Guarantee – Sections 126 to 147 of Indian Contracts Act

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Guarantee - Sections 126 to 147 of the Indian Contracts Act

What is ‘Guarantee?’

In a general meaning, guarantee means an assurance for the repairing or replacement of a good which has gone bad. It is a written assurance given on the fulfilment of certain conditions.

Illustration: A buys a Television from B. B guarantees to repair any internal damage which the Television set may suffer in the duration of next one year from the date of purchase of the Television set by A.

What is a ‘Contract of Guarantee?’

A Contract which lays down the points of performance of a promise made or a discharge of a responsibility or a liability is termed as a ‘Contract of Guarantee.’[1]

Illustration: A buys a refrigerator from B. B signs a ‘Contract of Guarantee’ with A to repair and replace the internally damaged parts free of cost, in case any part goes bad.

Who all are involved in this ‘Contract of Guarantee?’

Surety:

The person giving the Guarantee is called ‘Surety.’[2]

Creditor: 

The person taking the guarantee from the Surety, or the one to whom it is given is called the ‘Creditor.’[3]

Principal Debtor:

A person who will be liable for the bad due to which the issue of guarantee will arise is called the ‘Principal Debtor.’[4]

Illustration: A buys a Stereo System from B. B guarantees A that if C mishandles the Stereo then B will pay for the damage. Here, A is the ‘Creditor,’ B is the ‘Surety,’ and C is the ‘Principal Debtor.’

What is the stand of the payment of ‘Consideration?’

Consideration can be paid in cash or kind or an act will be sufficient for the consideration. The beneficiary of the payment will be the ‘Principal Debtor’ and Surety will give the guarantee.[5]

What is ‘Continuing Guarantee?’

A guarantee made for a number or a series of transactions is called a ‘Continuing Guarantee.’[6]

Illustration 1: A enters into a Continuous Guarantee with B. A was to pay B a certain amount of money for supplying C with coffee. B supplies C with coffee from time to time. A has to pay B on regular intervals.

Illustration 2: A guarantees B for the delivery and payment of 5 sacks of wheat to be delivered to C. B delivers the said to C. Then B further delivers 4 another sack of wheat to C. A is not liable to pay B for the second set of delivered wheat as it was not a continuing guarantee.

How is it revoked?

The Surety has the right to revoke the continuing guarantee by notifying the creditor of the revocation.[7] Also, the continuing guarantee can be revoked by the death of the Surety.[8]

Discharge of Surety.

The surety can be discharged after the completion of the purpose of the guarantee or attainment of the terms for which the guarantee was made.

If the surety is not notified of any changes in the terms and conditions of the Contract then that would be consequential to the discharge of the surety with regard to any future transactions which will be covered under the said guarantee.[9]

Also, the surety can be discharged with respect to any contract between the principal debtor and the creditor through which the principal debtor is released from hi s position and absolved of all his powers. This discharge of the principal debtor gives rise to the consequence of discharge of the surety from the guarantee.[10]

The surety can also be discharged if any act done by the creditor is not in lieu with the terms and conditions of the guarantee.

If there be more than one sureties then the discharge of one surety does not lead to the discharge of all the sureties.[11]

Rights of Surety.

If the debt has become due or when the principal debtor has failed to perform the duties assigned, then the surety, after the payment, is invested with all the said rights of the principal debtor which the creditor had assigned.[12]

The surety is the beneficiary of all the securities which the creditor makes to the principal debtor at the time of the contract.[13]

Invalid Guarantee.

Any guarantee which is attained by misrepresentation made on the creditor’s behalf is invalid. It may or may not be with his knowledge or assent. The knowledge of the creditor is immaterial to the fact that there was a misrepresentation.[14]

If the creditor has actively concealed a fact during the contract or guarantee, then the guarantee is deemed to be invalid.[15]

Co-sureties.

It is the case where the person gives in a guarantee that the actions of the creditor are under curtailment until and unless another person has become a party to the guarantee as a co-surety. The terms and conditions of the guarantee will be invalid as long as the co-surety does not become a party to the guarantee.[16]


[References]

[1] Indian Contract Act, 1872. Section 126.

[2]Ibid.

[3]Ibid.

[4]Ibid.

[5] Indian Contract Act, 1872. Section 127.

[6] Indian Contract Act, 1872. Section 129.

[7] Indian Contract Act, 1872. Section 130.

[8] Indian Contract Act, 1872. Section 131.

[9] Indian Contract Act, 1872. Section 133.

[10] Indian Contract Act, 1872. Section 134.

[11] Indian Contract Act, 1872. Section 138.

[12] Indian Contract Act, 1872. Section 140.

[13] Indian Contract Act, 1872. Section 141.

[14] Indian Contract Act, 1872. Section 142.

[15] Indian Contract Act, 1872. Section 143.

[16]Indian Contract Act, 1872. Section144.

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