Section 126 The Indian Contract Act, 1872
Section 126 of the Indian Contract Act, 1872 defines the terms “Contract of guarantee,” “surety,” “principal debtor,” and “creditor.”
🔹 Section 126 – Contract of guarantee, surety, principal debtor, and creditor:
"A ‘contract of guarantee’ is a contract to perform the promise, or discharge the liability, of a third person in case of his default. A guarantee may be either oral or written."
"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’."
✅ Key Concepts:
Contract of Guarantee:
A legal promise to fulfill the obligation or pay the debt of another person in case they fail to do so.
Surety:
The person who gives the guarantee (the guarantor).
Principal Debtor:
The person whose default will trigger the surety's liability.
Creditor:
The person to whom the guarantee is given (i.e., the person to whom the debt is owed).
Form:
The guarantee can be either oral or written under Indian law.
📌 Example:
A takes a loan from B, and C promises to pay B if A fails to repay.
A = Principal Debtor
B = Creditor
C = Surety
This agreement between B and C is a contract of guarantee.
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