Page 91 - DCOM103_COMMERCIAL_LAW

Commercial Law

Notes of the value of the security, unless the surety consented to the release of such security
(s.141).

Example: C advances to B, his tenant ` 2,000 on the guarantee of A. C has also
a further security for the ` 2,000 by a mortgage of B’s furniture. C cancels the mortgage.
B becomes insolvent and C sues A on his guarantee. A is discharged from liability to the
amount of value of the furniture.

8.5 Summary

Contract of guarantee is defined as “a contract to perform the promise, or discharge the
liability, of a third person in case of his default”.
The person who gives the guarantee is called ‘surety’; the person for whom the guarantee
is given is called the ‘principal debtor’, and the person to whom the guarantee is given is
called the ‘creditor’.
A contract of guarantee may be either oral or in writing. Oral or written, specifi c and
continuing guarantee are the kinds of guarantee.
The creditor is entitled to demand payment from the surety as soon as the principal debtor
refuses to pay or makes default in payment.
The liability of the surety cannot be postponed till all other remedies against the principal
debtor have been exhausted.

8.6 Keywords

Co-surety: When a debt is guaranteed by two or more sureties, they are called co-sureties.
Continuing guarantee: A guarantee which extends to a series of transactions.
Contract of guarantee: It is a contract to perform the promise, or discharge the liability, of a third
person in case of his default.
Specifi c guarantee: It extends to a single transaction or debt.

8.7 Self Assessment

State whether the following statements are true or false:
1. As per the Indian law, a contract of guarantee must be in writing.

2. Specific guarantee is different from continuing guarantee.
3. For a contract of guarantee, the primary liability is of the surety.
4. In the event of principal debtor being a minor, creditor cannot recover his money from the
surety.
5. The liability of a surety is secondary.

6. The surety is a favoured debtor.

8.8 Review Questions

1. What do you understand by the contract of guarantee?
2. “The liability of a surety is secondary and co-extensive with that of principal debtor.”
Comment.

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