Section 126 of Indian Contract Act 1872: Contract of Guarantee, Surety, Principal Debtor and Creditor
Section 126 of the Indian Contract Act, 1872 defines a contract of guarantee and identifies the three parties involved: the surety, the principal debtor and the creditor. It also expressly provides that a guarantee may be oral or written.
What does Section 126 provide?
Section 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 that person's default. The person giving the guarantee is the surety; the person whose default is covered is the principal debtor; and the person to whom the guarantee is given is the creditor. A guarantee may be oral or written.
The statutory text places Section 126 in Chapter VIII of the Indian Contract Act, 1872, dealing with indemnity and guarantee. The current central Act and the placement of Section 126 can be verified from the official India Code text.
Official source: Indian Contract Act, 1872 on India Code
Meaning of the key terms under Section 126
Essential features of a contract of guarantee
Section 126 establishes the basic structure of a guarantee. In practical terms, the arrangement involves an underlying obligation of the principal debtor and a promise by the surety to answer for the default covered by the guarantee. The creditor is the beneficiary of that promise.
- There are three relevant roles: surety, principal debtor and creditor.
- The guarantee relates to the promise or liability of a third person.
- The surety's undertaking operates in the event of the principal debtor's default, subject to the terms of the guarantee and the applicable provisions of law.
- Section 126 permits a guarantee to be either oral or written.
- Other provisions in the same chapter govern matters such as consideration, extent of liability, continuing guarantees, revocation, discharge and rights of the surety.
Can a guarantee be oral?
Yes. Section 126 expressly states that a guarantee may be either oral or written. Whether a particular guarantee is proved and enforceable will depend on the facts, evidence, terms of the transaction and other applicable legal requirements. For important commercial transactions, a written guarantee ordinarily provides clearer evidence of the parties, scope, amount, duration and conditions of the undertaking.
Related provisions on guarantees
Section 126 supplies the definitions, while the provisions that follow regulate important aspects of the legal relationship. For example, Section 127 deals with consideration for a guarantee, Section 128 addresses the surety's liability, and Section 129 defines a continuing guarantee.
Frequently asked questions
Who is a surety under Section 126?
The surety is the person who gives the guarantee for the promise or liability of the principal debtor.
Who is the principal debtor?
The principal debtor is the person in respect of whose default the guarantee is given.
Who is the creditor?
The creditor is the person to whom the guarantee is given.
Is Section 126 limited to written guarantees?
No. The section expressly recognizes both oral and written guarantees.
This page is a general explanation of the statutory provision and is not a substitute for advice on the facts of a particular transaction or dispute.