CONTRACT OF GUARANTEE

SUBMITTED BY: SHWETA SINGHAL ROLL NO: 43

I will. It is a contract of guarantee. Principal debtor [Section 126]: The person in respect of whose default the guarantee is given is called the "Principal debtor . Z is the creditor in the above example. or discharge the liability of a third person in case of his default. "contract of guarantee is a contract to perform the promise. PARTIES TO CONTRACT OF GUARANTEE 1. 2. It is a contract of guarantee. I will. Specific Guarantee: A guarantee which extends to a single debtor or specific transaction is called a specific guarantee. . Y is the principal debtor in the above example. Surety [Section 126]: The person who gives the guarantee is called the "Surety . The liability of the surety comes to an end when the guaranteed debt is duly discharged or the promise is duly performed. X is the surety in the above example.200 to B for the supply of flour bags he supplies to C from time to time. Example: X and his friend Y entre a shop and X says to Z Supply the goods required by Y and if he does not pay you.CONTRACT OF GUARANTEE According to Sec 126. 2. Creditor [Section 126]: The person to whom the guarantee is given is called the "Creditor". Example: A guarantees a payment of Rs. Continuing Guarantee: A guarantee which extend to a series of transactions is called a continuing guarantee. 3. Example: X and his friend Y entre a shop and X says to Z Supply the goods required by Y and if he does not pay you. KINDS OF GUARANTEE (Section 129) 1.

Here Z cannot become surety without the consent of Y. 4. Z agrees to do so. anything done. The exception is a guarantee given for minor s debt. Example: X sells and delivers goods to Y. Essentials of a valid contract a. or any promise made. But there is an exception to this rule. c. Consent of three parties There must be free consent of all the three parties.Guarantee need not be in writing. 5. one between principal debtor and surety. 2. Guarantee not to be obtained by Misrepresentation is invalid. Though minor debt is not enforceable by law yet the guarantee given for minor s debt is valid.Surety need not be benefited. Example: A sells and delivers goods to B. X afterwards request Z to pay in default of Y. Such liability or promise must be enforceable by law. According to sec 127. second between creditor and surety and lastly between principal debtor and creditor.ESSENTIAL FEATURES OF A CONTRACT OF GUARANTEE 1. and promises that if he does not pay then he will pay. may be a sufficient consideration to the surety for giving the guarantee. Not suing B is sufficient consideration for C. Tripartite agreement There are 3 contracts i. for the benefit of the principal debtor. 6. b. Existence of a liability There must an existing liability or a promise whose performance is guaranteed.e. . Guarantee not to be obtained by Concealment is invalid. C afterward request A to not to sue B for the debt for a year.The parties must be competent to contract. A agrees to do so. 3.

EXTENT OF SURETY S LIABILITY (SEC 128) 1.The surety is liable to the creditor only when the principal debtor makes default. Surety s liability is secondary and conditional: a. the surety is liable only for the remaining part. C guarantees to pay Rs 5000 to A in default of B. 10000. 10000 as nothing was mentioned in guarantee regarding the amount. 10000. C guarantees to pay A in default of B. 2. . b. a contract of absolute good faith) and hence. A can t ask C to pay Rs 10000 in default of B.e. The liability of the surety is co-extensive with that of the principal debtor. unless it is otherwise provided by the contract.The liability of the principal debtor is primary and that of surety is secondary. Here the liability of C is for Rs 5000 only as it was mentioned in the contract. IS A CONTRACT OF GUARANTEE A CONTRACT OF UBERRIMAE FIDEI A contract of guarantee is not a contract of Uberrimae fidei (i. Example 2: A sells goods to B worth Rs. Example 1: A sells goods to B worth Rs. it is not necessary for the principal debtor or the creditor to disclose all the material facts of the surety before he enters into a contract. c. Here the liability of C is for Rs.If the principal debtor perform the contract in part.

How much C has to pay in default of B? a) b) c) d) 20000 15000 10000 5000 CORRECT ANSWER: b Q4) How many parties are involved in the contract of guarantee? a) 2 b) 3 c) 4 CORRECT ANSWER: b .MULTIPLE CHOICE QUESTIONS Q1) Whose concern is required in contract of guarantee? a) b) c) d) Principal Debtor Surety Creditor All the above CORRECT ANSWER: d Q2) Contract of guarantee should be in_______ a) b) c) d) Writing Oral Either of a) or b) Both a) and b) CORRECT ANSWER: c Q3) A sells goods to B worth Rs 20000 on the guarantee of C. B afterward has paid Rs 5000.

Q5) Definition of Contract of Guarantee is given in which section of ICA. 1872? a) b) c) d) Sec 126 Sec 127 Sec 128 Sec 129 CORRECT ANSWER: a .