Week 3-5 Guarantee

Special Contracts:
Guarantee
Week 3-5
Pallavi Goel
S. 126 of
Indian
Contracts Act
Raj: Guarantor
A ‘contract of
guarantee’ is a
contract to perform the
promise or discharge
the liability of a third
person in case of his
default.
Ravi: Creditor Radha: Principal Debtor

e.g., Radha wishes to
purchase a car from
Ravi. Raj promises Ravi
that in the event Radha
fails to make the
payment he will pay for
the car.
PARTIES
 SURETY/GUARANTOR: The person

who gives the guarantee
 PRINCIPAL DEBTOR: The person in
respect of whose default the
guarantee is given
 CREDITOR: The person to whom
the guarantee is given
 Guarantee may be expressed
or implied
Ajay advances a loan of INR 70000 to

Paul. Suraj who is the boss of Paul
promises that in case Paul fails to repay
the loan, then he will repay the same. Is it
a contract of guarantee? Who is Who?
LIABILITY
 Primary Liability: of the

principal debtor
 Secondary Liability: of the

Surety; i.e., it arises when the
principal debtor fails
 Guarantees are usually

taken to provide a second
pocket to pay if the first
should be empty
 To secure the performance of something
 To secure the honesty and fidelity of
Principal Debtor
 To secure some one from injury arising
out of some wrong committed by
another.
PURPOSE REQUIREMENTS
 A contract of guarantee like other

ordinary contrary must satisfy all the
essentials of a contract
 Something done or any promise made
for the benefit of the principal debtor is
presumed by law to be a sufficient
consideration for the contract of
guarantee. It is not necessary that the
surety himself must be benefited.
The guarantor, having not signed
the contract of guarantee, wanted
to wriggle out of the situation. He
said that he did not stand as a
surety for the performance of the
contract. Evidence showed the
P.J. Rajappan involvement of the guarantor in the
v. Associated deal and had promised to sign the
contract later.
Industries
(1983) Is evidence of the involvement of
the guarantor, w/o a written
agreement sufficient to demolish
any evidence that the guarantor
guaranteed the due performance
of the contract by the principal
debtor?
Indemnity Guarantee
Indemnity is when one party promises to compensate Guarantee is when a person assures the other party that
Meaning: the other for the loss suffered due to the act of the he/she will perform the promise or fulfil the obligation of the
promisor or any other party. third party, in case he/she default
Parties: Indemnifier + Indemnity Holder Creditor + Principal Debtor + Surety
Three: [I] between creditor and principal debtor. [II] between

Number of One: between the indemnifier and the indemnity
creditor and the surety. [III] between principal debtor and
Contracts: holder
surety.
Primary: because the indemnifier undertakes an

Secondary: because the obligation of the surety depends
Nature of independent obligation which does not depend upon
substantially on the principal debtor’s default.
liability: the existence of any other obligation of any other
This liability will only arise if the principal debtor fails.
obligor.
Purpose: To compensate for the loss To give assurance to the promisee
Maturity: When contingency occurs Liability already exists / when PD defaults
Indemnifier cannot sue a third party for the loss

suffered.
Right to Sue Surety can sue the principal debtor.
Indemnity v. Guarantee
Indemnity OR Guarantee
 Mr. Joe is a shareholder of Alpha
Ltd. lost his share certificate. Joe
applies for a duplicate one. The
company agrees, but on the
condition that Joe compensates
for the loss or damage to the
company if a third person brings
the original certificate.
Indemnity or Guarantee?
Who is Who?
 Mr. Harry takes a loan from

the bank for which Mr. Joesph
has given the assurance that
if Mr. Harry default in the
payment of the said amount
he will discharge the liability.
Who is Who?
Anil and Kamal have entered into a

contract whereby Anil agrees to supply to
Kamal, 100 kgs of rice for a consideration of
Rs. 1 Lakh. Chotelal is a friend of Kamal.
When Anil tells Chotelal of his contract with
Kamal, Chotelal makes an oral promise to
Anil and Kamal that if Kamal does not pay
as per the contract, he will pay Rs. 1 Lakh to
Anil.
Who is Who?
Who is Who?
Allan guarantees to Bates

the payment by Carl. Carl
defaults and never pays
Bates.
Who is Who?
What is Allan’s liability?
Whether a particular transaction is a
contract of guarantee is a question of
construction, especially in light of extrinsic
evidence (circumstances / context etc.)
available
 Agreement of all the parties: All the 3
parties must agree to make such a
contract. Express or Implied.
 Liability: Here, liability of the Surety is
secondary
 Existence of a Debt: A contract of
guarantee pre-supposes the
existence of a liability, which is
enforceable at law. If no such
liability exists, there can be no
Essentials of a contract of guarantee.
valid Contract  Consideration: There must be lawful
consideration. The consideration
of Guarantee need not benefit the Surety but must
always benefit the Debtor. Thus, any
benefit received by the debtor is
adequate consideration to bind the
surety. Anything is done or any
promise made for the benefit of the
principal debtor provides sufficient
consideration to the surety for giving
the guarantee to the creditor [Sec
127].
 No Concealment of Facts: The creditor
should disclose to the surety the facts that
are likely to affect the surety’s liability. The
guarantee obtained by the concealment
of such facts is invalid. Thus,
the guarantee is invalid if the creditor
obtains it by the concealment of material
facts.
 No Misrepresentation: The guarantee
should not be obtained by
misrepresenting the facts to the surety.
Essentials of a Though the contract of guarantee is not
a contract of absolute good faith, and
valid Contract thus, does not require complete
disclosure of all the material facts by the
principal debtor or creditor to the surety
of Guarantee before he enters into a contract. But the
facts, that are likely to affect the extent of
surety’s responsibility, must be truly
represented.
 Essentials of a Valid Contract: It must
have all the essentials of a valid contract
such as offer and acceptance, intention
to create a legal relationship, capacity to
contract, genuine and free consent,
lawful object, lawful consideration,
certainty and possibility of performance
and legal formalities.
The Indian Contract Act, 1872
Chapter-VIII Of Indemnity and Guarantee
Section 127: Consideration for guarantee.
127. Anything done, or any promise made, for

the benefit of the principal debtor, may be a
sufficient consideration to the surety for giving
the guarantee.
Consideration Illustrations
for Guarantee (a) B requests A to sell and deliver to him

goods on credit. A agrees to do so, provided C
S. 127 will guarantee the payment of the price of the
goods. C promises to guarantee the payment in
consideration of A’s promise to deliver the
goods. This is a sufficient consideration for C’s
promise.
(b) A sells and delivers goods to B. C

afterwards, without consideration, agrees to
pay for them in default of B. The agreement is
insufficient consideration.
 Consideration for guarantee:
 Anything done, or any promise
made,
 for the benefit of the principal
debtor,
 may be [considered] a sufficient
Consideration, consideration to the surety for
giving the guarantee.
S.127
 “Anything” meaning it is immaterial
whether there is, any apparent benefit
to the person making the promise
 “Done” indicates that a past benefit to

