Q. Define contract of Guarantee.

 

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Answer

 

The Contract of Guarantee is defined under section 126 of Indian Contract Act, 1872. It provides as:

A contract of guarantee is a contract to perform the promise or discharge the liability, of a third person in case of his default.

It further states that, the person who gives the guarantee is called surety, the person in respect of whose default the guarantee is given is called principal debtor, and the person to whom the guarantee is given is called creditor.

The last part of the section states that guarantee may be either oral or written.

 

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Furthermore, the Blacks Law dictionary defines the term guarantee as:

“The assurance that a legal contract will be duly enforced”.

It should be noted that a contract of guarantee is a secondary contract that emerges from a primary contract between the creditor and the principal debtor. It is also called as the Contract of Suretyship.

 

Illustration

Aayush advances a loan to the Manu, on the assurance that if Manu fails to repay it, Sakshi will repay the same.

Here:

A.  Aayush is the creditor,

B.  Manu is the principal debtor, and

C.  Sakshi will be termed as surety.

 

Also Read:

Q. Write down various features of Contract of Guarantee.

 

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