Contract of Guarantee

It is a contract to perform the promise or discharge the

liability of a third person in case of his default. It is made to
enable a person to get a loan or goods on credit or an
employment.
There are three parties involved i.e. the person who gives
the guarantee known as the surety, the person in respect
of whose default the guarantee is given known as the
principal debtor and the person to whom the guarantee is
given known as the creditor.
There are three contracts first b/w creditor & principal
debtor, second b/w surety & creditor, third b/w surety &
principal debtor.
The primary liability is of principal debtor and the surety has
a secondary liability. Which means that the payment is to be
made by the surety only if the debtor does not pay.
This contract is for the security of the creditor.

Contract of Guarantee

Primary obligation
Principal Debtor

to pay/perform

Guarantor or
Surety

Beneficiary or
Creditor

Secondary
and accessory

A
If principal does not pay or perform, I will.

Nature & Extent of Suretys Liability in Guarantee

The liability of the surety is secondary or contingent.
The surety is liable only on the default of the Principal
Debtor.
The liability of the surety arises immediately on the
default of the Principal Debtor, unless there is an
express provision in the contract that the creditor must
in the first instance proceed against the principal
debtor or give a notice of default to the surety.
Where the creditor holds securities from the principal
debtor for his debt, the creditor need not first resort to
these securities before suing the surety, unless
otherwise agreed.
The surety will not be liable where the creditor has
obtained guarantee by misrepresenting a material part
of the transaction or keeping silence as to material
circumstances.

Continuing Guarantee
A continuing guarantee is not exhausted by the
first advance or credit upon the guarantee limit.
Whether or not a guarantee is a continuing one
depends upon the intention of the parties, as
expressed by the terms of the contract and the
surrounding circumstances.
The essence of a continuing guarantee is that it
applies to a series of distinct and separate
transactions. As such a guarantee given for an
entire consideration is not a continuing guarantee .
Revocation of Continuing Guarantee
By notice of revocation by the Surety
By death of Surety
In the same manner as the Surety is discharged

Discharge of Surety from Liability

1.
2.
3.
4.
5.

Notice of revocation
Death of Surety
Variance in terms of Contract
Release or discharge of Principal Debtor
Arrangement by Creditor with Principal Debtor without
Suretys consent
6. Creditors act or omission impairing suretys eventual remedy
7. Loss of security
8. Invalidation of the contract of guarantee
Where the guarantee has been obtained by means of
misrepresentation, fraud or keeping silence as to material part of
the transaction, by the creditor or with creditors knowledge and
assent.
Where a person gives a guarantee upon a contract that the
creditor shall not set upon it until another person has joined in it
as co-surety, the guarantee is not valid if the other person does
not join.
Where it lacks one or more essential elements of a valid contract.

Warranty
A Warranty is a promise that something sold is in good
condition. There are four types of warranties:
Voluntary Warranties these are given by manufacturers, resellers or
service providers who choose to stand behind their goods or services. If a
manufacturer, retailer or service provider chooses to give a voluntary warranty or
guarantee, then the law requires that person or business honour it.

Extended Warranties these usually give a purchaser similar benefits to a

manufacturers warranty, but over a longer period. These warranties may apply
only after the manufacturer's express warranty has run out.

Expressed Warranties An express warranty is one in which the seller

indicates specific qualities of the goods, such as "waterproof" or "hypoallergenic."
It is nearly impossible to disclaim an express warranty without creating a
contradiction. If the goods fail to perform as advertised or as shown in a sample, it
is a breach of express warranty.

Implied Warranties The warranty of merchantability is implied, unless

expressly disclaimed by name, or the sale is identified with the phrase "as is" or
"with all faults." To be "merchantable", the goods must reasonably conform to an
ordinary buyer's expectations, i.e., they are what they say they are. Implied
warranties relating to the sale of goods may include:

Warranty of quiet possession

Warranty of freedom from encumbrances