Guarantee
/ˌɡærənˈtiː/
Contract Law Term
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Definition
A contract to perform the promise, or discharge the liability, of a third person in case of their default. Defined under Section 126 of the Indian Contract Act, 1872. Three parties: the principal debtor (primary obligor), the creditor (to whom the guarantee is given), and the surety (guarantor). The surety's liability is secondary — it arises only on default by the principal debtor. A continuing guarantee (Section 129) covers a series of transactions.
Examples
Case Study
In Syndicate Bank v. Vijay Kumar (1992), the Supreme Court held that the liability of a surety is coextensive with that of the principal debtor — not more and not less. The creditor cannot recover from the surety an amount exceeding what could be recovered from the principal debtor. The surety is discharged if the creditor makes a material variation in the contract with the debtor without the surety's consent (Section 133 Contract Act).
Key Cases
Syndicate Bank v. Vijay Kumar
1992AIR 1992 SC 1066
Surety's liability is coextensive with the principal debtor's — no more, no less. Material variation of the contract without surety's consent discharges the surety. Foundational Indian case on the law of guarantee under the Contract Act.
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