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Indian Contract Act, 1872 · Chapter VI: Of the Consequences of Breach of Contract · Of indemnity and guarantee

Section 126: "Contract of guarantee", "surety", "principal debtor" and "creditor"

In plain words

A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person if they default. The person giving the guarantee is the surety, the person whose default is covered is the principal debtor, and the person receiving the guarantee is the creditor.

  • A guarantee can be oral or written.

A simplified explanation, prepared with AI assistance from the official text below and checked automatically against it for numbers and cross-references. The official text is the law and prevails over this summary. Not legal advice.

Read the in-depth explanation, with key Supreme Court rulings ↓

Official text

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.

Source: India Code (indiacode.gov.in), the consolidated text published by the Legislative Department, Government of India. Text as updated on India Code on 15 October 2026. Words in square brackets [ ] were inserted or substituted by later amending Acts, and *** marks words omitted by an amendment. The amendment footnotes are not reproduced here. Official text on India Code.

Understanding this section

Section 126 defines a contract of guarantee: a contract to perform the promise, or discharge the liability, of a third person if he defaults. The surety gives the guarantee, the principal debtor is the person whose default is covered, and the creditor receives it. A guarantee can be oral or written.

Three contracts in one

  • Between creditor and principal debtor: the main obligation.
  • Between creditor and surety: the guarantee.
  • Between principal debtor and surety: an implied promise to indemnify the surety (section 145).

Consideration

Anything done or promised for the principal debtor's benefit is sufficient consideration for the surety (section 127). A guarantee given for a past debt with nothing done in return is void.

Bank guarantees

Bank guarantees are independent of the underlying contract. Courts will not restrain their encashment except for fraud or special equities that would cause irretrievable injustice.

Key Supreme Court rulings

Common mistakes

  • Thinking a guarantee must be in writing.
  • Restraining invocation of an unconditional bank guarantee without fraud or irretrievable injustice.

Read with: Section 127 Indian Contract Act, 1872, Section 128 Indian Contract Act, 1872, Section 145 Indian Contract Act, 1872

Prepared with AI assistance as a study aid. Every ruling listed was checked against the Supreme Court's own judgments on this site, and quoted words appear in those judgments; linked names open the full judgment. Read the judgments themselves before relying on them. Not legal advice.

Supreme Court judgments citing the section 126