various kinds of guarantee with examples

by • 09/06/2013 • GeneralComments (0)266

Q.9      Describe the various kinds of guarantee with examples.

Ans:    KINDS OF GUARANTEE

Guarantee may be classified under the following two categories.

(I) Specific guarantee                (II) Continuing guarantee

 

SPECIFIC GUARANTEE

A guarantee, which extends to a single debt or specific transaction, is called a spedfic guarantee. The liability of the surety comes to an end when the guarantee debt is duly discharged or the promise is duly performed.

EXAMPLE

X guarantees payment to Y of the five bags of flour to be delivered by Y to Z and to be paid for in a month. Y delivers five bags to Z, Z pays for them. This is a contract of specific guarantee because X intended to guarantee only for the payment of price of the first five bags of flour to be delivered at one time.

 

CONTINUING GUARANTEE

A guarantee, which extends to a series of transaction, is called a ‘continuing guarantee’. A surety liability continues until the revocation of the guarantee.

 

EXAMPLE

On S’s recommendation, C employed P for the collection of rent from his tenants S promised to make good any default made by P. this is a contract of continuing guarantee.

 

EXAMPLE

X gives guarantee for the loans given by Y to Z, Z owes Rs 1,00,000/= to Y, X may give this guarantee in the following forms.

Forms (a): I guarantee the payment of the loan of Rs 60,000/- by Y to Z.

Forms (b): 1 guarantee the payment of the loan by Y to Z subject to the limit Rs 60,000/=.

The distinction between these two forms becomes clear when Z becomes insolvent. Let us suppose that Z become insolvent and his estate pays 30paisa in a rupee. In this case, the rights of X and 7 will be as under.

 

Right In case of guarantee for a part of debt [From (a)] In case of guarantee for the entire debt subject to a limit [Form (b)]
Right of Y Y can recover Rs 60,000 from X and Rs 12,000 (being 30% of the balance of Rs 40,000) from Z’s estate. Y can recover Rs 60,000 from X and Rs 30,000 (being 30% of the entire debt of Rs 1,00,000) from Z’s estate.
Right of X After paying Rs 60,000 to Y, X can recover Rs 18,000 (being 30% of Rs 60,000) from Z’s estate. X will not get anything from Z’s estate till the entire debt of s 1,00,000 is paid to Y.

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