Contract of Guarantee important topic for CS Professionals

Contract of Guarantee important topic for CS Professionals

Contract of Guarantee important topic for CS Professionals

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An interesting topic from Drafting – ‘Guarantees’ is discussed below:

 

Contract of Guarantee

Contract of Guarantee

A “contract of Guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default. A Guarantee may be either oral or written.

Parties involved in the Contract

Surety: The person who gives the guarantee is called the “surety”.

Principal debtor: The person in respect of whose default the guarantee is given is called the principal debtor”

Creditor: The person to whom the guarantee is given is called the “creditor”

Types of Guarantee

Continuing Guarantee:

Section 129 of Indian Contract Act, 1872 lays down that a guarantee which extends to a series of transactions is called a “continuing guarantee”, and as per Section 130, a continuing guarantee may be revoked by the surety at any time as to future transactions, by notice to the creditor.

Fidelity Guarantee

A guarantee, guaranteeing an employer against the misconduct of an employee or to answer for the debt or default of another, is called a “fidelity guarantee”.

Counter Guarantee

A guarantee given by the principal debtor to the surety providing him continuing indemnity against any loss or damage that the surety may suffer on account of default on the part of the principal debtor is called “Counter Guarantee”.

Performance Guarantee

A guarantee which ensures the contracted performance of another person and under which the surety undertakes to compensate the person in whose favor the guarantee is given in the event of failure on the part of the person on whose behalf the guarantee is given is known as “performance guarantee”.

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Section 127 of the Indian Contract Act, 1872 defines consideration for guarantee as “Anything was done, or any promise made, for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee.

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August 25, 2019

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