Cont

ractofGuar
ant
ee
Sect
ion126def
inesacont
ractofguar
ant
eeasunder:
-

"
A"cont
ractofguarant
ee,i
sacontr
actt
operfor
mt hepromiseordi
schar
get
hel
i
abi
l
ity
,ofa
t
hir
dpersonincaseofhisdef
aul
t"
.Thesect
ionfur
therprov
idest
hat:-

"Thepersonwhogi vestheguarant
eeiscal
ledthe"Surety
",t
hepersoninr
espectofwhose
defaultt
heguaranteeisgiv
eniscall
ed"Pri
nci
paldebtor"andthepersont
owhom theguarant
ee
i
sgi veniscal
l
edt he"cr
edit
or"
.

Aguar
ant
eemaybeei
theror
alorwr
it
ten"
.

Forexample:Atakealoanfrom abank.Apr omisestothebanktor epaytheloan.Bal somakes

apromisetothebanksayi
ngt hatifAdoesnotrepaytheloan,"
thenIwi l
lpay".Inthiscase,
Ais
thepri
nci
paldebt
or,whounder t
aket or
epaytheloan.Bisthesuret
y, whoseliabil
it
yis
secondar
ybecausehepromisest operfor
mt hesamedut yift
hereisdefaultont hepartofA.
Thebankinwhosef av
ourthepr omisehasbeenmadei sthecredit
or.

Theobjectofacont
ractofguar
anteeist
opr ov
ideaddi
tional
secur
it
ytothecredit
orinthefor
m
ofapromisebythesuret
ytoful
fil
lacert
ainobl
igat
ion,
incasethepri
nci
paldebtorfai
lstodo
that
.

Inever
ycont ractofguar antee, t
her earethreepar ti
es,t
hecredit
or,thepr i
ncipalandt hesur ety.
Therearet hreecont ractsinacont ractofguar antee.Fi
rst
ly,
theprinci
pal debtorhimsel fmakes
apromisei nf av ouroft hecr editortoperform apr omiseetc.Secondly,suretyunder t
akest obe
l
iabl
etowar dst hecr editorifthepr inci
paldebt ormakesadef ault
.Thirdly,animpl i
edpr omi seby
thepri
ncipal debt orinf avouroft hesuret
yt hati ncasethesuret
yhast odi schargethel iabil
it
y
onthedef aultoft hepr i
ncipal debtor,t
hepr incipaldebt
orshalli
ndemni fythesur et
yf ort he
samewhenabor rowerandguar antorbothsi gnanagr eementinfavourofabank, theyar e
j
oint
lyandsev erall
yliableundert hatcontract.

Thecontractofguar ant
eei
snodoubtt
ri
part
it
einnatur
ebutiti
snotnecessaryoressent
ial
that
thepr
inci
pal debtormustexpr
essl
ybeapart
ytothecontr
actbyimpli
cat
ion.Thustherei
s
possi
bli
tythataper sonmaybecomeasuret
ywithoutt
heknowledgeandconsentofthe
pri
nci
paldebt or
.

Per
for
manceGuar
ant
eebyBanks:
Somet i
mesbankgi v
e" perf
ormanceguar ant
ee(orper f
ormancebond)onbehalfoftheapar t
y
toacontract
.Thebankgi v
ingsuchaguar anteeisboundbyt heobl
igat
ionundert
akenbyi t
.The
perf
ormanceguaranteeisan"autonomous"cont r
actandi mposesan"absol
uteobli
gati
on"on
thebankinit
sterms.Abankguar antee;f
orallpurpose,shoul
dbetakentobeacr edi
t-note
i
ssuedbyt hebanki
nf avouroft
heper soninwhosef avourthebankguarant
eehasbeeni ssued,
anditshouldbeencashabl
ejustl
i
keacr
edi
tnot
eor
dinar
il
yunl
esst
hei
ntent
ionoft
hepar
ti
esi
s
otherwise.

Ifabankhasunconditi
onall
yguarant
eedthepaymentofpri
ceont hesuppl
yofgoodsbythe
sell
ertothebuy
er,thebankisboundtohonourthi
sobli
gati
onandi nt
heeventofanydi
sput
e
betweenthesel
lerandthebuyer,
thebuyercannotobt
ainaninj
uncti
ontoprev
entthebankf
rom
honouri
ngtheguarantee.

Mai
nFeat
uresofaCont
ractOfGuar
ant
ee:
(1)TheCont r
actmaybeei t
heroralorinwr it
ing:Accor di
ngtoSect i
on126,aguarant
ee
maybeei t
heroral
orwri
tt
en.Ont hi
spoint,t
hepositi
onofI ndi
aisdiffer
entfr
om t
hatinEngland.
Accordi
ngtoEngli
shLaw,foravali
dcontractofguarantee,i
tisnecessaryt
hati
tshouldbein
writ
ingandsi
gnedbythepartytobechargedtherewith.

