Contract of Indemnity & Guarantee | Definition & Difference

Contact of Indemnity

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 124

A contract of indemnity is made in order to protect the promise against anticipated loss.

Parties to contract of indemnity

• Indemnifier: a person who promises to make good the loss.
• Indemnity-holder: the person whose loss is to be made good.

Example: A parked scooter at the college scooter stand. He lost his token given by the contractor. The contractor refuses to return the scooter to A unless he gives him an indemnity bond against any loss which he may suffer if any other person claims the scooter from the contractor.

Contract of Guarantee

A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. – section 126

Parties to contract of Guarantee

• Surety: who gives guarantee
• Creditor: person to whom the guarantee is given
• Principle Debtor: person for whom the guarantee is given

Essential features of Contract of Guarantee

• Secondary contract: Principle contract exists between the principal debtor and creditor.
• Consideration: Direct consideration is not necessary
• Misrepresentation: Consent of surety obtained by misrepresentation he is not responsible.
• Oral or in Writing