Indemnity and guarantee have this common feature that both are a device for providing protection against a probable loss. In either case the loss may arise due to human conduct. However, the technique of providing protection, the need and occasion for protection and the number of parties involved mark some differences between them.

1. The liability under a contract of indemnity is contingent in the sense that it may or may not arise. Under a guarantee, on the other hand, the liability is subsisting in the sense that once a guarantee has been acted upon, the liability of the surety automatically arises, though it remains in a suspended animation till the principal debtor commits default.
2. The undertaking in a guarantee is collateral, in an indemnity, it is original. The purpose of a guarantee is to support the primary liability of a third person. In an indemnity, there being no third person, the indemnifier's liability is in itself “primary”.
3. In a contract of indemnity there are only two parties, namely, the indemnifier and the indemnity-holder. But there are three parties to a guarantee, the creditor, the principal debtor and the surety. It is a tripartite arrangement.
4. In an indemnity there is only one contract, that is, the contract of indemnity against loss between the indemnity-holder and the indemnifier. But in a guarantee there are three contracts, namely, a contract of loan between the principal debtor and the creditor; a contract of guarantee between the creditor and the surety and finally an implied contract of indemnity between the principal debtor and the surety