Contract of Guarantee.

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A contract of guarantee is contract in which the guaranter (surety) promises to pay the debt or any other act in case the principle debtor fails to pay. According to Civil Code  2074, Section 563 (d) , A contract of guarantee is a contract in which a party (surety) promises to pay the debt or perform the work or duty in case the original debtor (principal debtor) defaults.


1. Tripartite Contract :

It is a tripartite agreement involving three parties namely creditor, principle debtor and surety. The party giving guarantee is surety. The party on whose default the guarantee is given is principal debtor, The person to whom the guarantee is given is creditor.

2. Concurrence :

In contract of guarantee there must be concurrence of  all the three parties because it is a tripartite agreement. Hence, a person cannot become surety without the consent principal debtor or vice versa.

3. Primary Liability :

The primary liability is with the principal debtor. Surety liability is secondary which arise only when the principle debtor is at default.

4. Consideration :

There is no direct consideration between surety and creditor. The loan received by the principal debtor is sufficient consideration.

5. Must be in writing :

According to Civil Code 2074, it must be in written form to be enforceable like in English law. But In India it may be oral or in written form.


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