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Guarantee & Pledge

The document defines a contract of guarantee as a contract where a surety promises to perform or discharge the liability of a principal debtor in case of default. The consideration received by the principal debtor is sufficient consideration for the surety. There are two kinds of guarantee contracts: by notice of revocation by the surety and by the death of the surety. The surety's liability arises upon default of the principal debtor and the contract between the surety and creditor is independent of any contract between the creditor and principal debtor. A pledge is a bailment where goods are deposited as security for repayment of a loan, with the depositor known as the pawnor and recipient as the pawnee.

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203 views5 pages

Guarantee & Pledge

The document defines a contract of guarantee as a contract where a surety promises to perform or discharge the liability of a principal debtor in case of default. The consideration received by the principal debtor is sufficient consideration for the surety. There are two kinds of guarantee contracts: by notice of revocation by the surety and by the death of the surety. The surety's liability arises upon default of the principal debtor and the contract between the surety and creditor is independent of any contract between the creditor and principal debtor. A pledge is a bailment where goods are deposited as security for repayment of a loan, with the depositor known as the pawnor and recipient as the pawnee.

Uploaded by

sagarsavla
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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CONTRACT OF GUARANTEE

Section 126 of Indian Contract Act, 1872 defines contract of guarantee. According to this, a contract of guarantee is a contract to perform the promise or discharge the liability, of a third person in case of hid default. The person who gives the guarantee is called the surety or guarantor, 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

For example: A advances a loan of Rs 5000/- to B and the C promises to A that if B does not repay the loan, C will do so. This is the contract of guarantee. Here A is the creditor, B is the principal debtor and C is the Surety or Guarantor.

It may be noted that in a contract of guarantee, the consideration received by the principle debtor may be a sufficient consideration to the surety for giving the guarantee. For instances, B requests A to sell and deliver to him goods on credit. A agree to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of As promise to deliver the goods to B. This is sufficient consideration for Cs promise.

Kinds of Guarantee Contract


By Notice Of Revocation By The Surety
By The Death Of Surety

Nature or Extent of Suretys liability


1. 2. The liability of the surety arises only when the principal debtor makes a default. In this sense, his liability is secondary. The liability of the surety arises immediately on the default of the principal debtor. Therefore, the creditor may take the necessary action against the surety without proceeding against the principal debtor.

3.

The contract between the surety and the creditor is an independent contract. If it is discovered that the contract between the creditor and the principal debtor is void or voidable and the principal debtor is discharged, the surety will not be discharged

Pledge
Pledge is a contract whereby some article or goods is deposited, with a lender of money or promisee, as security for the repayment of a loan or performance of a promise. The person who deposits the goods is called the Pawnor; and the person with whom the goods are deposited is called the pawnee It may be noted that pledge is also kind of bailment. It means that pledge is that kind of bailment in which the purpose is to secure the repayment of any debt or performance of promisee. Thus, pawnor in a pledge is equivalent to bailor in a bailment and similarly, pawnee in a pledge is equivalent to bailee in a bailment.

For example, if A borrows Rs. 200 from B and deposits his watch with B, as security for the repayment of the debt. This is a transaction of pledge, where A is the Pawnor and B is the Pawnee.

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