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Section 126 of the Indian Contract Act defines a contract of guarantee as a contract to perform the promise made or discharge the liability of:
AThe promisor himself in case of his default
BA third person in case of his default
CAn incompetent party such as a minor
DAn unascertained person at a future date
Answer & Solution
Correct answer: B. A third person in case of his default
1. A guarantee guarantees a third party's obligation.
2. The surety steps in only when the principal debtor defaults.
3. It is therefore secondary and contingent.
_Source: ICMAI BoS CMA Foundation Paper 1 (Business Laws), Module 2 §2.7 (Indemnity/Guarantee/Pledge/Agent), p. 91-99_