Example of Contract of Guarantee

What is Contract of Guarantee?

Section 126 of the Indian Contract Act 1872 establishes that a Contract of Guarantee is a type of contract where one party promises the other party to perform the promise or to discharge the liability which is incurred by the third party due to his default. Contract of Guarantee is governed under the Indian Contract Act 1872, where three parties come together to create a contract of guarantee. A contract of guarantee is mostly seen in the cases of loans, employment, etc. A surety is the person who shall undertake the responsibility to perform the contract in case the principal debtor fails to undertake his share of responsibility. It may be inferred that surety acts as a layer of security for the creditor....

Example of Contract of Guarantee

Consider the following example under Contract of Guarantee:...

Section 126: Indian Contract Act 1872

1. Surety: A surety is a person who gives the guarantee in the contract of guarantee. Surety takes responsibility to pay an agreed sum of money, or he may also be required to perform any agreed duty for another person in case the principal debtor fails to perform such work as agreed to by the creditor....

Features of Contract of Guarantee

1. Principal Debt: The primary purpose of giving a guarantee is to secure the payment of a debt. The existence of recoverable debt is compulsory. If there is no existence of principal debt, there can be no valid contract of guarantee. It is a necessity of a contract to guarantee that there should be someone to be liable as a principal debtor, and the surety gives a guarantee in this regard....

Conclusion

A guarantee is a legal assurance that a contract will be duly enforced. A contract of guarantee is governed under the Indian Contract Act 1872. A contract of guarantee is a legal promise that is made by a third party to pay off an obligation of another party in case the debtor fails to fulfill his part of the obligation. The purpose of a contract of guarantee is to get assurance regarding the performance of the contract to be executed. A guarantee is a secondary obligation that comes to light once the principal debtor has failed to acknowledge his part of the performance. Three parties come together to create a contract of guarantee. A contract of guarantee is mostly seen in the cases of loans, employment, etc. A surety is the person who shall undertake the responsibility to perform the contract in case the principal debtor fails to undertake his share of responsibility....

Contract of Guarantee- FAQs

Which section governs the Contract of Guarantee under the Indian Contract Act 1872?...