Contracts of Guarantee & Bank Guarantee- I AND Deferred Payment Guarantee
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What is a contract of guarantee as defined under the 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 liability of a surety described as in legal terminology?
Surety's liability is secondary and contingent on principal debtor's default.
Who are the three parties involved in a contract of guarantee?
The three parties are the surety (the person who gives the guarantee), the principal debtor (the person for whom the guarantee is given), and the creditor (the person to whom the guarantee is given).
Under the Indian Contract Act, who is called the 'principal debtor' in a guarantee?
The person for whom the guarantee is given is the principal debtor.
What is the primary liability of a surety in a contract of guarantee?
The surety's liability is secondary and contingent, meaning it arises only when the principal debtor defaults. The surety is not primarily liable; the principal debtor carries the primary obligation.
What is the maximum number of installments typically covered under a Deferred Payment Guarantee?
DPG covers installment payments over the agreed deferred period, often 3-7 years.
What is the difference between a specific guarantee and a continuing guarantee?
A specific guarantee covers a single transaction and is extinguished once that transaction is completed, while a continuing guarantee extends to a series of transactions and remains in force until revoked.
What does 'continuing guarantee' mean in banking practice?
A continuing guarantee covers a series of transactions over time until revoked.
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