Types of Guarantee – Guarantee ( Business Law ) | Management Notes

Types of Guarantee
Guarantee ( Business Law )
Management Notes

Contract of guarantee is that contract by which one party promises to discharge the liability or to repay the loan on behalf of the third party if the third party is unable to repay the loan or to discharge the liability promised by him.A contract of guarantee is also one of the branches of contract. Like contract of indemnity, the contract of guarantee is of special nature.Contract of guarantee is clarified as a tripartite nature.They are as follows:
i)Creditor- The person to whom the guarantee is given in the contract of guarantee.
ii)Principal debtor- The person in respect of whose default the guarantee is given.
iii)Surety- The person, who gives the guarantee, is surety.

The contract of guarantee can be classified in different sense. From the viewpoint of nature, objective and the act the guarantee may be classified as follows:

a)On the ground of time frame
Under this, the guarantee can be classified as follows:

(i)Retrospective guarantee:
Where the contract of guarantee is concluded for an existing debt called retrospective guarantee. This type of contract can be concluded for the past task too.
(ii)Prospective guarantee:
The guarantee concerned with future transaction is called prospective guarantee. It may also be for particular or unlimited transaction of the parties as mentioned by the contract that is to say it may be given either for a single transaction or for a series of transactions.
(iii)Continuing guarantee:
Continuing guarantee is such a guarantee which is given for a series of transactions. It is related with the present to future transaction. Therefore this sort of guarantee doesn’t confine to a single transaction rather it covers a series of present to future transactions.

b)On the ground of liability:
Under this the guarantee can be classified as follows:

i)Limited guarantee:
Where the guarantee is given for the particular amount and transaction that is called limited guarantee.
ii)Unlimited guarantee:
Where the guarantee is given for the unlimited amount and transaction or time is known as unlimited guarantee.
iii)Absolute guarantee:

Where the surety without any condition imposes the burden upon him it is called absolute guarantee.
iv)Conditional guarantee:
Where the liability is committed to be accepted after fulfilling certain condition that is called conditional guarantee.


Source : Ramesh Prasad Yadav

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