Chapter VIII - Of Indemnity and Guarantee
Section 126
Section 126: Guarantee and the parties involved
A guarantee links a surety, principal debtor and creditor through an undertaking to answer for the third person’s default.
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Need advice on Section 126?
This article is for general information. Refer to the Indian Contract Act, 1872 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
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.
Rule and business relevance
The surety promises to perform the promise or discharge the liability of the principal debtor in case of default, in favour of the creditor. The section allows a guarantee to be oral or written.
Limits and related provisions
Oral validity under this section does not remove evidential difficulties or requirements arising under other applicable laws and transaction documents. Identify the actual undertaking rather than relying on its label.
Hypothetical business example
Hypothetical example: A director promises a supplier that the company’s unpaid invoice will be paid if the company defaults. The company, director and supplier occupy different legal roles.
Practical decision flow
Identify the principal obligation and the person owing it.
Identify the surety’s promise and the creditor to whom it is given.
Record the scope, default trigger and proof of the undertaking.
Check the applicable legal framework
This guide explains the central provision. Applicable State amendments, the agreement, transaction date and other governing laws can affect its application. Check the current legal framework before relying on it for a commercial decision.
Practical checklist
Do
- Identify the principal obligation and the person owing it.
- Identify the surety’s promise and the creditor to whom it is given.
- Record the scope, default trigger and proof of the undertaking.
Avoid
- Oral validity under this section does not remove evidential difficulties or requirements arising under other applicable laws and transaction documents. Identify the actual undertaking rather than relying on its label.
Glossary
- Surety
- The person giving the guarantee.
- Principal debtor
- The person whose promise or liability is guaranteed.
Frequently asked questions
Must every guarantee be written under section 126?
No. The section expressly permits oral or written guarantees, subject to other applicable requirements.
Who is the creditor?
The person to whom the guarantee is given.
Does a guarantee require a third person’s obligation?
The statutory definition concerns performance or liability of a third person in case of default.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026