THE INDIAN CONTRACT ACT,1872

TOPIC –
 CONTRACT OF GURANTEE(SECTION-126-147)

SUBMITTED TO- SUBMITTED BY -

Prof.Neelam Batra Shivani 74
Harpreet 78
Anshima 72
Bharat 69
Nidhi 81
 Contract of guarantee
(SECTION 126-147)
MEANING OF CERTAIN TERMS INVOLVED IN GURANTEE
1.CONTRACT OF GURANTEE – 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.
2. Surety – Person who gives the guarantee.
3. Principal Debtor – person in respect of whose default the guarantee is given.
4. Creditor – person to whom the guarantee is given.
 Essentials of a valid Guarantee
 1. Existence of a Principal Debt.
 2. Benefit to principal debtor is sufficient consideration but past consideration is no
consideration for a contract of guarantee
 3. Consent of surety should not obtained by misrepresentation or concealment of a material
fact
 4. Can be oral or written
KINDS OF GUARANTEE
1 Specific guarantee.
2 Continuing guarantee.

REVOCATION OF CONTINUING
GUARANTEE
1 By notice of revocation by the surety (Section – 130)
2 By the death of the surety ( Section – 131)
3 By variation in contract ( section – 133)
4 when a creditor discharges principal debtor from the liability, the surety also gets discharged
(section – 134)
NATURE AND EXTENT OF SURETY
LIABILITY
 Surety’s liability is Co Extensive with that of the Principal Debtor unless it is otherwise
provided by the Contract ( section 128).
 Surety’s Liability is Secondary and not Primary.
 Surety will be liable only when the Contract with the Creditor is valid.
RIGHTS OF A SURETY
1 Rights against the Principal Debtor
a) Rights of Subrogation (section 140)
b) Right to claim indemnity (section 145)
2. Rights against the Creditor
a) Right to Securities (section – 141)
b) Right to Claim Set-Off
3 Surety’s rights against Co-Sureties
a) Where they are sureties for the same debt for similar amount
MODES OF DISCHARGE OF SURETY
1 By Revocation of Contact of Guarantee
a) Revocation of Continuing Guarantee (section 130)
b) By the Death of Surety (section 131)
2 By Conduct of Creditor
a) By Variance in terms of Contract (Section 133)
b) by Release or Discharge of Principal Debtor (Section 134)
c) By Arrangement between Principal Debtor and Creditor (Section-135)
d) Discharge of Surety By Creditor’s Act (section 139)
e) Surety’s right to benefit of Creditor’s Securities (Section 141)
3 By Invalidation of Contract
a) Guarantee Obtained by Misrepresentation (Section 142)
b) Guarantee Obtained by Concealment (Section 143)
Indemnity Guarantee
Parties:  

There are two parties, viz, indemnifier(promisor) and indemnified(promise). There are three parties, viz, creditor, surety, and principal debtor.

Contract:  

There are three contracts, viz, between creditor and the principal debtor,
There is only one contract, i.e. between indemnifier and indemnified.
between surety and creditor, between surety and principal debtor.

Nature of liability:  

The liability of indemnifier is primary and independent, there is no secondary The primary liability is of the principal debtor, the surety is liable only
liability. secondarily, i.e. if the debtor does not pay.

Requested Action:  

It is necessary that the surety should give a guarantee at the request of the
It is not necessary for the indemnifier to act at the request of indemnified.
principal debtor.

Liability arises:  

The liability of the indemnifier arises only on the happening of a contingency or There is an existing debit or duty, the performance of which is guaranteed by
event. the surety.

Right to Sue:  

The indemnifier cannot sue a third party for loss in his own name. The surety, on discharging the debt steps into the shoes of the creditor.
:
Conclusion
 The contract of guarantee is a specific contract for which the Indian
Contract Acy has laid some rules. As we have discussed, the basic
function of a contract of guarantee is to protect the creditor from loss
and to give him confidence that the contract will be enforced with the
promise of the surety. Every contract of guarantee has three parties and
there exist two types of guarantees i.e specific guarantee and
continuing guarantee. The type of Guarantee used depends on the
situation and the terms of the contract. The surety has some rights
against the other parties and liability of the surety is considered to be
co-extensive with that of the principal debtor unless it is otherwise
provided by the contract. In case the contracts are entered into by
misrepresentation made by the creditor regarding material
circumstances or by concealment of material facts by the creditor, the
contract will be considered invalid.