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Text of Guarantee


Contract of indemnificationPromises to save the other from loss caused to him by promisor or any other personRights of indemnified:-All damagesAll costsAll sums for any compromiseFor e.g. A and B go in to a shop. B says to the shopkeeper let A have the goods and he would pay for it.

Contract of indemnification As per Indian Contract Act, indemnity should be:Expressed andLoss should have caused by the promisor himself or by the conduct of any other person.But Indian Courts follow the English Law in case of indemnity where:A contract of indemnity can be implied or expressed.


Meaning and EssentialsAcc to Sec 126 Its a Contract to perform the promise or to discharge the liability of a third person in case of his default.Parties- Surety, Principal debtor, Creditor

Features of GuaranteeConcurrence A person cannot become the surety without the consent of the principal debtor.Primary liability in some person No liability no contract of guarantee. For e.g. Time Barred debtConsiderationWriting not necessaryCapacity to contract should be valid

Types of Guarantee (Sec 129)Specific, Simple or Limited Guarantee: it extends to a single transaction.For e.g.: A guarantees B that C would make payment of Rs.10,000 for the deliver of 10 pairs of shoes on 20th Sep. After the completion of obligations the guarantee would be discharged.Continuing Guarantee: It extends to series of transactions. For e.g. A guarantees B for all the payments that the C would make to B for the delivery of shoes.

Types of Guarantee (Sec 129)Revocation of Continuing Guarantee:By Notice of Revocation (Sec 130)By Death of Surety. (Sec 131)

Nature and Extent of Suretys Liability.Liability of Surety is secondaryIt is coextensive with that of the principle debtor- all costs (sec 128) i.e. Quantum of obligation of a surety is the same (or less than if agreed) as that of the principal debtor.Liability under continuing guarantee

Rights of SuretyRIGHTS AGAINST CREDITOR:To insist the creditor to sue the principal debtor, but surety will have to indemnify the creditor for any expenses or loss resulting therefrom.Right to set off.Right of Subrogation (Sec 140) Surety getting rights of principal debtor after the payment of the guaranteed debt.

RIGHT AGAINST PRINCIPAL DEBTORRight to Indemnity (Sec 145)Right to be relieved of liabilityRIGHT AGAINST CO SURETIESCo Sureties to contribute equally.Liability of Co Sureties bond in different sums.

DISCHARGE OF SURETYRevocation by NovationVariance in terms of contract (M.S. Anirudhun V. Thomcos Bank Ltd.)Release or Discharge of principal debtor.Composition, Extension of time and Promise not to sue.Failure on part of some other persons to join as co sureties.

DISCHARGE OF SURETYGuarantee obtained by misrepresentationGuarantee obtained by concealment.