PD can be good consideration for a
bond of guarantee.
R sells and delivers goods to Y. G
requests R not to sue Y for the debt
for at-least 1 year and promises that if
he does so, G will pay in case Y
defaults. R agrees. Is this sufficient
consideration for G’s promise?
G R Y
Bill requests Ankur to sell and deliver
him furniture on credit. Ankur agrees
to do so, provided Karim will
guarantee the payment of the price
of the goods. Karim promises to
guarantee the payment in
consideration of Ankur’s promise to
deliver the goods. Is the
consideration sufficient?
Promise for the

Requests furniture benefit of the
on credit Debtor
Surety for payment
Requests furniture Ankur/C Karim/S

Bill/PD on credit
 There needs to be a consideration
 It is not necessary that Surety
himself be benefitted
 Creditor and Surety must be
competent to enter into a contract
but Principal Debtor may be a
minor or a person incapable of
Rule entering into a contract.
In such a case the surety will be taken
as the principal debtor and will be
liable to pay.
 The liability of the surety is

conditional. It arises when the
principal debtor makes a default.
Types of Guarantee
Types of Guarantee: Specific Guarantee
Means a guarantee given for one specific transaction. In this case the
liability of the surety extends only to a single transaction.
Example: A guarantee payment to B of the price of 5 sacks of flour to

be delivered by B to C and to be paid in a month. B delivers sacks to C.
C pays for them. Afterwards B delivers four sacks to C, which C does
not pay. The guarantee given by A was only a specific guarantee and
accordingly he is not liable for the price of the four sacks.
Section 129: “Continuing guarantee”
129. A guarantee which extends to a series of

transactions, is called a “continuing guarantee”.
Illustrations
(a) A, in consideration that B will employ C in

collecting the rent of B’s zamindari, promises
S. 129, Indian B to be responsible, to the amount of 5,000
rupees, for the due collection and payment by
Contract Act C of those rents. This is a continuing
guarantee.
(b) A guarantees payment to B of the price of five

sacks of flour to be delivered by B to C and to
be paid for in a month. B delivers five sacks to
C. C pays for them. Afterwards B delivers four
sacks to C, for which C does not pay. The
guarantee given by A was not a continuing
guarantee, and accordingly he is not liable for
the price of the four sacks
 A continuing guarantee is merely
a series of continuing offers to
guarantee future performances,
binding only insofar as it is acted
upon. Hence by giving notice to
the oblige before the
acceptance of any one of offer
of the series the guarantor may
revoke that offer and all
succeeding ones.
Continuing
Guarantee,  Surety undertakes to be
answerable to the creditor for his
S.129 dealings with the debtor, over a
certain period.
 It may at any time be revoked by
the surety, as to future
transactions between the creditor
and principal debtor, by notice to
the creditor.
 It may also be revoked either by
notice to the Creditor, or until the
death of the Surety.
 To determine whether or not a
guarantee is a Continuing
Guarantee, we need to see the
intent of the party and the
nature of guarantee provided.
 It all depends on:

 Intention of parties. E.g.,
“ultimate balance to be
paid by surety” or “from time
to time”
 construction and nature
and circumstances: we see
the subject matter of the
construction.
K gave his house to S on a lease
for ten years on a specified
lease rent. P guaranteed that S,
would fulfil his obligations. After
seven years S stopped paying
the lease rent. ‘K sued him for
the payment of rent. P then
gave a notice revoking his
guarantee for the remaining
three years.
Can P revoke the guarantee?

Alice guarantees payment to
Brittany of the price of 5 Dyson
hair dryers to be delivered by
Brittany to Casey and to be
paid for in a month. Brittany
delivers 5 Dyson hair dryers to
Casey. Casey pays for them.
Afterwards Brittany delivers 4
more Dyson hair dryers to
Casey, which Casey does not
pay for.
Paul (principal-debtor) takes a
loan from Carl (creditor), with
Sam (surety) taking up the
liability for repaying the loan in
case Paul fails to pay back. On
1st of August Paul defaults and
on same day (August 1st) at
10pm Sam is involved in an
accident and passes away.
Given that the Surety Sam is no

more, does the contract of
guarantee still remain?
Section 130: Revocation of continuing guarantee.
130. A continuing guarantee may at any time be revoked by the surety, as to future
transactions, by notice to the creditor.
Illustrations
(a) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills that B
shall draw upon him. B draws upon C. C accepts the bill. A gives notice of
revocation. C dishonours the bill at maturity. A is liable upon his guarantee.
(b) “A” guarantees payment of Rs. 10000 to “B” on purchase of coal to be made by
“C”. Then “B” supplied the coal of Rs. 5000 to “C”, “A” gives a notice to “B” coal
dealer not to supply coals to “B” further. In this case, A is liable for the payment of
supply of coal worth Rs. 5000. But “A” won’t be liable for any further supply made
after the notice of revocation.
Guarantee given for an existing
debt is concerned, it cannot be
revoked, as once an offer is
accepted it becomes final.
However, a continuing guarantee
can be revoked for future
transactions. Surety shall be liable
for those transactions which have
already taken place.
Revocation of
Continuing Revocation by giving a notice.
S.130
Guarantee
Continuing guarantees can be
revoked by giving notice to the
Creditor but this applies only to
future transactions only. Surety still
remains liable for all the
transactions that have happened
before the notice. Any notice
requirements provided in the
contract needs to be complied.
Section 131: Revocation of continuing guarantee by

surety’s death.
131. The death of the surety operates, in the absence of any

contract to the contrary, as a revocation of a continuing
guarantee, so far as regards future transactions.
Revocation by Death of Surety, S.131
Unless there is a contract to the contrary, the
death of surety operates as a revocation of
the continuing guarantee in respect to the
transactions taking place after the death of
Revocation of surety due to the absence of a contract.
Continuing Deceased Surety’s legal representatives will

continue to be liable for transactions entered
Guarantee into before his death. The estate of
deceased surety is, however, liable for those
transactions which had already taken place
during the lifetime of the deceased. Surety’s
estate will not be liable for the transactions
taking after the death of surety even if the
creditor had no knowledge of surety’s death.
Muhammad Insha Allah
Khan vs Muhammad
Ubed-Ullah And Ors.
(1921) ILR 43 ALL 132

