Contract of Guarantee and Contract Indemnity and their differences

Under the Indian Contract Act, 1872, both Indemnity and Guarantee are forms of "contingent contracts" used to provide security in commercial transactions.

1. Contract of Indemnity (Section 124)

A contract of indemnity is one by which one party (the Indemnifier) promises to save the other (the Indemnity Holder) from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person.

• Parties: There are two parties—the Indemnifier and the Indemnity Holder.

• Object: To protect the promisee against anticipated loss.

2. Contract of Guarantee (Section 126)

A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default.

• Parties: There are three parties—the Surety (gives the guarantee), the Principal Debtor (the person whose default is guaranteed), and the Creditor (to whom the guarantee is given).

• Object: To provide assurance to the creditor that the debt will be recovered.

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Distinction between Indemnity and Guarantee

Basis	Contract of Indemnity (Sec 124)	Contract of Guarantee (Sec 126)
Number of Parties	Two: Indemnifier and Indemnity Holder.	Three: Creditor, Principal Debtor, and Surety.
Number of Contracts	Only one contract exists between the parties.	Three contracts: (1) Creditor-Debtor, (2) Creditor-Surety, (3) Surety-Debtor.
Nature of Liability	The liability of the Indemnifier is primary and independent.	The liability of the Surety is collateral/secondary (arises only if the debtor defaults).
Request for Help	The Indemnifier acts independently, not necessarily at the request of the debtor.	The Surety usually gives the guarantee at the request of the Principal Debtor.
Right to Sue	The Indemnifier cannot sue a third party for loss in their own name.	The Surety, after paying the debt, can sue the Principal Debtor in their own right.
Existence of Debt	There is no existing debt or duty; liability depends on an event.	There is an existing debt or duty for which the guarantee is provided.