Guarantee, governed by Sections 126-149, is a contract whereby a third party (guarantor) promises to pay the creditor if the principal debtor defaults. Key elements: (1) Three parties—principal debtor, creditor, guarantor; (2) Guarantor's liability is secondary (arises only on debtor's default); (3) Guarantee must be in writing (Section 126); (4) Supported by consideration. Types: Continuing guarantee (covers multiple transactions) and Single guarantee (covers one transaction). Guarantor's rights include right to be indemnified by principal debtor, right of subrogation (stepping into creditor's shoes upon payment), and discharge rights. Guarantor is discharged by creditor's release of principal debtor, extension of credit terms without guarantor's consent, or composition with debtor. Case law: Citi Bank v. Plapudi establishes guarantor must be aware of liability. Distinctions: Guarantee (three parties, secondary liability) vs. Indemnity (two parties, primary liability). For accountants, guarantees often secure loans; understanding discharge circumstances is critical. Exam tip: Identify parties carefully; focus on guarantor's secondary nature and discharge mechanisms.