(2)The reshoul dbeapr i

ncipaldebt:Acont ractofguar anteepre-supposesapr incipledebt
oranobl igationtodischargedbythepr i
ncipl
edebt or.Thesur etyundertakest obeliableonl yif
theprincipledebtorfail
stodischargehisobli
gat ion.Iftherei snosuchpr incipledebt,butt here
i
sapr omi sebyallonepar tyi
nfavouroftheanot herf orcompensat i
nginacer t
ainsituati
on, and
theper f
ormanceoft hispromiseisnotdependentupont hedef aul
tofsomebodyel se, iti
sa
contractofi ndemnit
y .Thus,whenAandBgot oashop.Apur chasesgoodsandBt ellsthe
sell
er"IfAdoesnotpayy ou,Iwil
l
",iti
sacont ractofguar antee.Ont heotherhand, ifAi snott he
pri
ncipledebt orbutonl yBmakesapr omi setotheshopkeepert opay,f
ori nstance,Bt ell
st he
shopkeeper , "
Lethi
m( A)havethegoods.Iwi l
lbey ourpay mast er.I
tisacont ractofindemni t
y.

(3)Benef ittothepr inci

pledebtorissuf fi
cientconsi derat i
on:Asi nanyothercontract,the
considerati
oni salsoneededforacontractofguar ant
ee.Fort hesur ety'
spromise,i
tisnot
necessaryt hatthereshouldbedi
rectconsider
ationbetweent hecr editorandthesurety,i
ti s
enought hatthecr edi
torhaddonesomet hi
ngf orthebenefitoft hepr i
ncipl
edebtor.Benefitto
theprincipl
edebt orconsti
tut
esasuffi
cientconsiderati
ontot hesur etyforgiv
ingtheguar antee.
Thisisclearf r
om Section127whichreadsasunder:

"Anyt
hingdone,oranypromisemadefort
hebenefi
toft
hepr
inci
pledebtmaybeasuf
fi
cient
consi
derat
iontothesuretyf
orgi
vingt
heguar
antee".

I
ll
ust
rat
ion:Br
equest
sAt
osel
landdel
i
vert
ohi
m goodsoncr
edi
t.Aagr
eest
odoso,
prov
ided
Cwil
lguarant
eethepaymentoft
hepri
ceoft
hegoods.Cpromi
sest heguar
anteethepayment
i
nconsider
ati
onofA'spromi
setodel
i
vert
hegoods.Thi
sissuf
fi
cientconsi
der
ationforC'
s
pr
omise.

(4)Consentifobt ainedbymi srepresentati

onorconceal ment:Thecredi
torshouldnot
obtai
nguaranteeeitherbyanymisrepresent
ati
onorconcealmentoranymater
ialfacts
concerni
ngthetransacti
on.Ift
heguaranteehasbeenobtainedthatway,
theguaranteeisi
nval
i
d.
Thepositi
onisexplainedbysecti
ons142and143whi chreadunder: -
Sect
ion142:"
Guar
ant
eeobt
ainedbymi
srepr
esent
ati
oni
nval
i
d.Anyguar
ant
eewhi
chhasbeen
obtai
nedbymeansofmisrepr
esentat
ionmadebyt hecredi
tor,
orwi
thhi
sknowl
edgeand
assent
,concer
ningamat
erial
partofthet
ransact
ion,i
sinval
id"
.

Sect
ion143:"
Guar
ant
eeobt
ainedbyconceal
menti
nval
i
d.Anyguar
ant
eewhi
cht
hecr
edi
tor
hasobt
ainedbymeansofkeepi
ngsi
l
enceast
omat
eri
alci
rcumst
ancesi
sinv
ali
d".

I
ll
ust
rat
ion:AengagesBascl
erkt
ocol
l
ectmoneyf
orhi
m.Bf
ail
stoaccountf
orsomeofhi
s
recei
ptsandAinconsequencescal
lsuponhum t
ofurni
shsecuri
tyf
orhisdul
yaccount
ing.C
giveshi
sguar
anteeforB'
sdulyaccounti
ng.Adoesnotacquai
ntCwithB'spr
evi
ousconduct.B
after
wardsmakesdefaul
t.Theguar
anteeisi
nval
id.

Ref
erences:
1)Busi
nessLaw(
6thedi
ti
on):
MCKuchhal
andVi
vekKuchhal
(Vi
kasPubl
i
shi
ngHouse,
Noi
da)

2)I
ndi
anCont
ractAct(
12t
hedi
ti
on):
RKBangi
a(Al
l
ahabadLawAgency
,Far
idabad)

3)I
ndi
anCont
ractAct(
12t
hedi
ti
on):
Avt
arSi
ngh(
East
ernLawAgency
,Noi
da)