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    Contract of Guarantee

    Uploaded by

    Kumari Piya
    This document discusses the key aspects of a contract of guarantee under Indian law. It defines a contract of guarantee according to Section 126 as a contract to perform a promise or discharge liability of a third person in case of default. The three parties to a contract of guarantee are the principal debtor, creditor, and surety. There are two kinds of guarantees - specific and continuing. Essential features include it being a tripartite agreement, requiring consent of three parties, existence of an enforceable liability or promise, and meeting requirements for a valid contract. The surety's liability is co-extensive with the principal debtor unless otherwise specified, and is secondary and conditional on default of the principal debtor.

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    Contract of Guarantee

    Uploaded by

    Kumari Piya
    467 views6 pages
    This document discusses the key aspects of a contract of guarantee under Indian law. It defines a contract of guarantee according to Section 126 as a contract to perform a promise or discharge liability of a third person in case of default. The three parties to a contract of guarantee are the principal debtor, creditor, and surety. There are two kinds of guarantees - specific and continuing. Essential features include it being a tripartite agreement, requiring consent of three parties, existence of an enforceable liability or promise, and meeting requirements for a valid contract. The surety's liability is co-extensive with the principal debtor unless otherwise specified, and is secondary and conditional on default of the principal debtor.

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    This document discusses the key aspects of a contract of guarantee under Indian law. It defines a contract of guarantee according to Section 126 as a contract to perform a promise or discharge liability of a third person in case of default. The three parties to a contract of guarantee are the principal debtor, creditor, and surety. There are two kinds of guarantees - specific and continuing. Essential features include it being a tripartite agreement, requiring consent of three parties, existence of an enforceable liability or promise, and meeting requirements for a valid contract. The surety's liability is co-extensive with the principal debtor unless otherwise specified, and is secondary and conditional on default of the principal debtor.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    467 views6 pages

    Contract of Guarantee

    Uploaded by

    Kumari Piya
    This document discusses the key aspects of a contract of guarantee under Indian law. It defines a contract of guarantee according to Section 126 as a contract to perform a promise or discharge liability of a third person in case of default. The three parties to a contract of guarantee are the principal debtor, creditor, and surety. There are two kinds of guarantees - specific and continuing. Essential features include it being a tripartite agreement, requiring consent of three parties, existence of an enforceable liability or promise, and meeting requirements for a valid contract. The surety's liability is co-extensive with the principal debtor unless otherwise specified, and is secondary and conditional on default of the principal debtor.

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    of 6

    CONTRACT OF GUARANTEE

    SUBMITTED BY: SHWETA SINGHAL ROLL NO: 43

    CONTRACT OF GUARANTEE
    According to Sec 126, "contract of guarantee is a contract to perform the promise, or discharge the liability of a third person in case of his default. 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, I will. It is a contract of guarantee.

    PARTIES TO CONTRACT OF GUARANTEE


    1. Principal debtor [Section 126]: The person in respect of whose default the guarantee is given is called the "Principal debtor . Y is the principal debtor in the above example. 2. Creditor [Section 126]: The person to whom the guarantee is given is called the "Creditor". Z is the creditor in the above example. 3. Surety [Section 126]: The person who gives the guarantee is called the "Surety . X is the surety in the above example.

    KINDS OF GUARANTEE (Section 129)


    1. Specific Guarantee: A guarantee which extends to a single debtor or specific transaction is called a specific guarantee. The liability of the surety comes to an end when the guaranteed debt is duly discharged or the promise is duly performed. 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, I will. It is a contract of guarantee.

    2. Continuing Guarantee: A guarantee which extend to a series of transactions is called a continuing guarantee. Example: A guarantees a payment of Rs.200 to B for the supply of flour bags he supplies to C from time to time.

    ESSENTIAL FEATURES OF A CONTRACT OF GUARANTEE 1. Tripartite agreement


    There are 3 contracts i.e. one between principal debtor and surety, second between creditor and surety and lastly between principal debtor and creditor.

    2. Consent of three parties


    There must be free consent of all the three parties. Example: X sells and delivers goods to Y. X afterwards request Z to pay in default of Y. Z agrees to do so. Here Z cannot become surety without the consent of Y.

    3. Existence of a liability
    There must an existing liability or a promise whose performance is guaranteed. Such liability or promise must be enforceable by law. But there is an exception to this rule. The exception is a guarantee given for minor s debt. Though minor debt is not enforceable by law yet the guarantee given for minor s debt is valid.

    4. Guarantee not to be obtained by Misrepresentation is invalid. 5. Guarantee not to be obtained by Concealment is invalid. 6. Essentials of a valid contract
    a- The parties must be competent to contract. b- Surety need not be benefited. According to sec 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. Example: A sells and delivers goods to B. C afterward request A to not to sue B for the debt for a year, and promises that if he does not pay then he will pay. A agrees to do so. Not suing B is sufficient consideration for C. c- Guarantee need not be in writing.

    EXTENT OF SURETY S LIABILITY (SEC 128)


    1. The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. 2. Surety s liability is secondary and conditional: a- The liability of the principal debtor is primary and that of surety is secondary. b- The surety is liable to the creditor only when the principal debtor makes default. c- If the principal debtor perform the contract in part, the surety is liable only for the remaining part. Example 1: A sells goods to B worth Rs. 10000. C guarantees to pay A in default of B. Here the liability of C is for Rs. 10000 as nothing was mentioned in guarantee regarding the amount. Example 2: A sells goods to B worth Rs. 10000. C guarantees to pay Rs 5000 to A in default of B. Here the liability of C is for Rs 5000 only as it was mentioned in the contract. A can t ask C to pay Rs 10000 in default of B.

    IS A CONTRACT OF GUARANTEE A CONTRACT OF UBERRIMAE FIDEI


    A contract of guarantee is not a contract of Uberrimae fidei (i.e. a contract of absolute good faith) and hence, 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.

    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. 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

    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

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