1. Core Legal Answer & Context: (a) Contract of Indemnity (Section 124, ICA): 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. It involves two parties: the indemnifier (promisor) and the indemnified (promisee). The liability of the indemnifier is primary and independent. (b) Contract of Guarantee (Section 126, ICA): A contract to perform the promise, or discharge the liability, of a third person in case of his default. It involves three parties: the principal debtor (whose default is guaranteed), the creditor (to whom the guarantee is given), and the surety (who gives the guarantee). The liability of the surety is secondary and contingent upon the principal debtor's default.

Distinction:

• Parties: Indemnity (2 parties); Guarantee (3 parties).
• Nature of Liability: Indemnifier's liability is primary; Surety's liability is secondary.
• Cause of Loss: Indemnity covers loss from human agency or other events; Guarantee covers loss from principal debtor's default.
• Request: Indemnity may or may not involve a request; Guarantee always involves a request from the principal debtor to the surety.

"The liability of the surety is co-extensive with that of the principal debtor" (Section 128, ICA): This means that the surety is liable for all that the principal debtor is liable for, unless the contract of guarantee provides otherwise. The surety's liability is neither greater nor less than that of the principal debtor. It arises simultaneously with the principal debtor's default and covers the full extent of the principal debtor's obligation. For example, if the principal debtor defaults on a loan of ₹1 lakh plus interest, the surety is liable for the entire ₹1 lakh plus interest.

2. Relevant Statutes and Sections:

• Indian Contract Act, 1872: Sections 124 (Indemnity), 126 (Guarantee), 128 (Surety's liability).

3. Important Landmark Cases:

• State Bank of India v. M/s. Indexport Registered (1992): Reaffirmed that the liability of the surety is co-extensive with that of the principal debtor.
• Industrial Financial Corporation of India Ltd. v. The Cannanore Spinning & Weaving Mills Ltd. (2002): Further clarified the nature and extent of a surety's liability under Section 128.

4. Clear Conclusion: While both contracts offer protection against financial loss, indemnity involves a primary, two-party obligation to cover loss, whereas guarantee involves a secondary, three-party obligation to cover a third person's default, with the surety's liability being co-extensive with the principal debtor's.