Legal Writing: Guarantee

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Guarantee.—

A Guarantee is a contract—
(i) to perform the promise, or
(ii) to discharge the liability of a third person in case of his default.

A guarantee may be oral or written.

Surety.—

The person who gives the guarantee is called the SURETY or GUARANTOR.

Principal Debtor.—

The person in respect of whose default, the guarantee is given is called the PRINCIPAL DEBTOR.

Creditor.—

The person to whom the guarantee is given is called the CREDITOR.

Continuing Guarantee.—

A guarantee which extends to a series of contracts the performance of which is spread over a period of time is called a Continuing Guarantee.

Surety Indemnified.—

In every contract of guarantee, there is an implied promise by the principal debtor to indemnify the surety and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully. (Section 145 of the Indian Contract Act.)

Liability of Co-sureties:

(1) Where two or more persons are co-sureties for the same debt or duty, either jointly or severally, and whether under the same or different contract and whether with or without the knowledge of each other, the co-sureties, in the absence of any contract to the contrary, are liable as between themselves, to pay each an equal share of the whole debt or that part of it, which remains unpaid by the principal debtor. (Section 146 of the Indian Contract Act.)

(2) But co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit. (Section 147 of the Indian Contract Act.)

Contract of Indemnity.—

A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "Contract of Indemnity". (Section 124 of the Indian Contract Act.)

Revocation of Guarantee.—

A guarantee once given, provided it is valid, cannot be rescinded or revoked but a continuing guarantee in respect of such contracts, the performance of which is defined can be revoked insofar as future transactions are concerned. (Section 130 of the Indian Contract Act.)

Invalid Guarantees:

(1) Any guarantee obtained by means of misrepresentation made by the creditor, or with his knowledge or assent, covering the material part of the transaction is invalid. (Section 142 of the Indian Contract Act.)

(2) Any guarantee which the creditor has obtained by means of keeping silent as to a material circumstance is invalid. (Section 143 of the Indian Contract Act.)

(3) Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that other person does not join. (Section 144 of the Indian Contract Act.)

Execution, Attestation and Registration.—

Guarantees and indemnities are both executed and attested like bonds. Registration is not compulsory. But if documents create an interest in immovable property of the value of over one hundred rupees, it must be registered, otherwise, it will not be admissible in evidence. If the document is not compulsorily registrable, it may be attested only by the witness.

Stamp-duty.—

Contracts of guarantee may be stamped as agreements.2 Indemnity deed will be stamped as if it were a Security Bond.