Following are the characteristics or essentials of contract of guarantee:
i. Tripartite agreement: In a contract of guarantee, there are three parties namely: principal creditor, creditor and surety. Under this contract, three separate contracts are made among them and consent of all the three parties is necessary. The contracts connecting each-other as contract between:
a. the principal debtor and creditor,
b. the creditor and surety, and
c. the surety and principal debtor,
ii. Liability: Under such contract the primary liability is of the principal debtor and only secondary liability is of the surety. As a conditional contract, liability of the surety arises only when the principal debtor (primarily liable) defaults.
iii. Essentials of valid contract: It is also as same as other general contract in respect of essentials. All the requirements for valid contract, i.e. free consent, consideration, lawful object, competency of the parties etc. are necessary to form this kind of contract. But, in respect of consideration, no direct consideration in the contract between the surety and creditor. Consideration of principal debtor is considered to be adequate for the surety.
iv. Written form: A contract relating to guarantee must be concluded in writing in Nepal and England. But, the Indian legal framework does not compel to form such contract in written form. Both written and oral is valid in India.
i. Tripartite agreement: In a contract of guarantee, there are three parties namely: principal creditor, creditor and surety. Under this contract, three separate contracts are made among them and consent of all the three parties is necessary. The contracts connecting each-other as contract between:
a. the principal debtor and creditor,
b. the creditor and surety, and
c. the surety and principal debtor,
ii. Liability: Under such contract the primary liability is of the principal debtor and only secondary liability is of the surety. As a conditional contract, liability of the surety arises only when the principal debtor (primarily liable) defaults.
iii. Essentials of valid contract: It is also as same as other general contract in respect of essentials. All the requirements for valid contract, i.e. free consent, consideration, lawful object, competency of the parties etc. are necessary to form this kind of contract. But, in respect of consideration, no direct consideration in the contract between the surety and creditor. Consideration of principal debtor is considered to be adequate for the surety.
iv. Written form: A contract relating to guarantee must be concluded in writing in Nepal and England. But, the Indian legal framework does not compel to form such contract in written form. Both written and oral is valid in India.
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