“ 17. I shall now examine the relevant provisions of the Contract Act. Section 126 of the said Act, which defines the terms ‘contract of guarantee’, ‘surety’. ‘principal-debtor’ and ‘creditor’, provides that 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. In the context of the present case, the bank guarantee is a contract of guarantee. The bank (defendant No. 2) is the surety inasmuch as it has extended the guarantee and the plaintiff and the defendant No.1 are the principal-debtor and creditor respectively. The transaction between the aforesaid three parties is essentially a matter of three separate contracts. The first and main being the underlying contract between the principal-debtor and the creditor, i.e. between the plaintiff and the defendant No.1. The second being the contract of guarantee or the bank guarantee which is between the surety and the creditor, i.e. the defendant No. 2 and the defendant No.1. The third is the contract between the principal-debtor and the surety, i.e. between the plaintiff and the defendant No. 2. Although, the three contracts are independent in one sense, they are also inter-related in another sense and are founded upon the underlying contract. Section 128 of the Contract Act stipulates that the liability of the surety is co-extensive with that of the principal-debtor, unless it is otherwise provided by the contract. Section 133 makes it clear that 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. Section 134 stipulates that 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. However, certain kinds of discharge of the principal-debtor which may operate by operation of law may not enure to the benefit of the Surety. Such instances being the bankruptcy of the principal-debtor or liquidation in the case the principal-debtor is a company. Construing the aforesaid provisions, it is apparent that although there are three separate relationships and contracts between the three parties, the contract of guarantee does, to a large extent, depend upon the relationship between the creditor and the principal-debtor under the underlying contract. This is so because firstly, the liability of the surety under a contract of guarantee is co-extensive with that of the principaldebtor unless, of course, otherwise provided by the contract. Secondly, any variation brought about by the principal-debtor and the creditor in the terms of the contract between them, without the surety's consent, would discharge the surety as regards all transactions subsequent to the
