Contract of Guarantee, Meaning and Definition

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. [section 126]. - -
[Person giving guarantee is also called as
guarantor. However, Contract Act uses the
word surety which is same as guarantor]. - -
Three parties are involved in contract of
guarantee. Contract between any two of them
is not a contract of guarantee. It may be
contract of indemnity. Primary liability is of
the principal debtor. Liability of surety is
secondary and arises when Principal Debtor
fails to fulfill his commitments.