CONTRACT

OF
GUARANTEE

Prepared By:
Gandhi Vishrant V (A-13)
 DEFINITION

• It is a contract to perform the promise,

or discharge the liability, of a third
person in case of his default.

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 DEFINITION (Cont.)

• There are 3
persons:
1.Principal
Debtor
2.Surety
3.Creditor

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 Examples Of Contract Of
Guarantee
• S requests C to lend Rs:500 to P and
guarantees that if P, fails to pay the
amount, he will pay.

• S & P go into a shop. S says to the

shopkeeper, C, “ Let P have the goods, and
if he does not pay, I will.”

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 Essential features of a contract
of Guarantee
1. Concurrence:
A COG requires the concurrence of all the parties to it.

2. Primary Liability in some person:

 There must be primary liability in some person other
than the surety.
 The liability is enforceable by law.
 The minors are exempted.

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 Essential features of a contract
of Guarantee( Cont.)
3. Essentials of a valid contract:
 All the parties must be capable of entering in to valid
contract, although principal debtor may be a person
suffering from incapacity to contract. In that case the
surety is regarded as principal debtor.

 The consideration received by the principal debtor is

sufficient for the surety and it is not necessary that it must
result in some benefits to surety.

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 GUARANTEE & ITS
FUNCTIONS
 It enables a person to get a loan, or goods on credit, or an
employment.
 The guarantee is given for:
 Repayment of a debt.
 Payment of the price of the goods sold on credit
 The good conduct or honesty of a person employed in a
particular office.
 Restrospective Guarantee, given for an existing debt or
obligation.
 Prospective Guarantee, given for a future debt of obligation.

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 GUARANTEE & ITS TYPES
 Specific Guarantee:
When a guarantee extends to a single transaction or debt, it is
called a specific guarantee. It comes to an end when the
guaranteed debt is duly discharged or the promise is duly
performed.
 Continuing Guarantee:
When a guarantee extends to a series of guarantee, it is called a
continuing guarantee.

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