Contract of Guarantee for CLAT - Practice Questions & MCQ

Read the passage and answer the question that follow.

Contract of Guarantee is a specific performance contract. It is called specific performance because it is an equitable relief. This is not the usual legal remedy where compensation for damages is adequate. Damages and specific performance are both remedies available upon breach of obligations by a party to the contract; the former is a ‘substitutional remedy’, and the latter a ‘specific remedy’. The law prescribes that in an event where the actual damage for not performing the contract cannot be measured or monetary compensation is not adequate, one party can ask the court to direct the other party to fulfill the requirements of the contract. Contract of Guarantee is a Specific performance because the remedy is not the damages awarded by the court. The party has to fulfill its obligation under the contract i.e. perform a certain action he promised to do, instead of just paying money for his failure to fulfill obligations under the contract. It is the guarantor who commits to pay in case of default by the person for whom he has guaranteed. The nature of relief is of specific nature since the guarantor has to perform the specific obligation, which he had undertaken under the agreement i.e. pay the assured.

 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”. A guarantee may be either oral or written. The purpose of the contract of guarantee is that it enables a person to get a loan or goods on credit or employment. Some person comes forward and ensures the lender or the supplier or the employer that he may be trusted and in case of any untoward incident, “I undertake to be responsible”. 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. There must be a conditional promise to be liable for the default of the principal debtor. A liability that is incurred independently of default is not within the definition of a guarantee.

Question:

Which of the following is not true for the liability of a surety in a contract of guarantee under the law of contracts?

Read the passage and answer the question that follow.

Contract of Guarantee is a specific performance contract. It is called specific performance because it is an equitable relief. This is not the usual legal remedy where compensation for damages is adequate. Damages and specific performance are both remedies available upon breach of obligations by a party to the contract; the former is a ‘substitutional remedy’, and the latter a ‘specific remedy’. The law prescribes that in an event where the actual damage for not performing the contract cannot be measured or monetary compensation is not adequate, one party can ask the court to direct the other party to fulfill the requirements of the contract. Contract of Guarantee is a Specific performance because the remedy is not the damages awarded by the court. The party has to fulfill its obligation under the contract i.e. perform a certain action he promised to do, instead of just paying money for his failure to fulfill obligations under the contract. It is the guarantor who commits to pay in case of default by the person for whom he has guaranteed. The nature of relief is of specific nature since the guarantor has to perform the specific obligation, which he had undertaken under the agreement i.e. pay the assured.

 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”. A guarantee may be either oral or written. The purpose of the contract of guarantee is that it enables a person to get a loan or goods on credit or employment. Some person comes forward and ensures the lender or the supplier or the employer that he may be trusted and in case of any untoward incident, “I undertake to be responsible”. 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. There must be a conditional promise to be liable for the default of the principal debtor. A liability that is incurred independently of default is not within the definition of a guarantee.

Question:

Which of the following rights is available to the surety when he fulfills his obligation as a surety and takes the place of the creditor under the law of contracts?

A requests B to lend Rs. 20,000 to C and assures that C will pay back the sum within the agreed period. C fails to make payments. Decide.

Contract of guarantee involves