INDIAN CONTRACT ACT,1872-CONTRACT OF

GUARANTEE:

A guarantee can be many things. It can be assurance of a particular outcome or that

something will be performed in a specified manner .it can be a promise for
execution, completion, or existence of something .the English law defines
guarantee as a promise to answer for the debt, default or miscarriage of another.
Section 126 of the Indian contracts act, 1872 says that a contract of guarantee is a
contract to perform the promise or discharge the liability or a third person in case
of his default
ILLUSTRATION:
If A asks B to lend 200 to C and says if C fails to pay A will pay back the money it
will be contract of guarantee here
A is the SURETY
B is the CREDITOR
C is the PRINCIPAL DEBTOR
In case C fails to pay and the SURETY A pays the debt off , B is out of the scene
And now A automatically steps into the shoes of the creditor .
In a contract of guarantee there are two contracts they are
Principal contract
Secondary contract
Principal contract between the principal debtor and the creditor

Secondary contract is the contract between the creditor and the surety.