GUARANTEE, INDEMENITY,BAILMENT & AGENCY

Presented by
Neha Bansal
Ankita Tyagi
Gurpreet Kaur
Veni Rathi
Contract of Guarantee
A "contract of guarantee" is
a contract to perform the
promise, or discharge the
liability, of a third person in
case of his default.
 •Example –
A lends money to B and C promises A that if
B fails to repay he will pay the money.

SURET PRINCIPA CREDI

L DEBTOR
Y TOR
The person in
●
The person
●
The person
●

respect of
who gives the to whom the
whose default
guarantee guarantee
the guarantee
A guarantee may be either
oral or written.
Guarantee is a tripartite
agreement
Triangular relationship
 Essential Features of a contract of
Guarantee
1. Requires Concurrence of all the three parties.
2. There must be primary liability (of the
principal debtor). Liability of surety is secondary.
Arises only when there is a default by PD. Liability is
enforceable at law.
3. A valid Contract.
4. Writing not necessary- written or oral, expressed or
implied.
CONSIDERATION FOR GUARANTEE
There need be no direct consideration between the
surety and the creditor, and the consideration received
by principal debtor is sufficient for the surety.

For example: B requests A to sell and deliver to him

goods on credit. A agrees to do so, provided C will
guarantee the payment of the price of goods. C
promises to guarantee the payment in consideration of
A’s promise to deliver the goods.
 Nature and Extent of SURETY’S
LIABILITY
Extent
Co-extensive, the liability of the surety can neither be
more nor less than that of PD. ( it may be made less
than that of PD by a special contract)
Nature
Secondary or contingent.
Arises immediately on the default by PD.
The creditor need not first resort to the securities.
Surety not liable where the creditor has obtained
guarantee by misrepresentation.
 Ordinary or a Continuing
GUARANTEE
Ordinary: Given for a specific debt or transaction.
Continuing: extends to a series of distinct and
separable transactions Can be revoked as to future
transactions.
 CAN BE REVOKED BY:
 By Notice: Revoked by surety as to future transactions by
notice to the creditor.
 By death of surety: However, the liability of the surety
for previous transactions remains.
 By novation, variance in the terms of the contract,
release or discharge of PD, loss of security.
RIGHTS OF SURETY
Against Creditor
 Before the payment of the guaranteed debt, a surety may
require the creditor to sue the PD.
 Right of set off
 After the payment of the guaranteed debt, right to
securities
 Right to equities
 Right of subrogation: that is surety steps into the shoes
of the creditor.
Continued….
Against the Principal Debtor:
 To be relieved of liability: before payment can compel
PD.
 Right to indemnity
Against Co-sureties:
 Where there are sureties for the same debt for similar
amount: There is equality of burden and benefit.
 Where there are sureties for the same debt for different
sums: Subject to the limit fixed by the guarantee, each
surety is to contribute equally.
DISCHARGE OF SURETY
1. Notice by revocation
2. Death of surety
3. Variance in terms of contract
4. Release or discharge of principal debtor
5. Arrangement by Creditor with PD without surety’s
consent.
6. Creditor’s act or omission impairing surety’s eventual
remedy.
7. Loss of security
8. Invalidation of the contract of guarantee