Indemnity and guarantee are both types of contracts where one party promises to compensate another for loss or liability. [1] Indemnity involves two parties, where the indemnifier promises to reimburse the indemnified for losses caused by the indemnifier or third parties. [2] Guarantee involves three parties, where the guarantor promises the creditor payment or performance by the principal debtor. [3] The rights and obligations of each party differ between indemnity and guarantee.

1. Indemnity and
Guarantee
Indemnity and Guarantee

2. Indemnity and
Guarantee
A
Definition
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
(Sec.124)

3. Definition Contd.
 The person who promises to make good the loss
is the Indemnifier(Promisor)
 The person whose loss is to be made good is
Indemnified or Indemnity holder (Promisee)
 A contract of indemnity is really a class of
contingent contracts.
 Definition is not exhaustive and includes :
a) Express promises to indemnify
b) Cases where loss is caused by the conduct of
the Promisor himself or by the conduct of any
other person.

4. Definition Contd.
 Definition does not include :
a) Implied promises
b) Cases where loss arises from accidents
and events not depending on promisor
and other person’s conduct.

5. Contract of indemnity
 Right of indemnity holder when sued
 Rights of indemnifier
 Time of commencement of the
indemnifier’s liability.

6. Contract of Guarantee

7. Essential features
 Concurrence
 Primary liability in some person
 Essential features of a valid contract
 Consideration
 Writing not necessary

8. Guarantee is not a contract
of uberrimae fidei

9. Indemnity VS guarantee
 Two parties  Three parties
 Primary & independent  Collateral or secondary
 Three contract
 Only one contract
 Not necessary for the  Guarantee at the request of
indemnifier the debtor
 Liability arises only on
the happening of  An existing debt or duty
contingencies
 Cannot sue third parties  Proceed against the
for loss in his own name principal debtor in his own
right

10. Extent of surety’s liability
1. Nature of surety’s liability-it is co-extensive
2. Limitation of surety’s liability
3. Liability under continuing guarantee

11. Kinds of guarantee
1. Specific guarantee
2. Continuing guarantee

12. Revocation of continuing guarantee
1. By notice
2. By death of surety
3. By other modes

13. Rights of surety
1. Rights against creditor
i. Before payment of the guaranteed debt
ii. Right of set-off
iii. On payment of the guaranteed debt
iv. Right to equities
2. Rights against principal debtor
i. Rights to be relieved of liability
ii. Right to indemnity
2. Rights against co-sureties
i. Co-sureties liable to contribute equally
ii. Release or discharge of principal debtor
iii. Compounding by creditor with principal debtor
iv. Creditor’s act or omission impairing surety’s eventual liability
v. Loss of security

14. Discharge of surety
By the conduct of the By invalidation of
By revocation creditor the contract
Revocation by Death Novation
Surety Of (Sec. 62)
(Sec. 130) Surety
(Sec. 131)
Guarantee obtained Guarantee Failure of co- Failure of
by misrepresentation obtained by surety to join a consideration
(Sec. 142) concealment surety
(Sec. 143) (Sec. 144)
Variance in terms Release or Compounding Creditor’s or Loss of security
of contract discharge of by creditor with omission (Sec. 141)
(Sec. 133) principal debtor principal debtor impairing
(Sec. 134) (Sec. 135) surety’s eventual
remedy
(Sec. 139)