*not in course manual
FACTS
 Hafiz Abdul Rahim (S1) died in

 Syed Zahur-ul-Hasan (PD) was a 1910, and in 1916 Zahur-ul-Hasan
candidate for service in the (PD) embezzled a sum of Rs. 482-
2-0.
Postal department (C) and had
to furnish two sureties for good  The postal authorities recovered the
conduct during his term of amount from the surviving surety S2.
service.  The present suit is by S2 to recover
half of this amount from the heirs of
 He complied with the his deceased co-surety S1.
requirements.
 This is a revision suit, contending
 The two sureties were: that the court below erred in
decreeing the suit, as the security
 Hafiz Abdul Rahim (S1) and bond ceased to be operative as
against the deceased surety S1
 Insha Allah Khan (S2) after his death.
The important portions of the security bond are:
 (1) that the sureties bound "ourselves, our heirs, executors, administrators
and the representatives jointly, and each of us binds himself, his heirs,
executors, administrators and representatives severally, formally etc."
and
 (2) "provided always that neither of the two sureties shall be at liberty to
terminate his suretyship except upon giving to the head of the laid
postal circle for the time being 6 calendar months' notice in writing of
his intention so to do, etc, etc." and in the event of any such notice
being given, the liability of the surety by whom it shall be given, shall be
thereby determined in respect only of acts and omissions happening
after the expiration of the said period of months.
LAW IN FOCUS
Section 131 of the Indian Contract Act runs as follows:

The death of the surety operates, in the absence of any
contract to the contrary, as a revocation of a continuing
guarantee so far as regards future transactions.
MAIN FOCUS OF ARGUMENT
The surety bond should remain operative after sureties deaths and that
their estate, if any, would remain liable for the embezzlements of
Zahur-ul-Hasan (PD), and that the operation of the bond would
continue so long as he was in service.
It was contended that the insertion in the latter part of the agreement,
that a surety could terminate his liability by giving 6 months' previous
notice shows that this Agreement could be terminated at any time,
and therefore, would ipso facto terminate with the death of the surety.
The Judges did not decide in that case whether it was a case of continuing
guarantee within the meaning of Section 131 of the Indian Contract Act.
COURT’S OBSERVATION:
Judge 1
We do not think that this contention is a sound one.

The only exception to the previous part of this bond, which
was to enure during the whole of the period of the service
of Zahur-ul-Hasan (PD), was that 6 months' notice would
terminate it.
There was no other contingency contemplated and we will
not be justified in importing another condition, that the
death of one of the sureties, by itself, would terminate the
responsibility.
Judge 1
But they came to the conclusion that having regard to the terms of
the agreement and the circumstances under which it was
executed, there was no doubt that the parties intended that the
guarantee given by the surety should continue during the whole of
the currency of the lease which was arrived at on the face of that
guarantee, and it was on their interpretation of the security bond
that they held that in that particular case the liability continued
notwithstanding the death of the surety.
This case illustrates what is meant by the words in the absence of
any contract to the contrary "used in Section 131 of the Indian
Contract Act.
Judge 1
As an ordinary rule of law it might be said that where a continuing

relationship is constituted on the face of a guarantee, there is a strong
reason for holding that the guarantee cannot be annulled during the
continuance of that relationship except where there is a contract to the
contrary.
The death of one of the sureties during the continuance of the service did
not affect the contract of guarantee, and in our opinion the claim of the
plaintiff respondent was rightly decreed by the court below. We,
therefore, dismiss this application with costs.
Judge 2
We have to interpret the bond and gather from it what was, in fact, the
intention of the parties, that is to say, what, in fact, was the contract.
It is quite clear that the postal authorities would never have admitted the
peon into their service unless his honesty during the whole course of his
employment had been guaranteed by two approved guarantors, who
bound themselves, not only jointly and severally but also their estate, that
they would, to the extent of Rs. 1,000, be responsible in case of the peon's
default.
Unless and until the period of six months had elapsed after a notice to
revoke, their liability, the contract of indemnity remained and the estate
of both was liable.
Therefore, as no notice was given by Hafiz Rahman as contemplated in
the bond during his life or after his death by his representatives, his estate
must be held liable in this suit.
A guarantees to B to the
extent of Rs. 10,000, that C
shall pay for all the goods
bought by him during the
next three months. B sells
goods worth Rs. 6,000 to C.
A gives notice of revocation.

What is A’s liability?
Limitation The period of limitation of
Period on enforcing a guarantee is 3 years
from the date on which the letter of
Guarantee guarantee was executed.
S. 142
INVALID S.143
GUARANTEES S. 144
Chapter-VIII Of Indemnity and
Guarantee
Section 142: Guarantee obtained by

misrepresentation invalid.
Invalid
142. Any guarantee which has been
Guarantee obtained by means of misrepresentation
S. 142 made by the creditor, or with his
knowledge and assent, concerning a
material part of the transaction, is
invalid.
Section 143: Guarantee obtained by concealment

invalid.
143. Any guarantee which the creditor has obtained by

means of keeping silence as to material circumstances, is
invalid.
Illustrations
Invalid (a) A engages B as clerk to collect money for him. B fails
Guarantee to account for some of his receipts, and A in
consequence calls upon him to furnish security for his
S. 143 duly accounting. C gives his guarantee for B’s duly
accounting. A does not acquaint C with B’s previous
conduct. B afterwards makes default. The guarantee is
invalid.
(b) A guarantees to C payment for iron to be supplied by

him to B to the amount of 2,000 tons. B and C have
privately agreed that B should pay five rupees per ton
beyond the market price, such excess to be applied in
liquidation of an old debt. This agreement is concealed
from A. A is not liable as a surety.
Guarantee
Section 144: Guarantee on contract

that creditor shall not act on it until
co-surety joins.
Invalid 144. Where a person gives a guarantee

upon a contract that the creditor shall
Guarantee not act upon it until another person has
S. 144 joined in it as co-surety, the guarantee
is not valid if that other person does not
join.
Example A agrees with B to stand as

a surety for C for a loan of Rs. 10,000
provided D also joins him as surety. D
refuses to join. A is not liable as a
surety.
• Rights against Principal
Debtor
Rights against Creditor
RIGHTS OF •
• Rights against Co-Sureties
SURETY
Section 140: Rights of surety on payment
or performance.
140. Where a guaranteed debt has become
due, or default of the principal debtor to
perform a guaranteed duty has taken place,
Rights of Surety: the surety upon payment or performance of
Right against the all that he is liable for, is invested with all
the rights which the creditor had against the
Principal Debtor principal debtor.
Section 140: Once the surety discharges the

