Posted February 1, 2014 by advocateguru in Learning Centre

Contract Guarantee

Contract of Guarantee is a contract to perform the promise and discharge the liability of a third person in case of default.  There are three important words associated with the word ‘Guarantee’.  These words are Surety, Principal Debtor and Creditor. The person who gives the guarantee is called as Surety. The person for whom the guarantee is given is called as the Principal Debtor and the person to whom the guarantee is given is called as the Creditor. A contract can either be in oral or in writing but according to the English Law, it should necessarily be in writing.

For example: Abhinesh advances a loan of Rs. 5,000 to Rohan and Arpit promises to Abhinesh that if Rohan does not repay the loan, Arpit will do so. This is a contract of guarantee. Here B is the principal debtor, A is the creditor and C is the surety or guarantor.

Like Contract of Indemnity, Guarantee should also support all the essentials of a valid contract. There is, however, a special feature with regard to consideration in a contract of guarantee. The consideration received by the principal debtor is sufficient for surety. Section 127 provides that anything done or any promise made for the benefit of the principal debtor may be a, sufficient consideration to the surety for giving the, guarantee.

For example: A sells and delivers goods to B, C afterwards requests A to forbear to sue B for the debt for a year, and promises that if he does so. C will pay for them in default of payment by B; A agrees to forbear as requested. This is sufficient consideration for C’s promise.