ESSENTIAL FEATURES OF CONTRACT OF GUARANTEE

by • 09/06/2013 • GeneralComments (0)2925

Q.6 Describe the essential features of a contract of guarantee.

 

Ans: ESSENTIAL FEATURES OF CONTRACT OF GUARANTEE

 

The essential features of a contract of guarantee are given below:

 

(a)        TRIPARTITE AGREEMENT

A contract of guarantee is tripartite agreement between the principle debtor, creditor and surety. There are three contracts as under.

(i)         Contract between creditor and the principle debtor out of which the guaranteed debt arises,

(ii)        Contract between surety and the principle debtor by which the principle debtor undertakes to indemnity surety if surety is required to pay.

(iii)       Contract between surety and the creditor by which the surety guarantees to pay the principle debtor’s debt of the principle debtor fails to pay,

 

(b)        CONSENT OP THREE PARTIES:

There must be consent of all the three parties.

EXAMPLE

X sells and delivers goods to Y. X afterwards requests Z to pay in default of Y. Z agrees to do so. Here, JL cannot become surely without the consent of Y.

 

(c)        EXISTENCE OP LIABILITY

There must be an existing liability or a promise whose performance is guaranteed. Such liability or promise must be enforceable by law. Hence, guarantee can be given only for liability or promise, which is enforceable, by law. But there is an exception to this rule. The exception is a guarantee given for minor’s debt. Thought minor debt is not enforceable by law, yet the guarantee given for minor’s debt valid.

EXAMPLE

X took a loan of Rs 10,000/= from Y on l4t Jan 2003 and paid nothing an account of interest and principal. On 2nd Jan 2006, Z gave the guarantee to Y for the payment of Rs. 10,000/= due from X. This is not a valid contract of guarantee because the primary liability between X and Y is a time barred debt which is not enforceable by law. –

 

(d)        ESSENTIAL OP A VALID CONRACT

All the essential of a valid contract must be present in a contract of guarantee. However, the following points are worth nbthing in this regard.

(i)         The principle debtor need not be competent to contract. In case the principal debtor is not competent to contract, the surety would be regarded as the principal debtor and would be personally liable to pay.,

(ii)        Surety need not be benefited. According to Section 227,

“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

B request A to sell and deliver to him goods on credit. A agrees to do so, provided C guarantees the payment of the price of the goods. C promises to guarantee the payment in consideration of As promise to deliver the goods. This is sufficient consideration for C s promise.

 

(e) GUARANTEE NOT TO BE OBTAINED BY MISREPRESENTATION [SEC 142]

Any guarantee, which, has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.

 

(f)         GUARANTEE NOT TO BE OBTAINED BY CONCEALMENT [SECTION 143]

Any guarantee with the creditor has obtained by means of keeping silence as to material circumstances is invalid.

 

EXAMPLE

A engages B as clerk to collect money for him. B fails to account for some of his receipts and A in-Consequence call upon him furnish security for his duty accounting C gives his guarantee for B’s duty accounting, A does not acquaint C with B’s previous conduct. B after wards makes a default. The guarantee is invalid. ‘ Young woman, whose voice was like the college homework help chat voice of a soul that once

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