S.140, ICA debt, he obtains the rights of a creditor against
the principal debtor. He can now sue the
principal debtor for the amount of debt paid by
him to the creditor due to the default of the
principal debtor.
In a case where the principal debtor on
discovering that the debt has become due,
starts disposing of his properties in order to
prevent seizure by the surety, the surety can
compel the debtor to pay the debt and
discharge him from his liability to pay.
Section 145: Implied promise to indemnify

surety.
145. In every contract of guarantee there is an
implied promise by the principal debtor to
Rights of Surety: indemnify the surety, and the surety is entitled
to recover from the principal debtor whatever
Right against the sum he has rightfully paid under the guarantee,
Principal Debtor but, no sums which he has paid wrongfully.
Illustrations
S.145, ICA C lends B a sum of money, and A, at the request
of B, accepts a bill of exchange drawn by B upon
A to secure the amount. C, the holder of the bill,
demands payment of it from A, and, on A’s
refusal to pay, sues him upon the bill. A, not
having reasonable grounds for so doing, defends
the suit, and has to pay the amount of the bill
and costs. He can recover from B the amount of
the bill, but not the sum paid for costs, as there
was no real ground for defending the action.
Section 141: Surety’s right to benefit of

creditor’s securities.
141. A surety is entitled to the benefit of every

security which the creditor has against the
Rights of Surety: principal debtor at the time when the contract of
suretyship is entered into, whether the surety
knows of the existence of such security or not;
and if the creditor loses, or, without the consent
rights against the of the surety, parts with such security, the surety
creditor is discharged to the extent of the value of the
security.
Illustration
(a) A, as surety for B, makes a bond jointly with B

to C, to secure a loan from C. Afterwards, C
obtains from B a further security for the same
debt. Subsequently, C gives up the further
security. A is not discharged.
Section 141, a surety is eligible to
the benefit from every security
which the creditor has against the
principal debtor. This holds true
even if at the time of entering into
the contract of guarantee the surety
was unaware of the existence of
such a security.
Rights of Surety:
Also, when the creditor losses or
parts with such security without the
consent of the surety, this
rights against the discharges the surety to the extent
creditor of the value of such security.
Right to set off: When the creditor sues

the surety for the payment of principal
debtor’s liabilities, the surety can claim
set off, or counterclaim if any, which
the principal debtor had against the
creditor.
On the guarantee of Priya,
Anita lent Rs 1,00,000 to Sita.
This debt is also secured by
security for the debt which is
the lease of Sita’s house. Sita
defaults in paying the debt
and Priya has to pay the
debt.
What are the rights and

liabilities of Priya?
Calvin, advances to Ballu, his
tenant, 2,000 rupees on the
guarantee of Aryan.
Calvin has also a security for

the 2,000 rupees by a mortgage
of Ballu’s furniture. Calvin
cancels the mortgage. Ballu
becomes insolvent and Calvin
sues Aryan on his guarantee.
What is Aryan’s liability?

Section 146: Co-sureties liable to contribute

equally.
146. Where two or more persons are co-sureties for

the same debt or duty, either jointly or severally, and
whether under the same or different contracts, and
whether with or without the knowledge of each other,
the co-sureties, in the absence of any contract to the
contrary, are liable, as between themselves, to pay
Rights of Surety: each an equal share of the whole debt, or of that part
of it which remains unpaid by the principal debtor1.
Illustrations
Co-sureties
(a) A, B and C are sureties to D for the sum of 3,000
rupees lent to E. E makes default in payment. A, B
and C are liable, as between themselves, to pay 1,000
rupees each.
(b) A, B and C are sureties to D for the sum of 1,000

rupees lent to E, and there is a contract between A, B
and C that A is to be responsible to the extent of 1/4,
B to the extent of 1/4, and C to the extent of 1/2. E
makes default in payment.
As between the sureties, A is liable to pay 250 rupees,
B 250 rupees, and C 500 rupees.
The essence of this section is that if
the creditor calls upon one of the
Rights of Surety: co-sureties to pay the debt or any
part of it, that surety has a right, on
principles of equity, to call upon his
Co-Sureties co-sureties for contribution.
(Sometimes called as a “right of
contribution”)
Guarantee
Rights of Surety:
Section 138: Release of one co-
surety does not discharge others.
rights against the
138. Where there are co-sureties, a
co-sureties release by the creditor of one of them
does not discharge the others; neither
does it free the surety so released from
his responsibility to the other sureties
Release of one co-surety does not
discharge others (Section 138):
Co-sureties are liable to contribute as
agreed towards the payment of
guaranteed debt.
The release by the creditor of one of the

Rights of Surety: co-sureties does not discharge the others,
nor does it free the released surety from
his responsibility to the other sureties.
rights against the
co-sureties Thus, when the payment of a debt or
performance is guaranteed by co-sureties
and the principal debtor has defaulted
and the creditor compels only one of the
co-sureties to perform the whole contract,
the co-surety surety performing the
contract are entitled to claim contribution
from the remaining co-sureties.
Guarantee
Section 147: Liability of co-sureties bound in

different sums.
Rights of Surety: 147. Co-sureties who are bound in different

sums are liable to pay equally as far as the limits
of their respective obligations permit.
rights against the Illustrations
co-sureties
A, B and C, as sureties for D, enter into three
several bonds, each in a different penalty,
namely, A in the penalty of 10,000 rupees, B in
that of 20,000 rupees, C in that of 40,000 rupees,
conditioned for D’s duly accounting to E. D
makes default to the extent of 70,000 rupees. A,
B and C have to pay each the full penalty of his
bond.
S.132: where two persons
(Sureties) simultaneously gives a
guarantee to the third person
(Creditor). In such cases, where
the said two Sureties enter into
a contract between
themselves that one of the
Surety will pay in case of
default of the other Surety, and
where the Creditor is not a
party to the said Contract
although he may be aware of
such Contract, the joint liability
of the said two Sureties towards
the Creditor is not diluted in
anyway due to the existence of
any such Contract between
the Sureties.
A, B and C, sureties for D,
enter into three separate
bonds, each in a different
penalty, A for Rs. 10,000, B for
Rs. 20,000 and C for Rs.
40,000. D makes default to
the extent of Rs. 30,000.
What is individual liability of

