{"id":2774,"date":"2017-09-16T09:39:24","date_gmt":"2017-09-16T04:09:24","guid":{"rendered":"http:\/\/www.infipark.com\/articles\/?p=2774"},"modified":"2017-11-08T00:15:47","modified_gmt":"2017-11-07T18:45:47","slug":"define-guarantee-explain-essential-element-distinguish-contract-guarantee-indemnity","status":"publish","type":"post","link":"https:\/\/www.infipark.com\/articles\/define-guarantee-explain-essential-element-distinguish-contract-guarantee-indemnity\/","title":{"rendered":"Define “Guarantee” and explain its essential, element."},"content":{"rendered":"

Define “Guarantee” and explain its essential, element. Distinguish between a Contract of Guarantee and Indemnity.<\/strong><\/p>\n

Ans. Definition of Guarantee\u2014<\/strong>S.126 says that a “contract of guarantee” is a contract to perform the promise, or discharge the liability, ” of a third person in case of his default. It maybe either oral or written. For Example –<\/strong> A says to B, “Lend money at interest to C, if C be unable to pay I shall pa),”. This is a contract of guarantee or suretyship. Thus, there are three parties is case of contract of guarantee i.e. \u2014 `Surety’<\/strong>\u2014The person who gives the guarantee is called the ‘surety.\u00a0 `Principal debtor-The person in respect of whose default the guarantee is given is called the ‘principal debtor’. `Creditor’\u2014The person to whom the guarantee is given is called `creditor’.<\/p>\n

Essentials of a Contract of Guarantee \u2014<\/strong><\/p>\n

1. Concurrence of three parties is necessary\u2013<\/strong> The contract of suretyship requires the concurrence of three persons, the principal debtor,the creditor, and surety. The surety undertakes his obligation at the request of the principal debtor. Accordingly, ifA enters into a contract with B, and C, without any communication with B, undertakes for a consideration moving from A to indemnify A against any damages that may arise from a breach of B’s obligation, this will not make C a surety for B or give him a right of action in his own name against B in the event of B’s default.<\/p>\n

2. Surety’s distinct promise to be answerable is necessary-<\/strong> Secondly, in order to constitute a guarantee there must be a distinct promise on the part of the surety to be answerble for the debt. If A goes with B to the West End Watch Co. and says to the proprietor, “Let B have this watch, and I see you paid,” this is no guarantee; but if A says, “Let B have this watch, and if he does not pay you, I will,” this is a guarantee.<\/p>\n

3. Liability must be legally enforceable \u2014<\/strong>Lastly, the word “liability” used in S.126 means a liability which is enforceble at law, and if that liability does not exist, there cannot be a contract of guarantee. A surety, therefore, is not liable on a guarantee for the payment of a debt which is barred by the law of limitation.<\/p>\n

Distinction between Contract of Indemnity and Guarantee Contract of indemnity<\/strong><\/p>\n

Basis of Difference Contract of Indemnity Contract of Guarantee 1.<\/p>\n

2. Number of parties Number of contracts In case of a contract of indemnity there are only two parties, viz. (i) one who is indemnified and (ii) the other the indemnifier. In case of contract of indemnity there is only one contract between the indemnity holder In case of a contract of Guarantee there are three parties, viz. (i) principal debtor, (ii) Creditor, and (iii) surety. In case of contract of Guarantee there are three contracts; one is between the creditor and the principal debtor; another between the\u00a0(Indemnified) and indemnifier. surety and the creditor, and the third between the surety and the principal debtor.<\/p>\n

3. Nature of In a contract of Ina contract ofguarantee the Liability Indemnity, the liability of Indemnifier is primary there is no secondary liability. primary liability is that of principal debtor, the surety is liable only secondarily, i.e. if the debtor does not pay.<\/p>\n

4. Purpose of A contract of A contract of guarantee contract indemnity exists for the reimbursement of loss. stands for the security of the creditor.<\/p>\n

5. Scope of The scope of The scope of contract of contract contract of Indemnity is marrrower than contract of Guarantee as it does not include the contract of Guarantee is wider than that of contract of indemnity as it includes contract ofindemnity also. Guarantee.<\/p>\n

6. Consideration In case of contract of indemnity valuable consideration is available to the indemnifier from the very beginning. In case of contract of guarantee no valuable consideration is available to the surety from the very beginning. It may arise only in case of the default committed by the principal debtor.<\/p>\n

7. Origin of The liability of the The liability of the surety Liability indemnifier a si ses only in case of the acutal loss suffered by the indemnity holder. arises only when the principal debtor commits the default in making the payment to the creditor. ‘<\/p>\n

8. Remedy The Indemnity holder is not entitled to sue third party for whose sake the loss is caused. The creditor is entitled to sue the surety in case the principal debtor commits the default.\u00a0The scope of contract of Indemnity is narrower than contract of Guarantee as it does not include the contract of Guarantee.\u00a0 In case of contract of indemnity valuable consideration is available to the indemnifier from the very beginning. The liability of the indemnifier asises only in case of the actual loss suffered by the Indemnity holder The Indemnity holder is not entitled to sue third party for whose sake, the loss is caused. A contract of guarantee stands for the security of the creditor. The scope of contract of Guarantee is wider than that of contract of Indemnity as it includes contract of Indemnity also. In case of contract of guarantee no valuable consideration is available to the surety from the very beginning. It may arise only in case of the default committed by the principal debtor. The liability of the surety arises only when the principal debtor commits the defaul in making the payment to the creditor. The creditor is entitled to sue the surety in case the principal debtor commits the default.<\/p>\n","protected":false},"excerpt":{"rendered":"

Define “Guarantee” and explain its essential, element. Distinguish between a Contract of Guarantee and Indemnity. Ans. Definition of Guarantee\u2014S.126 says that a “contract of guarantee” is a contract to perform the promise, or discharge the liability, ” of a third person in case of his default. It maybe either oral or written. For Example – […]<\/p>\n","protected":false},"author":35,"featured_media":3014,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[46],"tags":[],"class_list":["post-2774","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-contract-2"],"_links":{"self":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts\/2774","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/users\/35"}],"replies":[{"embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/comments?post=2774"}],"version-history":[{"count":6,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts\/2774\/revisions"}],"predecessor-version":[{"id":3159,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts\/2774\/revisions\/3159"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/media\/3014"}],"wp:attachment":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/media?parent=2774"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/categories?post=2774"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/tags?post=2774"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}