Define contract of guarantee. GROUP: B Descriptive Answer Questions 5 × 10 = 50

A contract of guarantee is a secondary contract under which a person (surety) undertakes to pay a debt or perform an obligation of another person (principal debtor) in case of their default. It is governed by Section 126 of the Contract Act, 2074 (2017). The contract involves three parties: the principal debtor (who owes the debt), the creditor (to whom the debt is owed), and the surety (who guarantees payment). The guarantee must be supported by consideration between the creditor and the principal debtor. It ensures the creditor’s security by providing an alternative party (surety) to recover the debt if the principal debtor fails to fulfill their obligation. The surety’s liability arises only upon the principal debtor’s default.