Contract of guarantee part 1

According to the syllabus of B.com 1st year


Prepared by-
Ms. Neetu Kushwaha
Research Scholar
Department of Commerce

1. CONTRACT OF GUARANTEE
Course Co-Ordinator:
Ms. Neetu Kushwaha

2. Contract of Guarantee
Sec. 126-Sec. 147
•AccordingtoSec.126,“A
Contractofaguaranteeisa
contracttoperformthepromiseor
todischargetheliabilityofathird
personincaseofhisdefault.”

3. Parties to Contract
PRINCIPAL DEBTOR
SURETY
CREDITOR

4. Principal Debtor
•Thepersonwhomakesdefaultorthe
personinrespectofwhosedefault
theguaranteeisgivenissaidtobe
PrincipalDebtor.

5. Creditor
•Thepersonwholendmoneyto
principaldebtororthepersonto
whomtheguaranteeisgiveniscalled
astheCreditor.

6. Surety
•Thepersonwhogivesguaranteeto
creditoronthebehalfofprincipaldebtoris
calledasSurety.

7. Parties to Contract
PRINCIPAL DEBTOR
SURETY
CREDITOR
1
2
3

9. Absolute & Conditional
Guarantee
•AnAbsoluteguaranteeisonebywhichthe
guarantor(surety)unconditionallypromises
paymentorperformanceofthecontracton
defaultofprincipaldebtor.
•AConditionalguaranteeisonewhichisnot
enforcedimmediatelyonthedefaultofthe
principaldebtor,butsomecontingencyother
thansuchdefaultmusthappen.

10. Retrospective & Prospective
Guarantee
•Aguaranteegivenforanexistingdebt
orobligationiscalledRetrospective
guarantee.
•Aguaranteegivenforfuturedebtor
obligationiscalledaProspective
guarantee.

11. General & Specific Guarantee
•AGeneralguaranteeisonefor
acceptancebythepublicgenerally.Itisa
generalpromisetoanyoneacceptingitto
answerableforadebtincaseofthefailure
ofanotherperson.
•ASpecificguaranteeisonewhichis
addressedtoaparticularpersonwho
alonecantakeadvantageofitandto
whomalonetheguarantorcanbeheld
responsible.

12. Limited & Unlimited Guarantee
•ALimitedguaranteeisordinary
onerestrictedtoasingle
transaction.
•AUnlimitedguaranteeisone
whichisunlimitedastotimeor
transaction.

13. Continuing Guarantee
•Itmeansaguaranteewhichis
extendstoaseriesof
transactions.Itisnotlimitedtoa
singletransaction.Itisgenerally
foranindefinitetimeoruntilthe
endoftheguarantee.

14. Essentials of a Contract of
Guarantee
•ThreeParties
•ThreeContract
•Capacitytocontract
•Consent
•FreeConsent(sec.142&sec.143)
•Debtorliability

15. Cont.….
•Consideration (B/w principal
debtor & Creditor) (sec.127)
•Writing not necessary (sec.126)
•Other essentials of a contract.