEREST
Promisor has some interest in
the transaction.
Contract of Guarantee
 PURPOSE
Security of the creditor for
ensuring his payment
 MATURITY
Liability already exists
 INTEREST
Surety has no other interest

9. Contract of Indemnity
 RIGHT TO SUE
Indemnifier can not sue the third
party for loss in his own name.
He can sue in the name of the
indemnity-holder.
Contract of Guarantee
 RIGHT TO SUE
Surety can sue the principal
debtor in his own name after
discharging debtor’s liabilities.