A contract where one party promises to save the other from any loss caused to him by the conduct of promisor himself or any other person is called contract of indemnity. A contract to perform the obligation or to discharge the liability of a third party in case of its default is called contract of guarantee.
Difference between Indemnity Contract and Guarantee Contract –
Number of Parties: Indemnity contract includes two parties namely, indemnifier and indemnity holder. But guarantee contract includes three parties ninety creditors, Principal debtor, and surety.
Number of Contracts: In case of indemnity contract, as there are only two parties, there is a possibility for the existence of one contract only. But a contract of guarantee includes three sub-contracts.
Nature: As indemnity contract includes two parties and one contract, it can be said-that indemnity contract is simple in nature. But guarantee contract includes three parties and three sub-contracts and hence be said that guaranteed contract is complex in nature.
Liability: In a contract of guarantee there will be two types of liabilities namely; primary and secondary liabilities which will be with principal debtor and surety respectively. But in a contract of indemnity, there is no classification and sharing of liability where the absolute liability rests with indemnifier.
Recovery: In case of indemnity contract the indemnifier, after compensating indemnity holder’s loss, cannot recover that amount from any person. But in the contract of guarantee, if surety makes payment to a creditor, he (surety) can recover that amount from principal debtor.
The interest of parties: Indemnity contract gets formed upon indemnifier’s interest and guarantee contract gets formed upon principal debtor’s interest.
