Contract of Guarantee
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What is a contract of guarantee under Indian Contract Act, 1872?
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 involves three parties: the surety, the principal debtor, and the creditor.
What is the definition of 'principal debtor' in a contract of guarantee?
The person in respect of whose default the guarantee is given.
Who is called the 'surety' in a contract of guarantee?
The surety is the person who gives the guarantee, i.e., the person who undertakes to perform the obligation or pay the debt if the principal debtor fails to do so.
What is meant by 'creditor' in the context of a guarantee contract?
The person to whom the guarantee is given by the surety.
What is the difference between a contract of guarantee and a contract of indemnity?
In indemnity, one party promises to save the other from loss caused by the promisor's own act or a third party's act. In guarantee, the surety's liability is secondary and arises only on default of the principal debtor, whereas in indemnity the liability is primary.
How many parties are involved in a contract of guarantee?
Three parties: surety, principal debtor, and creditor.
What is a 'continuing guarantee' in banking?
A continuing guarantee is one that extends to a series of transactions and remains in force until revoked. Banks use continuing guarantees to cover running credit facilities like cash credit or overdraft accounts.
What is the right of a surety to claim securities held by the creditor?
Surety is entitled to all securities the creditor holds against the principal debtor.
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