A, B and C?
Suppose this default was to

the extent of Rs. 40,000. Then
what is the individual liability
of A, B and C?
• Co-extensive liability
SURETY’S • Automatic Subrogation
LIABILITY
Guarantee
Section 128: Surety’s liability.
128. The liability of the surety is co-

extensive with that of the principal
debtor, unless it is otherwise provided
Surety’s by the contract.
Liability, S. 128
Illustration
A guarantees to B the payment of a bill

of exchange by C, the acceptor. The bill
is dishonored by C. A is liable, not only
for the amount of the bill, but also for
any interest and charges which may
have become due on it
Co-extensive: Co-extensive here
means that surety is liable to the same
extent as the principal-debtor.
If the principal debtor is not liable on

the principal debt for some reason, the
Surety’s surety is also not liable. If the principal
debtor is discharged of his debt by the
Liability is co- creditor, the surety is also discharged.
extensive, S.
S. 128, only explains the quantum of
128 liability of the Surety, especially
important in cases where the contract
fails to limit it or define the liability.
Surety’s liability depends upon the
terms of his contract and cannot be
made liable for more than he has
undertaken.
Co-extensive - Surety's liability is co-
extensive with that of the principal debtor.
A surety's liability to pay the debt is not
removed by reason of the creditor's
omission to sue the principal debtor. The
creditor is not bound to exhaust his
remedy against the principal before suing
Surety’s the surety, and a suit may be maintained
against the surety though the principal has
Liability: is co- not been sued.
extensive with
the liability of It is not necessary for the creditor, before
proceeding against the surety, to request
the principal the principal debtor to pay, or to sue him,
although solvent, unless this is expressly
debtor stipulated for. Halsbury's Laws of England
Creditor may file a suit against both the

principal debtor and the surety, or at his
option, only against the surety, or only
against the debtor, or against any one of
the co-sureties
If the principal debtor is released
because of any contract between
creditor and principal debtor or by any
act or omission of the creditor, then the
surety is released.
Requirements: PD is released because of:
• Separate contract b/w creditor and
PD
• Any act or omission of creditor
• This section is on the lines of Section
128 which states that the liability of the
surety is co-extensive with that of the
principal debtor.
Reason: The release / discharge of the

principal debtor extinguishes the
principal obligation
If there is an express term in the
guarantee which preserves the liability of
the surety even if the creditor releases
the principal debtor, then the surety is
not discharged.
Implied release/discharge: Where the
discharge is through actions: by any “act
or omission” of the creditor. The acts or
omissions contemplated by this section
can be actions/omissions referred in
Sections 39, 53, 54, 55 & 67.
Section 39: party to a contract refuses to
perform, or disabled himself from
performing his promise in entirety
Section 53: contract contains reciprocal
promises, and one party to the contract
prevents the other from performing his
promise
Section 54: when a contract contains
reciprocal promises, such that one of them
cannot be performed till the other has
been performed
Section 55: party to a contract promises to
do a certain thing at or before a specified
time and fails to do any such thing within
that time
Section 67: If promisee neglects or refuses
to afford the promisor, reasonable facilities
for the performance of his promise
Where a guaranteed debt has become
due, or default of the principal debtor
to perform a guaranteed duty has
taken place, the surety, upon payment
or performance of all that he is liable
for, is invested with all the rights which
the creditor had against the principal
debtor.
Rights of surety The meaning of this section is that the

on payment or surety steps into the shoes of the
creditor after he has paid the
performance; guaranteed debt or performed
whatever he was liable for. This right of
S.140 the surety to step into the shoes of the
creditor is known as the surety’s right of
subrogation.
Automatic subrogation: Once the surety

has paid the guarantee amount to the
creditor. The surety is invested with this
right automatically without any pre-
conditions attached to it.
• by revocation of the
DISCHARGE OF contract of guarantee
by conduct of the creditor
SURETY’S •
• By invalidation of the
LIABILITY contract of guarantee
❖ S.130: Upon Revocation: as regards
to future transactions in case of a
continuing guarantee.
❖ Important Ingredients:
As to future transactions
Discharge of ❖
Notice to creditor
Surety’s Liability:
❖
As soon as the surety sends the

by revocation of
❖
notice of revocation to the creditor,

contract of the surety does not remain liable for
any transaction that happens after
guarantee he has given notice, However, the
(Continuing surety continues to remain liable for
any transactions that has already
Guarantee); taken place.
S.130 ❖ If the mode of revocation by notice
is mentioned in the contract, then
notice must be given in that mode
only and if no mode is given in the
contract then the notice may be
given in any form.
Ethan guarantees payment
by Brinda to the extent of
₹50,000/- for any bill that
Jacob raises against Brinda.
Jacob sends Brinda a bill for
₹35,000/- and Brinda
accepts the bill. Ethan
sends a notice of
revocation. Brinda defaults
in payment of the bill on
maturity.
Ethan will still be liable as

this was a transaction
before the notice of
revocation.
S.131: Death of a Surety:
only as regards future
transactions in case of a
continuing guarantee in the
absence of a contract to
the contrary.
The liability for any
transactions that took place
prior to the death of the
surety will be borne by his
heirs. This contract could be
implied from the
circumstances.
Section:133. Discharge of surety by variance

in terms of contract.
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.
Discharge from Illustrations
Surety’s (a) A becomes surety to C for Bs conduct as a manager in

Cs bank. Afterwards, B and C contract, without A’s
consent, that B‟s salary shall be raised, and that he shall
Liability, S. 133 become liable for one-fourth of the losses on overdrafts.
B allows a customer to overdraw, and the bank loses a
sum of money. A is discharged from his suretyship by the
variance made without his consent, and is not liable to
make good this loss.
(b) A guarantees C against the misconduct of B in an

