Indian Contract Act 1872: Contracts of Indemnity and Guarantee

Contract of Indemnity

Definition

"A contract by which one party promises to save the other from loss cause 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 really a part of the general class of 'contingent contracts'. It is entered into with the object of protecting the promise against anticipated loss. The contingency upon which the whole contract of indemnity depends is the happening of loss.

Contract of Guarantee

Definition 

"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).

A contract of guarantee is entered into with the object of enabling a person to get a loan or goods on credit or an employment.
The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal debtor,' and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written (Section 126).