Meaning and definition
A guarantee means a contract of a promise to be responsible for something, to perform the promise or to discharge the liability of a third person, in case of his default. Such a contract involves three parties. They are:
i. Creditor: the person to whom the guarantee is given;
ii. Surety: the person who gives the guarantee.
iii. Principal debtor: the person, in respect of whose default, the guarantee is given.
Section 15(1) of NCA, 'A contract relating to a guarantee shall be deemed to have been concluded if it provides that, if any person in the repayment of loan obtained by him or fulfillment of the obligation accepted by him, it will be repaid or fulfilled by a third person.'
Section 126 of ICA, A contract of guarantee is a contract to perform the promise to discharge the liability of a third person in case of his default.
A clear definition was made regarding a guarantee by English Court in the case of Bricknyrs v. Darmell (1704), 'A contract of guarantee is a contract by one person to discharge the debt, fault or miscarriage of another.'
A contract of guarantee is entered into with the object of enabling a person to get a loan or goods on credit or an employment.
Example: If 'A' advances a loan of Rs. 5000/- to 'B' and 'C' promises to 'A' that if 'B' does not repay the loan, 'C' will do so. Here, this is a contract of guarantee.
It will be noticed that in a contract of guarantee there are three separate contracts, i.e.- i. between the principal debtor and creditor, ii. between the creditor and surety, and iii. between the surety and principal debtor, wherein the principal debtor requests the surety to act as surety and impliedly to indemnify the surety in case the surety incurs liability. Thus, the contract of guarantee is of tripartite nature. The primary liability is of the principal debtor. The secondary liability is of the surety which arises only when the principal debtor defaults. The surety must have to know all the facts regarding the contract. If any alteration regarding the terms of the contract are made without the consent of the surety, it terminates automatically.
Sec. 15(3) of NCA states that such a contract must be made in written form. The English law also accepts this rule but the Indian law accepts both written and oral contract of guarantee.
The Muluki Ain, 1963, Chapter on 'Jamani garneko', Chapter on 'Court Management', Chapter on 'Punishment' and Government Contract Arrangement Act, have made some legal provisions in this regard.
A guarantee means a contract of a promise to be responsible for something, to perform the promise or to discharge the liability of a third person, in case of his default. Such a contract involves three parties. They are:
i. Creditor: the person to whom the guarantee is given;
ii. Surety: the person who gives the guarantee.
iii. Principal debtor: the person, in respect of whose default, the guarantee is given.
Section 15(1) of NCA, 'A contract relating to a guarantee shall be deemed to have been concluded if it provides that, if any person in the repayment of loan obtained by him or fulfillment of the obligation accepted by him, it will be repaid or fulfilled by a third person.'
Section 126 of ICA, A contract of guarantee is a contract to perform the promise to discharge the liability of a third person in case of his default.
A clear definition was made regarding a guarantee by English Court in the case of Bricknyrs v. Darmell (1704), 'A contract of guarantee is a contract by one person to discharge the debt, fault or miscarriage of another.'
A contract of guarantee is entered into with the object of enabling a person to get a loan or goods on credit or an employment.
Example: If 'A' advances a loan of Rs. 5000/- to 'B' and 'C' promises to 'A' that if 'B' does not repay the loan, 'C' will do so. Here, this is a contract of guarantee.
It will be noticed that in a contract of guarantee there are three separate contracts, i.e.- i. between the principal debtor and creditor, ii. between the creditor and surety, and iii. between the surety and principal debtor, wherein the principal debtor requests the surety to act as surety and impliedly to indemnify the surety in case the surety incurs liability. Thus, the contract of guarantee is of tripartite nature. The primary liability is of the principal debtor. The secondary liability is of the surety which arises only when the principal debtor defaults. The surety must have to know all the facts regarding the contract. If any alteration regarding the terms of the contract are made without the consent of the surety, it terminates automatically.
Sec. 15(3) of NCA states that such a contract must be made in written form. The English law also accepts this rule but the Indian law accepts both written and oral contract of guarantee.
The Muluki Ain, 1963, Chapter on 'Jamani garneko', Chapter on 'Court Management', Chapter on 'Punishment' and Government Contract Arrangement Act, have made some legal provisions in this regard.
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