office to which B is appointed by C, and of which the
duties are defined by an Act of the Legislature. By a
subsequent Act, the nature of the office is materially
altered. Afterwards, B misconducts himself. A is
discharged by the change from future liability under his
guarantee, though the misconduct of B is in respect of a
duty not affected by the later Act.
Surety will be discharged in case of
unapproved variance by Principal
Debtor and Creditor because a
Surety is liable only for what he has
undertaken in the guarantee and
any alteration made without the
Discharge of surety’s consent will discharge the
surety as to transactions subsequent
Surety’s to the variation.
Liability: by
variance; S.133 The general rule is that all parties
must be privy to the contract of
guarantee. No party can be bound
to something for which it has not
contracted.
• Exception: If the alteration is
made without surety’s consent
that is beneficial to the surety,
the surety is not discharged.
• The alteration should be
unsubstantial/immaterial, then
surety is not discharged.
• For a variation to be
considered “material”, it is
necessary that this variation is
such that it varies the rights,
liabilities or legal position of the
parties as ascertained by the
deed in its original state, or
otherwise varies the legal
effect of the instrument as
originally expressed.
(See: Anirudhan v. The Thomco’s
Bank Ltd. AIR 1963 SC 746)
• If it is not self-evident that the
alteration is unsubstantial, or
one which cannot be
prejudicial to the surety, the
Court will not inquire the effect
of such alteration, but will hold
that the surety himself must be
the sole judge of whether or
not he will consent to remain
liable notwithstanding the
alteration, and that if he has
not so consented, he will be
discharged.
• If the alteration is substantial
and/or prejudicial
(disadvantageous) to the
surety, the surety stands
discharged.
A supplies goods to B on the
guarantee of C. Afterwards
B becomes unable to pay
and contracts with A to
assign some property to A in
consideration of his
releasing him from his
demands on the goods
supplied. Here, B is released
from his debt, and C is also
discharged
from his suretyship. But,
where the principal debtor is
discharged of his debt by
operation of law,
say, on insolvency, this will
not operate as a discharge
of the surety.
A contracts with B for a fixed
price to build a house for B within
a stipulated time, B supplying the
necessary timber. C guarantees
A’s performance of the contract.
B omits to supply the timber. Is C
discharged?
A contracts with B to repair B’s

house. C guarantees A’s
performance. B refuses / neglects
to point out to A the places in
which his house requires repair. Is
C discharged?
Guarantee
Discharge of
Section 135: Discharge of surety when
Surety’s Liability: creditor compounds with, gives time
discharge by to, or agrees not to sue, principal
arrangement debtor:
between A contract between the creditor and the
principal debtor, by which the creditor
principal debtor makes a composition with, or promises
and creditor; to give time to, or not to sue, the
S.135 principal debtor, discharges the surety,
unless the surety assents to such
contract.
Ingredients: A contract between the
creditor and the principal debtor
without surety assent to
Discharge of to make a
Surety’s Liability: composition/compromise with
discharge by
arrangement promise to give time to
between
not to sue the principal debtor
principal debtor
and creditor; discharges the surety
S.135
This Section is an extension of S.133
(discharge by variance)
Composition means any compromise with
the principal debtor (without the consent
of the surety) with respect to the debt in
question, it discharges the surety.
Not all compromises will discharge the

Surety. It depends on the facts and
circumstances of each case: If the
Discharge of compromise is w/o consent [of surety] and
prejudicial to the Surety, it will definitely
Surety’s Liability: release him.
discharge by
“Promises to give time to” means where a
arrangement creditor, without the consent of the surety,
extends time for the payment of debt,
between surety stands discharged.
principal debtor
Even though giving such time does not
and creditor; injure the surety by the principles of equity,
the surety will still stand discharged.
S.135
“Promises not to sue the PD” If the creditor
agrees with the principal debtor to not to
pursue any legal recourse against him, the
surety stands discharged. [liability of PD is
co-extensive with Surety]
Guarantee
Section 136: Surety not discharged

when agreement made with third
person to give time to principal debtor.
Where a contract to give time to the

Discharge of principal debtor is made by the creditor
Surety’s with a third person, and not with the
principal debtor, the surety is not
Liability; S.136 discharged.
Illustration
C, the holder of an overdue bill of exchange
drawn by A as surety for B, and accepted by
B, contracts with M to give time to B. A is
not discharged.
S.135: A contract between the
creditor and the principal
debtor, to give time to the
principal debtor, discharges
the surety, unless the surety
assents to such contract.
S.135 v/s S.136
S.136: Creditor makes an
agreement to give time to the
principal debtor, with a third
party. It will not discharge the
surety.
Section 141: Surety’s right to benefit of creditor’s

securities.
141. A surety is entitled to the benefit of every security

which the creditor has against the principal debtor at the
time when the contract of suretyship is entered into,
whether the surety knows of the existence of such
Discharge of security or not; and if the creditor loses, or, without the
consent of the surety, parts with such security, the surety
Surety’s is discharged to the extent of the value of the
security.
Liability: Loss of
Illustrations
security; S.141
(a) C, advances to B, his tenant, 2,000 rupees on the
guarantee of A. C has also a further security for the 2,000
rupees by a mortgage of B’s furniture. C cancels the
mortgage. B becomes insolvent and C sues A on his
guarantee. A is discharged from liability to the amount of
the value of the furniture.
(c) A, as surety for B, makes a bond jointly with B to C, to

secure a loan from C to B. Afterwards, C obtains from B a
further security for the same debt. Subsequently, C gives
up the further security. A is not discharged.
A agrees with B to supply him 500 Kgs of
mangoes for Rs. 1.5 lakhs. C stands surety to A
under this valid contract of guarantee. A
agrees with D (B’s father, who’s approached A
voluntarily out of love for his son) to extend the
delivery date of B’s contractual obligations by
a week. Is C discharged in this scenario?
A agrees
with D to
extend the
delivery
date
D is B’s farther
Agrees to
supply 500 kgs
Agrees to Of mangoes
be surety
for 1.5lakh
to A
S.137, Mere forbearance does
not discharge surety: Mere
failure of the Creditor to sue the
Principal debtor or mere failure
of the Creditor to adopt any
legal remedy against the
Principal debtor does not
discharges the Surety.
However, the Surety may be
discharged if there is a specific
provision in the Contract
This section deals with a case of
‘mere forbearance’ to sue or to
enforce any other remedy. This
forbearance may be exercised
for a period – short or until the
expiry of period of limitation.
When creditor does not sue the
principal debtor on its own then
the surety is not discharged.
Brady owes to Cathy a debt
guaranteed by Alice. The debt
becomes payable. Cathy does
not sue Brady for a year after
the debt has become
payable.
What is Alice’s status?

