Q-5: Under what circumstances a guarantee can be terminated?
Ans: The guarantee or surety can be terminated in various ways. In the following circumstances it can be terminated.
1. DEATH OF GUARANTOR
The guarantee will not remain in force when bank receives the notice of his death. The legal representatives is responsibility before the death of the guarantor.
2. REVOCATION BY THE GUARANTOR
The guarantor can cancel the continuing guarantee by notice to the creditor as to future transactions.
3. DEATH OF THE DEBTOR
The guarantee is terminated automatically after the death of the principal debtor. In such case creditor can recover the amount due by the debtor from his estate. In case of default by the legal of the debtor, the creditor can demand from the guarantor.
4. INSANITY OF THE SURETY
When the creditor comes to know about the sanity of the surety, the guarantee terminates.
5. BANKRUPTCY OF THE DEBTOR
In case of bankruptcy the banker stops the accounts operation and guarantee comes to an end. In such case demand is made upon the surety for the payment of guarantee debt.
6. FRAUD AND MISREPRESENTATION
The guarantee obtained by fraud and misrepresentation is invalid.
7. PAYMENT OF DEBT
If the debt is paid by the debtor on due date, the guarantee is discharged.
8. CHANGES IN AGREEMENT
When the Creditor changes the terms and condition of the agreement with the debtor, then surety is discharged.
9. NEGLIGENCE OF THE CREDITOR
If the creditor neglects something which he is bound to do for the protection of the surety. In this case surety will be discharge.
10. CHANCES IN CONSTITUTION
If the constitution of the firm changes, it may terminate the guarantee.
DISCHARGE OF DEBTOR
By any agreement between the creditor and debtor or any act if the principal debtor is discharged then surety will be automatically discharged.
12. UNAUTHORIZED EXTENSION OF TIME
If the debtor grants extension of time to the debtor without the consent of the surety then guarantee is revoked.
13. AMALGAMATION OF BANKS
If two or more banks amalgamate the guarantee will cease for all future transactions unless there is an agreement.
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