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Contract of Guarantee- Definition, Essentials and Distinction from Contract of indemnity.
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Contract of Guarantee- Definition, Essentials and Distinction from Contract of indemnity.
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Contract of Guarantee: Definition, Essentials and Distinction fromContract of indemnity
Proffessor C.P.Singh
Head & Dean
Faculty of Law
Definition [S.126]:- In a contract of guarantee one person promises to pay the
amount due from another person incase the another person not pays within fix
time. S. 126 provides that a "contract of guarantee" is a contract to perform the
promise, or discharge the liability, of a third person in case of his default. The
person who give the guarantee is called the "surety"; the person in respect of
whose default the guarantee I given is called the "principal debtor", and the
person to whom the guarantee is given is called the "creditor". A guarantee may
be either oral or written.
Thus a contr5act of guarantee is a contract in which-
(i) one person has promised to perform or discharge the liability if third
person; case
(ii) In case Third person will find to discharge his own liability.
Parties: There are following 3 parties In a contract of guarantee.
1. Principal debtor- The person who takes loan or on whose behalf the
guarantee is given.
2. Creator – The person who give loan or to whom the guarantee is given.
3. Surely- The person who promises to discharge the liability of third
person or who gives the guarantee.
Example- Mohan takes loan of Rs. 5 lakh from the UCO Bank of Lucknow
University Branch. Sohan promises to UCO Bank that if Mohan fails to rupey
the loan timily thin he Mohan will pay. This is a contract of guarantee and
Mohan is Principal debtor UCO Bank is creator and Sohan is surety.
Essentials-
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