Discuss the essentials of contract of guarantee

A contract of guarantee is a promise to answer for the debt, default or miscarriage of another. It is a collateral engagement by which a parson undertakes to be liable for the debt of another's default. Section 126 of Contract Act "A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default". A person who gives the guarantee is called the Surety or Guarantor and the person in respect to whose default the guarantee is given is called the Creditor. The person to whom the guarantee is given is called the Creditor. A guarantee may be either oral or written. Though consideration is essential for a contract of guarantee, it is not necessary, that benefit should accrue to the surety. It is sufficient if there is some benefit to the principal debtor. Section 127 of the Act clearly states, anything done, or any promise made, for the benefit of the principal debtor, may be sufficient consideration to the surety for giving the guarantee. Example: A and B visit a shop. C is the owner of the shop. B says to C that let A have the goods on credit he does not pay I will. This is a contract of guarantee. Here B is the surety, C is the creditor and A is the principal debtor. Essentials of this Contract: 1. In a contract of guarantee there should be a consent and concurrence of the three parties namely the principal debtor, the creditor, and the surety. 2. In this contract there must be a clear and distinct promise by the surety to answer for the debt, default or miscarriage of the principal debtor. A vague or ambiguous promise is no guarantee.

3. The liability of the principal debtor must be one which is legally enforceable. i.e. it should not be time-barred, illegal etc. Where the liability is unenforceable, it does not exist. And where the liability does not exist, there cannot be a contract of guarantee.

Continuing Guarantee: A guarantee which extends to a series of transactions is called a "continuing guarantee". In case of this kind of guarantee which extends, over two or more transactions, the liability the surety extends over the successive transactions which come within its scope. Revocation of continuing Guarantee: Continuing guarantee can be revoked in the following ways. 1. Notice: A continuing guarantee may at any time be revoked by the surety as to future transactions, by notice to the creditor. 2. Death of the Surety: The estate of the surety is liable for all transactions entered into prior to the death of the surety unless there is a contract to the contrary. It is not necessary that the creditor should have notice of the death. Invalid Guarantees: A guarantee is invalid in case of an assent obtained by misrepresentation, of if some material fact is concealed. Where person gives a guarantee on the condition that the creditor shall act upon it until another person has joined in it as a co-surety, the guarantee is invalid if the other person does not join.

Meaning and definition A guarantee means a contract of a promise to be responsible for something, to perform the promise or to discharge the liability of a third person, in case of his default. Such a contract involves three parties. They are: i. Creditor: the person to whom the guarantee is given; ii. Surety: the person who gives the guarantee. iii. Principal debtor: the person, in respect of whose default, the guarantee is given.

Section 126 of ICA, A contract of guarantee is a contract to perform the promise to discharge the liability of a third person in case of his default. A clear definition was made regarding a guarantee by English Court in the case of Bricknyrs v. Darmell (1704), 'A contract of guarantee is a contract by one person to discharge the debt, fault or miscarriage of another.' A contract of guarantee is entered into with the object of enabling a person to get a loan or goods on credit or an employment. Example: If 'A' advances a loan of Rs. 5000/- to 'B' and 'C' promises to 'A' that if 'B' does not repay the loan, 'C' will do so. Here, this is a contract of guarantee. It will be noticed that in a contract of guarantee there are three separate contracts, i.e.- i. between the principal debtor and creditor, ii. between the creditor and surety, and iii. between the surety and principal debtor, wherein the principal debtor requests the surety to act as surety and impliedly to indemnify the surety in case the surety incurs liability. Thus, the contract of guarantee is of tripartite nature. The primary liability is of the

principal debtor. The secondary liability is of the surety which arises only when the principal debtor defaults. The surety must have to know all the facts regarding the contract. If any alteration regarding the terms of the contract are made without the consent of the surety, it terminates automatically.