MAIN FEATURES OF CONTRACT OF GUARANTEE

CONTACT OF GUARANTEE 



  1. Either oral or written contract : Section 126 of Indian Contract Act provides that the guarantee may be either oral or written. English law is different in this respect as it provides for the contract of guarantee to be necessarily written and signed by the party to be charged therewith. 
  2. There should be a principal debt : The Contract of guarantee pre supposes the principal debt. If there exist no principal debt, and only a mere promise to compensate in certain situation, it is a Contract of indemnity. 
  3. Consideration for surety : Consideration, as required in other Contracts, is also necessary in Contract of guarantee. Section 127 of indian Contract act provides that benefit to the principle debtor is sufficient consideration for surety. If the promise of the surety is independent of any benefit to the surety, then the agreement is void. 
  4. Guarantee by misrepresentation or concealment is invalid : If these is misrepresentation or concealment of any material facts covering the transaction then the guarantee will stand invalid. Section 142 of indian Contract act states that guarantee obtained by misrepresentation is invalid and section 143 of Indian contact act states that guarantee obtained by concealment is invalid. Thus keeping silence as to the material facts that could affect the mind of surety to stand as surety or not, would render the guarantee void. 


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