Characteristics of a Contract of Guarantee

Characteristics or essentials of contract of
guarantee
Following are the characteristics or essentials
of contract of guarantee:
i. Tripartite agreement: In a contract of
guarantee, there are three parties namely:
principal creditor, creditor and surety. Under
this contract, three separate contracts are
made among them and consent of all the three
parties is necessary. The contracts connecting
each-other as contract between:
a. the principal debtor and creditor,
b. the creditor and surety, and
c. the surety and principal debtor,
ii. Liability: Under such contract the primary
liability is of the principal debtor and only
secondary liability is of the surety. As a
conditional contract, liability of the surety
arises only when the principal debtor
(primarily liable) defaults.
iii. Essentials of valid contract: It is also as
same as other general contract in respect of
essentials. All the requirements for valid
contract, i.e. free consent, consideration,
lawful object, competency of the parties etc.
are necessary to form this kind of contract.
But, in respect of consideration, no direct
consideration in the contract between the
surety and creditor. Consideration of principal
debtor is considered to be adequate for the
surety.
iv. Written form: A contract relating to
guarantee must be concluded in writing in
Nepal and England. But, the Indian legal
framework does not compel to form such
contract in written form. Both written and oral
is valid in India.