S.138, mere release of a
Surety by the Creditor does
not absolve the obligation
towards the rest of the Surety:
S. 138: when there are two or
more sureties to a Contract
of Guarantee, the Creditor
may release any of the Surety
from his obligation, but that
release does not release
other sureties to the Contract
of Guarantee; and also that
by mere release of a Surety
by the Creditor does not
absolve the released Surety
from his obligation towards
the rest of the Surety.
S.139, Discharge by act or omission
by creditor: S.139: Act or omission by
the creditor which results in harming
the rights of the surety, and also
impairs the eventual remedy of the
surety himself against the principal
debtor, discharges the surety.
Elements: Surety is discharged when:
The creditor either does something
which is inconsistent with the rights
of the surety OR omits to do his duty
towards the surety,
AND BECAUSE OF THIS:
The eventual remedy of the surety
that he had against the principal
debtor, is impaired
The object of this section is to ensure
that no arrangement different from
that contained in the surety’s
contract is forced upon him. Duty of
care is owned by the creditor.
Sections 133, 134 and 135 deal
with some of the acts / omissions
of the creditor with the principal
debtor, which discharge the
surety.
The object of 139 is to ensure that
no arrangement different from
that contained in the surety’s
contract is forced upon him and
that the surety, if he pays the
debt, has the benefit of every
remedy which the creditor has
against the principal debtor.
The substance of Section 139 is
that it is the duty of the person
who has secured a guarantee, to
do every act necessary for the
protection of the rights of the
surety.
Meaning of “acts inconsistent with the
rights of the surety” and “omission to do
any act which his duty to the surety
requires him to do”: There’s no per se list
of rights / duties that have been provided.
Each case must be dealt according to its
own circumstances.
You may use the following indicators: (a)

any variance made in the contract,
without taking the surety on board – Sec
133;
(b) if the principal debtor is released,
134;
(c) any compromise between the
principal debtor and the creditor, without
taking the surety on board – Sec 135;
(d) any extension of time given by the
creditor to the principal debtor, without
taking the surety on board – Sec 135;
(e) any promise that the creditor makes to
the principal debtor about not suing him,
135
M/S.Technica
International vs Kokan
Mercantile Co-Op. Bank
2 April, 2013
*not in course manual
COURT’S OBSERVATION
In my view, a legal heirs and representatives are entitled to raise an issue

that the deceased has left no assets, or that they were not in a
possession of any property left by the deceased and thus it was wrong
on part of arbitrator to pass an award attaching personal property of
such legal heirs to discharge the deceased surety’s liability.
The learned arbitrator however was bound to decide the issue whether
properties sought to be attached were inherited by the legal heirs from
the debtors or not. In my view part of the award by which the personal
properties of the legal heirs are attached and the attachment order
having been allowed to continue till recovery of the entire amount by
the bank from the parties is perverse and patently illegal and that part of
the award deserves to be set aside.
A enters into a contract for purchase
of 100kgs coal sacks with B. C agrees
to be the guarantor securing A
performance; payment of the
purchase price of 100kgs of coal. B
supplies the coals per the terms of the
contract. C on his way to office
meets with an accident and passes
away. A defaults in the payment of
the purchase price of coal.
C is survived by his wife and son. B

sends several reminders and requests
to A for payment, failing with B
decides to sue C’s wife and son. C’s
legal heirs contend that the contract
of guarantee between A, B and C
ceases to exist on death of C.
Comment.
State Bank of India and Anr. Vs. Mrs.
Jayanthi & Ors [AIR 2011 Madras 179]
… Having regard to the fact that the respondent's

husband Mahendran, who was the guarantor in
respect of the loan advanced to one M/s.
Somerset Tea Plantation, died and therefore, on
his death, the liability as against the guarantor
stands extinguished.
With due respect, the learned Single Judge is not
correct in law in holding that the liability under the
guarantee stands revoked or extinguished on the
death of the Guarantor.
Section 131 of the Contract Act clearly provides
that in case of death of Guarantor, the date of
guarantee/continuing of the guarantee
executed in favour of the bank stands revoked in
respect of future transactions. Hence, we have no
hesitation in holding that the liability of the
guarantor cannot be extinguished on his death so
far the liability which existed on the date of the
death of the guarantor.
It is well settled that on the death of the
guarantor, the liability exists and such liability can
be fastened on the estate of the deceased,
being inherited by his legal heirs, and the creditor
can recover the dues out of the estate of the
deceased."
A valid contract of guarantee exists
between the Creditor, Principal Debtor and
the Surety for the repayment of the Principal
Debtor’s loan (Rs. 10 lakhs) back to the
Creditor.
The Principal Debtor approaches the
Creditor to seek permission to pay this
amount in installments of 5 lakhs each, with
the first installment within the original
deadline and the second installment within
a few days after the lapse of the original
deadline. The Creditor agrees to the
arrangement in lieu of which the Principal
Debtor had to pay Rs. 25000 over and
above his debt. The Surety is not a part of
this discussion/arrangement, however he’s
informed of this decision immediately
thereafter. The Surety now claims that he
stands discharged. Is he discharged? How?
Will your answer change if the Creditor and

the Principal Debtor testify “even though the
Creditor and the Principal Debtor enter into
this arrangement but never intend to
implement it?”
C (a service professional who’s 23 years
old) lends Rs. 25000 to B on the security of a
joint and several promissory note made in
C’s favor by B and A (Surety) together. This
promissory note was executed along with
a bills of sale of B’s furniture, which gives
power to C to sell the furniture (worth Rs.
15000 at the time), and apply the
proceeds in discharge of the note. This
latter arrangement was made as B had no
money in his account left other than what
he got from C. Now, when B fails to pay up
the money he owed after a couple of
months, C puts all the furniture he had from
B outside his house for sale. The first
customer that comes to him to buy all the
furniture offers him Rs. 5000 for it and he
accepts the offer. C now sues the Surety
on the promissory note for the remainder of
the amount. Surety claims that he stands
discharged from all liability. What do you
think?
A valid contract of guarantee exists
between a Creditor (Bank), Principal
Debtor (Cashier in that Bank) and a Surety
(Guaranteeing the good conduct of the
Cashier). The Cashier while giving cash to
one of its customers gave her a fake Rs.
2000 note and kept the original one with
himself. A few days later when the
customer brings this to the Bank’s attention,
the Bank reprimands the Cashier and
makes him pay Rs. 2000 to the customer.
The Surety is not informed of this incident. A
year later, the Cashier repeats what he did
earlier and this time swaps a whooping Rs.
2 lakh worth of Rs. 2000 notes. The Bank
fires the Principal Debtor and asks the
Surety to pay up Rs. 2 lakhs to them. Can
the Surety claim he’s been discharged?
BANK GUARANTEE
BASICS ONLY
❑ It is a promise made by the bank
to a third party (creditor)
undertaking the payment on
behalf of its customers.
❑ The bank guarantee means that

the lender will ensure that the
liabilities of a debtor will be met.
❑ A bank guarantee enables the

customer (or debtor) to acquire
WHAT IS BG? goods, buy equipment, or draw
down a loan.
❑ The main aim of the BG is to

protect the third party (creditor)
from the financial losses and help
the Bank’s customer in the growth
and promoting the business
activity.
❑ A payment guarantee assures a seller
the purchase price is paid on a set date.
❑ An advance payment guarantee acts

