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A guide to Contract of Guarantee
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A guide to Contract of Guarantee
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A guide to Contract of GuaranteeTable of Contents
Guarantee contract
Why is the Contract of Guarantee is Specific performance?
Contract of Guarantee
Purpose of Contract of Guarantee
Parties
Independent liability different from guarantee
Essential Features of Guarantee
The extent of the Surety’s Liability
Impossibility of main contract
Continuing Guarantee
Joint -Debtors and suretyship
Discharge of Surety From Liability
Rights of Surety
Rights Against creditor
Right against Co-sureties
Guarantee contract
Contract of Guarantee is a specific performance contract. It is called specific
performance because it is an equitable relief. This is not the usual legal remedy where
compensation for damages is adequate. Damages and specific performance are both
,remedies available upon breach of obligations by a party to the contract; the former is a
‘substitutional remedy’, and the latter a ‘specific remedy’.
The law prescribes that in an event where the actual damage for not performing the
contract cannot be measured or monetary compensation is not adequate, one party can
ask the court to direct the other party to fulfil the requirements of the contract.
It is also a discretionary relief, that is, it is left to the court to decide whether specific
performance should be given to a party asking for it.
Why is the Contract of
Guarantee is Specific
performance?
Contract of Guarantee is Specific performance because the remedy is not the damages
awarded by the court. The party has to fulfil its obligation under the contract i.e.
perform a certain action he promised to do, instead of just paying money for his failure
to fulfil obligations under the contract. It is the guarantor who commits to pay in case of
default by the person for whom he has guaranteed. The nature of relief is of specific
nature since guarantor has to perform the specific obligation, which he had undertaken
under the agreement i.e. pay the assured.
Contract of Guarantee
, Section 126 defines the Contract of Guarantee– A contract of guarantee involves three
parties. It relates to the performance of contract on behalf of the third person whereby
fulfilling his obligation under the contract by the guarantor
The person who gives the guarantee is called the ‘’Surety’’; 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 is called the “Creditor”. A guarantee may be either oral or
written.
Purpose of Contract of Guarantee
It enables a person to get a loan, or goods on credit or employment. Some person comes
forward and ensures the lender or the supplier or the employer that he may be trusted
and in case of any untoward incident, “I undertake to be responsible”.
In the old case of Birkmyr v Darnell the court said: Where a collateral guarantee arises
when two persons come to shop, one of them to buy, the other to give credit, thereby
promising the seller stating if he doesn’t pay I will’’. This is a collateral guarantee.
In English law, a guarantee is defined as ‘’a promise to pay for the debt, default or
failure of another’’. “Guarantees are a backup when the principal fails the guarantee act
as second pockets’’.
Parties
The person who gives the guarantee is called the Surety, 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 is called the Creditor.
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