Difference between Contract of Indemnity and Contract of
Guarantee
Contract of Indemnity
There are two parties in a contract
of indemnity, namely the
indemnifier and the indemnity
holder.
It consists of only one contract
between the indemnifier and the
indemnity holder. The indemnifier
promises to indemnify the
indemnified/indemnity holder in
event of a certain loss.
The liability of the indemnifier is
primary. The liability in a contract of
indemnity is contingent in the sense
that it may or may not arise.
Contract of Guarantee
There are three parties in a contract
of guarantee, namely the principal
debtor, the creditor, and the surety.
There are three contracts.
 Between the principal
debtor and the creditor
to fulfill the liability and
pay dues
 Between the creditor and
surety, where the surety
will pay off dues if the
principal debtor defaults
 Between the principal
debtor and surety, where
the principal debtor
makes good the losses of
the surety incurred to
fulfill the guarantee
The liability of the surety is a
secondary one, i.e., his obligation to
pay arises only when the principal
debtor defaults. Liability in a
contract of guarantee is continuing
in the sense that once the guarantee
 has been acted upon, the liability of
the surety automatically arises.
However, the said liability remains in
suspended animation until the
debtor makes default.
The liability of an indemnifier is not
Liability of surety is conditional on
conditional on the default of
the default of the principal debtor.
somebody else. For example, Mrinal
For example, Anil buys goods from a
promises the shopkeeper to pay, by
seller and Mrinal tells the seller that
telling him that, “Let Anil have the
if Anil doesn’t pay you, I will. This is
goods, I will be your paymaster”.
a contract of guarantee. Thus, the
This is a contract of indemnity as the
liability of Mrinal is conditional on
promise to pay by Mrinal is not
non-payment by Anil.
conditional on default by Anil.
No requirement of the principal
Principal debt is necessary.
debt
After the surety has made the
Once the indemnifier indemnifies
payment, he steps into the shoes of
the indemnity holder, he cannot
the creditor and can recover the
recover that amount from anybody
sums paid by him from the principal
else.
debtor.