guarantee
Under s.126 of the Indian Contract Act a contract of guarantee involves three parties: the surety who gives the guarantee, the principal debtor for whose default it is given, and the creditor to whom it is given. It may be oral or written; unlike English law, Indian law does not require writing. Anything done or promised for the benefit of the principal debtor is sufficient consideration for the surety (s.127).
The surety's liability is co-extensive with that of the principal debtor unless the contract provides otherwise (s.128), and the creditor may sue the surety without first suing the debtor. A guarantee covering a series of transactions is a continuing guarantee (s.129). The surety is discharged by variation of terms without his consent, release of the debtor, or the creditor's act impairing his remedy (ss.133–139). Contrast indemnity, which involves only two parties and primary liability.
Example
When the borrower defaulted, the bank sued the father who had signed the guarantee, since a surety's liability is co-extensive with the debtor's.
In Indian law
- Sections 126–147, Indian Contract Act, 1872
See also
surety · indemnity · subrogation · contract
Read more in the study notes
- The Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Banking Law)
- Administrative discretion and its judicial review (Administrative Law)
- Arbitrators: qualities, appointment, challenge and substitution (Alternative Dispute Resolution Systems)
- Mediation: meaning, the mediator and essential characteristics (Alternative Dispute Resolution Systems)
- Bank: definition, kinds of banks and their functions (Banking Law)
- RBI: monetary regulation, credit control, currency issue, exchange control and bank rate (Banking Law)