📘 What is a Contract of Guarantee?
As per Section 126 of the Indian Contract Act, 1872, a Contract of Guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default.
🔹 Three Important Parties:
✔️ Creditor – The person to whom the guarantee is given
✔️ Principal Debtor – The person whose default is covered
✔️ Surety – The person who gives the guarantee
⚖️ The liability of the surety arises only when the principal debtor defaults.
📝 A guarantee can be:
• Oral
• Written
📌 Example: When a bank gives a loan to a borrower and a third person promises to repay if the borrower fails — that is a Contract of Guarantee.
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