Q.7 Is a contract of guarantee a contract of uberrimae fidei discuss.
Ans: 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 to the surety before he enters into a contract. For example, in case of guarantee given to a bank, bank need not inform the surety of matters effecting the creditor of principal debtor.
However, the provision of Section 142 and 143 give some protection to the surety by making the following guarantee as invalid.
(a) A guarantee obtains by misrepresentation.
(b) A guarantee obtained by concealment of material facts.
DISTINCTION BETWEEN A CONTRACT OF INDEMNITY AND A CONTRACT OF GUARANTEE
|Basis||Contract of indemnity||Contract of guarantee|
|1.||No of parties||There are two parties indemnifier and the indemnity holder.||There are three parties – principal debtor, creditor and surety.|
|2.||No of contracts||There is only one contract between indemnifier and indemnity – holder||There are three contracts one between creditor and principal debtor, second between and third between surety and the creditor.|
|3.||Undertaking||The indemnifier undertakes to save the indemnity holder from any loss.||The surety undertakes for the payment of debts of principal debtor.|
|4.||Nature of liability||The liability of indemnifier is primary and unconditional.||The liability of surety is secondary and conditional. Surety’s liability is secondary in the sense that the primary liability is of principal debtor. Surety’s liability is conditional in the sense that it arises only on default of principal debtor.|
|5.||Nature of event||The liability arises only on the happening of a contingency.||The liability arises only on the non¬performance of an existing promises or non-payment of an existing debt.|
|6.||Request||The indemnifier need not act at the request of indemnity holder.||The surety acts at the request of the principal debtor.|
|7.||Right to sue||The indemnifier cannot sue a third party in his own name because of absence of privity of contract between him and a third party. He can sue the third party in his own name if they’re in an assignment in his favour.||A surety, on discharged the debt of principal debtor, can sue the principal debtor in is own name.|