Difference Between Contract of Indemnity and Guarantee (Contract Law)


Contract of indemnity and guarantee, one of the most confusing, but inherently different concepts of Indian Contract Act. In this post, we’ll present the differences between both the concepts, in simplified manner.


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1.                   Contract of indemnity refers to a Contract by which one party promises to save the other from loss caused by conduct of the promisor or another person. Whereas, in contract of guarantee, surety, on the behalf of principal debtor,  assures the creditor, that he will perform the contract or compensate him for the loss.

2.                   Indemnity is defined in Section 124 of Indian Contract Act, 1872, Whereas, guarantee is in Section 126.

3.                   The purpose of the contract of indemnity is to save the other party from suffering loss. However, in the case of a contract of guarantee, the aim is to assure the creditor that either the contract will be performed, or liability will be discharged.

4.                   A contract of guarantee always has three parties; they are, the creditor, the principal debtor and the surety; whereas a contract of indemnity has two parties, the indemnifier and the indemnity holder.

5.                   In a contract of indemnity, there is a single promise or contract. Whereas, in a contract of guarantee, by contrast, there are multiple promises: one between the principal debtor and the creditor, second between the surety and the creditor and the third between the surety and the principal debtor.

6.                   Unlike the contract of guarantee, wherein the existing debt is the necessary condition, there is no as such requirement in contract of indemnity.

7.                   In a contract of indemnity, the indemnifier assumes primary liability, whereas in a contract of guarantee, the debtor is primarily liable and the surety assumes secondary liability.

8.                   In the contract of indemnity, the liability arises when the contingency occurs while in the contract of guarantee, the liability already exists.

9.                   in the case of a contract of indemnity, the rights of the indemnifier are comparatively limited, and the indemnifier can only sue the third party only if there is an assignment in his favor. In the case of contract of guarantee, the surety has comparatively more rights and he is empowered to step into the shoes of the creditor and he may sue the principal debtor after the discharge of surety’s liabilities.


Also read:

  1. Difference Between Sale And Agreement To Sell
  2. Differences Between Law Of Tort and Other Branches of Law
  3. Difference Between Judicial Separation and Divorce (Hindu Law)


Comparison Table

Let’s understand it with the help of a chart:


Basis of Comparison




Section 124 of Indian Contract Act, 1872, defines indemnity as:

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.”

Section 126 contains the definition of guarantee. This section reads as:

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


Protection from any harm/loss

for the surety of the creditor

Number of parties

Two, i.e. indemnifier and indemnified

Three, i.e. creditor, principal debtor and surety

Number of promises/contracts

1: i.e. the contract between indemnifier and indemnity holder

3: i.e. contract between the creditor and principal debtor, the creditor and surety and surety and principal debtor

Pre-existing debt


Debt exists




Maturity of liability

When the contingency occurs

Liability already exists



Comparatively more rights available


Important cases

1.                   State Bank of India v. Mula Sahakari Sakhar Karkhana,

2.                   Punjab National Bank Ltd. v. Bikram Cotton Mills and Anr

3.                   New India Assurance Company Ltd. V. Kusumanchi Kameshwra Rao,

4.                   Gajanan Moreshwar Parelkar V. Moreshwar Madan Mantri,

5.                   Adamson V. Jarvis,

6.                   Bank of Bihar Ltd. V. Damodar Prasad,


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