Contract of Guarantee
Which section governs the Contract of Guarantee under the Indian Contract Act 1872?
Section 126 of the Indian Contract Act 1872 establishes that a Contract of Guarantee is a type of contract where one party promises the other party to perform the promise or to discharge the liability which is incurred by the third party due to his default. Contract of Guarantee can be either an Oral Contract or a Written Contract. The principal debtor, creditor and surety are the three parties in a contract of guarantee.
How many types of guarantee are there?
There are mainly two types of guarantee, which are-
- Specific Guarantee: A guarantee which extends only to a specific transaction.
- Continuing Guarantee: Continuing guarantee is one which extends to a series of transactions.
Highlight the difference between a Contract of Guarantee and a Contract of Indemnity?
Contract of indemnity is a contractual obligation where one party promises to pay for the loss or damages incurred by another party. Whereas, under the contract of guarantee, third party promises legally to pay off a debt or obligation of another party if the debtor fails to fulfill his obligation.
What is the nature of surety’s liability in the Contract of Guarantee?
- The liability of surety is secondary.
- Surety is liable only when the principal debtor makes a default.
- The creditor has the right to demand the performance from surety before demanding it from the principal debtor.
How can a Contract of Guarantee be discharged?
Contract of guarantee can be discharged by various modes:
- By revocation.
- By the conduct of the creditor.
- By the Invalidation of contract of guarantee.
Also refer to: Difference between Contract of Indemnity and Guarantee