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Section 126 -The Indian Contract Act, 1872

The Indian Contract Act, 1872


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. 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”. A guarantee may be either oral or written.




Bank guarantee

Once it becomes apparent that there was no chance to fulfil the conditions in the bank guarantee, invocation of the bank guarantee would not be premature or unjustified; Daewoo Motors India Ltd. v. Union of India, (2003) 4 SCC 690.


It is well settled that bank guarantee is an autonomous contract. It is in common parlance that the issuance of guarantee is what a guarantor creates to discharge liability when the principal debtor fails in his duty and guarantee is in the nature of collateral agreement to answer for the debt; Syndicate Bank v. Vijay Kumar, AIR 1992 SC 1066.



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The Indian Contract Act, 1872



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