ESSENTIAL FEATURES OF CONTRACT OF GUARANTEE

1. TRIPARTITE CONTRACT:

It is an agreement between the principal debtor, creator

and surety. The tree separates contracts exist between them. If the promise principal
debtor is not fulfilled, the liability for the surety arises.

In a contract of guarantee the principal debtor is liable and the surety will
be liable on principal debtor’s default. The principal contract exists between the
principal debtor and the creditor and the contract between the surety is a secondary
contract.

2. CONSIDERATION:

A contract guarantee like other contracts must fulfill essentials of a valid

contract. It must be supported by some consideration. It is not necessary that there
must be direct consideration between the surely and the creditor. The consideration
by the principal debtor is sufficient for the surety. (Section 127)

3. MISREPRESENTATION:

A guarantee obtained by means of misrepresentation made by the creator

or with his knowledge ad assent, concerning a material part of the transaction is in
valid. If the consent of surety will be obtained by misrepresentation, the surety is
discharged from his liability (section 142).

4. CONCEALMENT:

A guarantee which the creditor obtains by means of keeping silence to

material circumstances is invalid. The expression keeping silence means
intentional concealment of the facts. The creditor should disclose to surety the
facts which are likely to affect the surety’s liability (Section 143)

5. WRITING NOT NECESSARY:

It is not necessary that the contract of guarantee must be in writing. It may

be either oral or written. It may be express of implied from the conduct of parties