CONTRACT OF

GUARANTEE

SRIVATSAN SRIDHAR
19BFS053
BCOM FS-∏
GUARANTEE
A contract of guarantee is a contract to
perform the promise made or discharge
the liability, of a third person in case of
his default.
THREE PARTIES
• SURETY – PERSON WHO GIVES THE GUARANTEE
• PRINCIPLE
DEBTOR – PERSON IN RESPECT OF
WHOSE DEFAULT GUARANTEE IS GIVEN,
• CREDITOR – PERSON TO WHOM THE GUARANTEE IS
GIVEN
EXAMPLE
• When A requests B to lend Rs.10000 to C and
guarantees to repay the amount within the agreed time
and that on C failing to do so, he (A) will himself pay
to B, there is a contract of guarantee
• Here, B is the creditor, C the principal debtor and A the
surety
.
 Agrees to pay, if P.D defaults

CREDITOR SURETY

Primary Secondary
contract contract

PRINCIPAL
DEBTOR
CASE STU D Y
• CAS E (T HE S T AT E BAN K O F S AU R AS T R A VS CH IT R AN J AN ,1980)

• Th e a ppella n t -ba n k a llowed a ca sh cr edit fa cilit y

lim it ed t o Rs . 75,000/- t o t h e P r in cipa l Debt or (P D) on h is
pledgin g 5,000 tin s of gr ou n dn u t oil u n der t h e lock a n d
key of t h e Ba n k a n d on per son a l gu a r a n t ee of t h e
Respon den t -Su r et y. H owever , a ft er wa r ds wh en t h e Ba n k
lost t h e pledged t in s a n d su ed t h e lega l r epr esen t a t ive of
P D (a ft er t h e dea t h of P D) a n d t h e Su r et y t o r epa y t h e
debt , Su r et y con t est ed disch a r ge of h is lia bilit y.
P ROVIS ION
• Th is ca se is cover ed u n der
“THE IN D IAN CON TRACT
ACT,1956” u n der “S ECTION
139”
CONCLU S ION
• In a ca se befor e t h e Su pr em e Cou r t of In dia ,
“A ba n k gr a n t ed a loa n on t h e secu r it y of t h e
st ock in t h e godown .
• Th e loa n wa s a lso gu a r a n t eed by t h e su r et y.
• Th e goods wer e lost fr om t h e godown on
a ccou n t of t h e n egligen ce of t h e ba n k officia ls.
• H e (su r et y) wa s disch a r ged t o t h e ext en t of
t h e va lu e of t h e st ock so lost .”