A 'contract of GUARANTEE' under Section 126 of the Indian Contract Act, 1872 is distinguished from a contract of indemnity in that it involves:

A contract of GUARANTEE under Section 126 is a contract to perform the promise or discharge the liability of a third person (the principal debtor) in case of his default. It involves THREE parties - the creditor, the principal debtor and the surety - whereas a contract of INDEMNITY involves only TWO parties (the indemnifier promises to save the indemnified harmless from losses caused by the conduct of the indemnified or any other person). The presence of a principal-debtor/surety relationship is what marks out a guarantee. Consideration to the surety is supplied by the creditor's forbearance or other act.