Contract of Indemnity Contract of Guarantee

It refers to a Contract by which one party promises to It refers to a Contract to perform the promise or
save the other from loss caused by conduct of the discharge the liability of a third person in case of his
promisor or any other person. default.

In contract of indemnity, the liability of the promisor is In contract of guarantee, the primary liability is of
primary. principal debtor and the liability of surety is secondary.

Contract between surety and principal debtor is

Contract between the indemnifier and the indemnity
implied and between creditor and principal debtor is
holder is express and specific.
express.

In contract of indemnity there are two party’s In contract of guarantee there are three parties i.e.
indemnifier and the indemnity holder. creditor, the principal debtor and surety.

In contract of guarantee there are three agreements

In Contract of indemnity there is only one agreement
i.e. agreement between the creditor and principal
i.e. the agreement between indemnifier and indemnity
debtor, the creditor and surety and surety and principal
holder.
debtor.

Contract of indemnity protects the promisee from loss. Contract of guarantee is for the surety of the creditor.

In contract of guarantee, the surety does not require

In Contract of indemnity, the promisor cannot file the
any relinquishment for filing of suit. The surety gets the
suit against third person until and unless the promisee
right to file suit against the principal debtor as and
relinquishes his right in favour of the promisor.
when the surety pays the debt.

In the case of  State Bank of India v. Mula Sahakari Sakhar Karkhana (2006),  the Supreme Court
was of the view that whether a contract is one of guarantee or of indemnity is a question of
construction in each case. The difference between the two types of contract are enumerated below: