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CONTRACT LAW CONTRACT OF GUARANTEE REVIEW NOTES
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CONTRACT LAW CONTRACT OF GUARANTEE REVIEW NOTESCONTRACT LAW CONTRACT OF GUARANTEE REVIEW NOTES
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CONTRACT LAW REVIEW NOTESCONTRACT OF GUARANTEE
By a contract of guarantee, one undertakes to be collaterally
answerable for the debts, defaults or miscarriage (misdeeds) of
another.
It is a contract to perform the promise or discharge the liability of a
third person in case of default.
The person who gives the guarantee is called the surety or the
guarantor; the person in respect of whose default the guarantee is
given is called the principal debtor; and the person to whom the
guarantee is given called the creditor.
According to English law, such an agreement is required to be in
writing by section 4 of the statute of frauds. The section provides that
no action can be brought in respect of a representation is in writing
signed by the party to be charged.
Consideration
It is not necessary in the contract of guarantee to mention any
consideration.
, But for the purpose of section 3(1) the contract must be in writing; and
if such a contract is in writing, it does not matter whether it contains any
mention of consideration or not.
Anything done or any promise made for the benefit of the principal
debtor may be sufficient consideration to the surety for giving a
guarantee.
CONTRACT OF INDEMNITY
It is a contract whereby one party accepts complete responsibility to
save another from loss caused to him by the conduct of another
person.
Distinguish between guarantee and indemnity
A contract of guarantee to be actionable must be evidenced by a
memorandum or note, while a contract of indemnity need not be in
writing and an oral promise will be enforceable.
In a contract of guarantee, there must be three parties
The principal creditor, the principal debtor and the guarantor or
surety, while in the contract of indemnity, there are only two parties:
The indemnifier and the creditor
In a guarantee, the liability of the guarantor is secondary, the
primary liability being that of the principal debtor; the guarantor is
not liable unless the principal debtor fails to pay e.g C and D go to a
shop. C says to the shopkeeper: let him (D) have the goods, and if he
does not pay you, I WILL”. This is a contract of guarantee, the
primary liability being with D and secondary liability with C.
In a contract of indemnity these are only two parties and the person
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