HOW IS A CONTRACT OF INDEMNITY DIFFERENT FROM

THE CONTRACT OF GUARANTEE? EXPLAIN WITH THE

HELP OF RELEVANT ILLUSTRATIONS.
LAW OF CONTRACT-II ASSIGNMENT

Submitted by-

PRAGYA AGRAHARI
A8111120106
BA LLB (HONS.)
SEMESTER-2
SECTION- C

Submitted to-

MS. NIHARIKA VERMA

AMITY LAW SCHOOL, LUCKNOW

CONTRACT OF INDEMNITY
According to Sec.124 of Indian Contact Act, 1872, “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.”

CONTRACT OF GUARANTEE
According to Sec.126 of Indian Contact Act, 1872, “A contract of guarantee is a
contract to perform to promise, or discharge the liability, of a third person in case of
his default. A guarantee may be either oral or written.”

DIFFERENCE BETWEEN ‘CONTRACT OF INDEMNITY’ AND

‘CONTRACT OF GUARANTEE’
1. On the basis of number of parties:
In Contract of Indemnity, there are two parties-indemnifier and the
indemnity-holder whereas in Contract of Guarantee, there are three parties-
principal debtor, creditor and surety.

ILLUSTRATIONS:
 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 indemnifier and B is
indemnity-holder.
 X and his friend Y enter a shop and X says to Z "Supply the goods
required by Y and if he does not pay you, I will." It is a contract of
guarantee. Here, Y is the principal debtor, Z is the creditor and X is the
surety.

2. On the basis of number of contracts:

In Contract of Indemnity, there is only one contract between indemnifier and
indemnity-holder whereas in Contract of Guarantee, there are three
contracts, one between creditor and principal debtor, second between surety
and principal debtor, and third between surety and the creditor.

3. On the basis of undertaking:

 In Contract of Indemnity, the indemnifier undertakes to save the indemnity-
holder from any loss whereas in Contract of Guarantee, the surety undertakes
for the payment of debts of principal debtor.

ILLUSTRATIONS:
 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. Here, A undertakes to save the B from any loss.
 X and his friend Y enter a shop and X says to Z "Supply the goods
required by Y and if he does not pay you, I will." Here, X as surety
undertakes for the payment of debts of Y.

4. On the basis of nature of liability:

In Contract of Indemnity, the liability of indemnifier is primary and
unconditional whereas in Contract of Guarantee, the liability of surety is
secondary and conditional. Surety's liability is secondary in the sense that the
primary liability is of principal debtor. Surety's liability is conditional in the
sense that it arises only on default of principal Debtor.

5. On the basis of nature of event:

In Contract of Indemnity, the liability arises only on the happening of a
contingency whereas in Contract of Guarantee, the liability arises only on the
non-performance of an existing promise or non-payment of an existing debt.

6. On the basis of right to sue:

In Contract of Indemnity, the indemnifier cannot sue a third party in his own
name because of absence of privity of contract between him and a third party.
He can sue the third party in his own name if there in an assignment in his
favour whereas in Contract of Guarantee, a surety, on discharging the debt of
principal debtor, can sue 'the principal debtor in his own.