Suretyship or Gauranteeship a Trilateral Contract
The whole project is based on the issue whether a “contract for suretyship or guaranteeship is a trilateral contract”. There is going to be a detailed discussion on the preceding topic. The leading issue deals with the Indian Contract Act 1872. According to the Section 126 of the Indian Contract Act, “a contract of guarantee is a contract to perform the promise, or discharge the liability of a third person in case of his default”. The person who gives the guarantee is called the ‘surety’; the person in respect of whose default the guarantee is given is called the ‘principal-debtor’, and the person to whom the guarantee is given is called the ‘creditor’. By using this section and some other sections the author has tried to prove that suretyship is a three way contract. Essentially there exist three contracts, the first between creditor and the debtor, the second between creditor and surety and the last between debtor and surety. For instance, let us take a transaction involving three persons A, B and C, wherein A borrows a certain amount from the person B and C guarantees the payment of said amount back to B in case A defaults on the payment. Here, there are three parties involved in the transaction. Person A, who borrows the money, is the principle debtor; person B, who lends the money, is the creditor, and C, who has given the guarantee, is surety (or guarantor). This is a basic contract of suretyship or a contract of guarantee, as per the Indian Contract Act.
Elements with their Analysis:
The phrase “Contract for Suretyship” itself clarifies the doubt that it requires the concurrence of three parties. In order to constitute a contract of guarantee, there must be a third contract, by which the principal-debtor, expressly or impliedly, requests the guarantor to act as surety. Analysing section 126 of the Indian Contract Act it can be said that a guarantee is a promise to answer for the payment of...