• Contract of Guarantee 

• Surety 

• Principal debtor 

• Creditor 

—– Section 126 of the Indian Contract Act 1872

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 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.

• Surety’s liability — Section 128 of the Indian Contract Act 1872

128. Surety’s liability.-The liability of the surety is co- extensive with that of the principal debtor, unless it is otherwise provided by the contract.

• Continuing Guarantee — Section 129 of the Indian Contract Act 1872

129. “Continuing guarantee”.-A guarantee which extends to a series of transactions, is called a “continuing guarantee”..

• Revocation of Continuing Guarantee — Section 130 of the Indian Contract Act 1872

130. Revocation of continuing guarantee.-A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.

• Discharge of surety by variance in terms of contract — Section 133 of the Indian Contract Act 1872

133. Discharge of surety by variance in terms of contract.-Any variance, made without the surety s consent, in the terms of the contract between the principal [debtor] and the creditor, discharges the surety as to transactions subsequent to the variance.

• Discharge of surety by release or discharge of principal debtor — Section 134 of the Indian Contract Act 1872

134. Discharge of surety by release or discharge of principal debtor.-The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.

• Discharge of surety when Creditor compounds with, gives time to, or agrees not to sue , principal debtor — Section 135 of the Indian Contract Act 1872

135. Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor.-A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.

• Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy — Section 139 of the Indian Contract Act 1872

139. Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy.-If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.

• Rights of surety on payment or performance — Section 140 of the Indian Contract Act 1872

140. Rights of surety on payment or performance.-Where a guaranteed debt has become due, or default of the principal debtor to a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which perform the creditor had against the principal debtor.

• Surety’s right to benefit of creditor’s securities — Section 141 of the Indian Contract Act 1872

141. Surety’s right to benefit of creditor’s securities.-A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.

• Implied promise to indemnify surety — Section 145 of the Indian Contract Act 1872

145. Implied promise to indemnify surety. In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but, no sums which he has paid wrongfully.