contract of guarantee
TRANSCRIPT
CONTRACT OF GUARANTEE
SECTION 126
Contract of guarantee
FUNCTIONS Repayment of debt Payment of goods
sold on credit Good conduct or
honesty of a person or Fidelity Guarantee
PARTIES INVOLVED Creditor Principal debtor Surety
Example S and P go into a shop. S says to the
shopkeeper “ Let P have the goods and if P fails to pay the amount , I will”.This is the contract of guarantee.
BIRKMYR vs. DARNELL
FEATURES
Concurrence or triangular relationship Primary liability in some person Essentials of a valid contract Writing not necessary Not a contract of UBERRIMAE FIDEI
KINDS OF GUARANTEE Retrospective guarantee (For existing
debt) Prospective guarantee (For future
debt) Specific guarantee Continuing guaranteeExample: S in consideration that C will employ P in
collecting rents of C’s zamindari, promises C to be responsible to the amount of Rs.5000 for due collection and payment by P of these.
RIGHTS OF SURETY
Rights against creditor - Before the payment of guarantee
debt - Right of set-off - Right of subrogation - On the payment of guaranteed
debt
RIGHTS OF SURETY Rights against principal debtor - Right to be relieved of liability - Right to be indemnityExample: P is the principal debtor of C and S the
surety of the debt .C demands the payment of debt and on his refusal , sues him. S is compelled to pay the amount of debt with costs. He can recover the amount from P ,the amount paid as well as the costs.
RIGHTS OF SURETY
Rights against co-sureties - Co-sureties liable to contribute
equallye.g. S1,S2 & S3 are sureties to C for a sum of
Rs.3000.P makes a default .S1,S2&S3 will be liable to what amount???
- Liability of co-sureties bound in different sums
Example: S1,S2 and S3 as sureties for P ,enter into three separate bonds each in different penalty .S1 in the penalty of Rs.10000 ,S2 in the penalty of Rs.20000 and S3 for Rs.30000.P makes the default
a) Rs. 30000b) Rs. 40000c) Rs. 60000S1,S2&S3 are liable for what amount in each
of three cases???
DISCHARGE OF SURETY
1. BY REVOCATION
REVOCATION BY SURETY
DEATH OF SURETY
NOVATION
2. BY THE CONDUCT OF CREDITOR
Discharge of principal debtor
Compounding by creditor with principal debtor
Creditor’s act
Variance in terms of contract
Loss of security
3. By invalidation of contract
Misrepresentation
Concealment
Failure of consideration
Creditor shall not act on it until a co-surety joins
TRUE OR FALSE??? A contract of guarantee must be in writing Consideration received by principal debtor is
sufficient and it need not result in some benefit to the surety himself
In a contract of guarantee two parties are necessary
The death of principal debtor releases the surety from his liability
In a contract of guarantee there is no implied promise by the principal debtor to indemnify the surety
CONTINUED… A contract of guarantee is a contract
of uberrimae fidei The liability of surety is primary If the creditor does some act which by
implication releases the principal debtor from his liability , the surety is not discharged
A specific guarantee cannot be revoked