as collateral for reimbursing advance
payment from the buyer if the seller
does not supply the specified goods per
the contract.
❑ A rental guarantee serves as collateral

for rental agreement payments.
EXAMPLES OF ❑ A confirmed payment order is an

irrevocable obligation where the bank
BG pays the beneficiary a set amount on a
given date on the client’s behalf.
❑ There are two key types of bank

guarantees—financial bank guarantee
and performance guarantee. Financial
bank guarantees are for debts owed,
while performance-based guarantees
are for obligations laid out in a contract,
such as particular tasks.
XYZ Co. is newly established textile
factory that wants to purchase Rs. 1 Cr
worth raw materials. The raw material
vendor requires XYZ Co. to provide a
bank guarantee to cover payments
before the shipment of the raw materials
to the company. XYZ Co. requests and
obtains a bank guarantee from leading
financial institution keeping its cash
accounts. If the company defaults the
vendor can receive the money from
bank.
EXAMPLE
XYZ Co. Vendor
Bank
Company A is a new restaurant that
wants to buy $3 million in kitchen
equipment. The equipment vendor
requires Company A to provide a bank
guarantee to cover payments before
they ship the equipment to Company A.
Company A requests a guarantee from
the lending institution keeping its cash
accounts. The bank essentially cosigns
the purchase contract with the vendor.
EXAMPLE
$ 3M Kitchen Equip
Co. A Equip.
Vendor
Bank
❑ The bank guarantee can be invoked
anytime by the beneficiary when the
terms of guarantee are fulfilled, all that
bank is to verify the all terms of the
guarantee have been fulfilled.
❑ However, in case of an unconditional

guarantee the beneficiary has to
realise the BG irrespective of the fact
the dispute is pending.
INVOCATION ❑ Only exception when the Banker may

refuse to encash the BG is in the event
of fraud.
In the normal BG the surety’s liability is

as per Section 128 of the Contract Act
which is co extensive with that of
principal debtor i.e. the liability of the
BG is to the same extent as that of
principal debtor.
The Piano Man Jazz Club
restaurant wishes to purchase
new furniture from Bent Chair.
The new furniture is worth Rs. 20
lakh. Bent Chair asks for a bank
guarantee in order to feel more
confident that it will receive the
payment for the equipment it
ships to The Piano Man.
Who is Who?
How will the transaction

proceed?
BASIS
FOR
LETTER OF CREDIT BANK GUARANTEE
COMPA
RISON
Meaning Letter of credit is an A bank guarantee
financial document is a guarantee
for assured given by the bank
payments, i.e. an to the beneficiary
undertaking of the on behalf of the
buyer's bank to applicant, to effect
make payment to payment, if the
seller, against the applicant defaults
COMPARISON documents stated. in payment.
Liability Primary Secondary
Default Doesn't wait for Becomes active

applicant's default only when the
and beneficiary to applicant defaults
invoke undertaking. in making
payment.
Payment Payment is made Payment is made
only when the on the non-
condition specified fulfillment of
is fulfilled. obligation.
Get Ready
for
MCQ
Class Test I
Examples
Creditor agrees to sell 5000 bottles of coke
to the Principal Debtor for Rs. 10 Lakhs. The
delivery of these bottles had to be done in
two instalments of 2500 each with one
batch to be delivered on April 1, 2017 and
the other on April 3, 2017. The payment was
to be made in lump sum by the Principal
Debtor on April 10, 2017. The Surety was
responsible to pay on behalf of the Principal
Debtor on April 11, 2017 in case of the
latter’s failure. After the first batch of bottles
is delivered, the Surety gives notice to the
Creditor on April 2, 2017 that he’s revoking
his guarantee. The Creditor delivers the
second batch to the Principal Debtor as
promised. The Principal Debtor fails to pay
his dues. What is the liability of the Surety, if
any?

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Week 3-5 Guarantee

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Special Contracts:

Ravi: Creditor Radha: Principal Debtor

 SURETY/GUARANTOR: The person

Ajay advances a loan of INR 70000 to

 Primary Liability: of the

 Secondary Liability: of the

 Guarantees are usually

 A contract of guarantee like other

Parties: Indemnifier + Indemnity Holder Creditor + Principal Debtor + Surety

Three: [I] between creditor and principal debtor. [II] between

Primary: because the indemnifier undertakes an

Purpose: To compensate for the loss To give assurance to the promisee

Maturity: When contingency occurs Liability already exists / when PD defaults

Indemnifier cannot sue a third party for the loss

 Mr. Harry takes a loan from

Anil and Kamal have entered into a

Allan guarantees to Bates

Section 127: Consideration for guarantee.

127. Anything done, or any promise made, for

for Guarantee (a) B requests A to sell and deliver to him

(b) A sells and delivers goods to B. C

 “Done” indicates that a past benefit to

Promise for the

Requests furniture Ankur/C Karim/S

 The liability of the surety is

Example: A guarantee payment to B of the price of 5 sacks of flour to

Section 129: “Continuing guarantee”

129. A guarantee which extends to a series of

(a) A, in consideration that B will employ C in

(b) A guarantees payment to B of the price of five

 It all depends on:

Can P revoke the guarantee?

Given that the Surety Sam is no

Section 130: Revocation of continuing guarantee.

Section 131: Revocation of continuing guarantee by

131. The death of the surety operates, in the absence of any

Continuing Deceased Surety’s legal representatives will

(1921) ILR 43 ALL 132

 Hafiz Abdul Rahim (S1) died in

Section 131 of the Indian Contract Act runs as follows:

We do not think that this contention is a sound one.

As an ordinary rule of law it might be said that where a continuing

A gives notice of revocation.

Section 142: Guarantee obtained by

Section 143: Guarantee obtained by concealment

143. Any guarantee which the creditor has obtained by

(b) A guarantees to C payment for iron to be supplied by

Section 144: Guarantee on contract

Invalid 144. Where a person gives a guarantee

Example A agrees with B to stand as

Section 140: Once the surety discharges the

Section 145: Implied promise to indemnify

Section 141: Surety’s right to benefit of

141. A surety is entitled to the benefit of every

(a) A, as surety for B, makes a bond jointly with B

Right to set off: When the creditor sues

What are the rights and

Calvin has also a security for

What is Aryan’s liability?

Section 146: Co-sureties liable to contribute

146. Where two or more persons are co-sureties for

(b) A, B and C are sureties to D for the sum of 1,000

The release by the creditor of one of the

Section 147: Liability of co-sureties bound in