CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

Law of contracts ii
Project on
Guarantee vs. warranty

Submitted To: Dr.Ravi Ranjan Sir

Submitted By: Arunabh Sharma
Roll No.: 725, Semester: III, 2nd Year.

ACKNOWLEDGEMENT

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The present project on the guarantee vs. warranty has been able to get its final
shape with the support and help of people from various quarters. My sincere thanks
go to all the members without whom the study could not have come to its present
state. I am proud to acknowledge gratitude to the individuals during my study and
without whom the study may not be completed. I have taken this opportunity to
thank those who genuinely helped me.

With immense pleasure, I express my deepest sense of gratitude to Mr.Ravi Ranjan

Sir, Faculty for LAW OF CONTRACTS, Chanakya National Law University for helping
me in my project. I am also thankful to the whole Chanakya National Law University
family that provided me all the material I required for the project. Not to forget
thanking to my parents without the co-operation of which completion of this project
would not had been possible.

I have made every effort to acknowledge credits, but I apologies in advance for any
omission that may have inadvertently taken place.

Last but not least I would like to thank Almighty whose blessing helped me to
complete the project.

..Arunabh Sharma

RESEARCH METHODOLOGY
Method of Research:
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The researcher has adopted a purely doctrinal method of research. The researcher
has made extensive use of the library at the Chanakya National Law University and
also the internet sources.

Aims and Objectives:

The aim of the project is to present an overview of the terms through cases,
decisions and suggestions and different writings and articles

Scope and Limitations:

Though the study of the terms Rights of Lessor is an immense project and pages
can be written over the topic but due to certain restrictions and limitations I was not
able to deal with the topic in great detail. The points on which special emphasis has
been given in this research are:
General Introduction to GUARENTEE
Essentials of guarantee
Concept of warrantee
Liability involved
conclusion

Sources of Data:
The following secondary sources of data have been used in the project1. Cases
2. Books
3. Websites

Method of Writing:
The method of writing followed in the course of this research paper is primarily
analytical.

Mode of Citation:

The researcher has followed a uniform mode of citation

throughout the course of this research paper.

CONTENT
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Definition
5-6

of

guarantee

Essentials
7-9

of

guarantee

Liability
10

of

Concept
11

surety

of

Stipulation
12

warrantee

as

Consequence
13

of

to
the

time

breach

of

condition or a warranty
Breach
14

of

warranty

and

Its remedy
Difference
15
And warranty
Conclusion
16

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between

guarantee

Bibliography
17

Introduction
Definition of guarantee
Contract of guarantee is defined in section 126 of Indian contract act .
Contract of guarantee , surety, principal debtor and creditor 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 guarantee
is given is called creditor a guarantee may be either oral or written.1
For example: A takes a loan from a bank A promises to the bank to repay the loan B also makes
the promise to the bank saying that if A does not repay the loan then I will pay .in this case A is a
principal debtor who undertakes to repay the loan B Is the surety, whos liability is secondary
because he promises to perform the same duty in case there is default on the on part of A. the
bank in whos favors the promise has been made is the creditor.
The object of a contract of guarantee is to provide additional security to the creditor in the form
of the promise by the surety to fulfill a certain obligation in case the principal debtor fail to do
1 Contract act section 126

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that in every contract of guarantee there are three parties the creditor the principal debtor and the
surety there are three contracts in contract of guarantee .firstly the principal debtor himself
makes a promise in favors of creditor to perform a promise, secondly the surety undertakes to be
liable towards to the creditor if the principal debtor makes a default.2 Thirdly an implied promise
by the principal debtor in favor of the surety that in case the surety has to discharge the liability
of the default of the principal debtor ,the principal debtor shall indemnify the surety 3
The contract of guarantee is no doubt tripartite in nature4 but it is not necessary or essential that
the principal debtor must expressly be a party to that document. In a contract of guarantee, the
principal debtor may be a party to the contract by implication. Thus, there is a possibility that a a
person may become a surety without the knowledge and consent of the principal debtor. The
function of contract of guarantee is to enable a person to get a loan, or goods on credit, on an
employment. Some person comes forward and tells the lender, or the supplier or the employer
that he (the person in need) may be trusted and in case of any default .for e.g. in old case of
Birkmy vs Darnell5 the court said
if two comes to a shop and one buys, and other to give him credit, promises the seller ,if he
does not pay you, I will pay.
This type of collateral undertaking to be liable for the default of another is called a contract of
guarantee. In English law a guarantee is defined as a promise to answer for the debt , default or
miscarriage of another6

2 Ibid1
3 Section 145also see NS bank Vs Union of India, AIR 1991 AP 153,at 158
4 Mahabir shum sher vs Lloyds bank, air 1969 cal 371
5 (1709) 91 ER 27:1 Salk 27.
6 S.4, statute of frauds 1677, 29 II. C 3
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Essentials of guarantee
1. The contract may be either oral or in writing
According to sec 126, a guarantee may be either oral or written. On this point, the position in
India is different from that in England . according to English law, for a valid contract of
guarantee , it is necessary that it should be in writing and signed by party to be charged
therewith. In English law under the provisions of statutes of fraud a guarantee is not enforceable
unless it is in writing and signed by the party to be charged 7

2. There should be a principal debt

A contract of guarantee pre supposes a principal debt or an obligation to be discharged by the
principal debtor. The surety undertakes to be liable only if the principal debtor fails to discharge
his obligation. If there is no such principal debt, but there is a promise by one party in favor of
another for compensating in a certain situation, and the performance of this promise is not

7 S.chattantha karayalar vs central bank.

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dependent upon the default of somebody else, it is a contract of indemnity. The purpose of a
guarantee being to secure a payment of debt, the existence of a recoverable debt is necessary. 8

3. Consideration
Like every other contract, a contract of guarantee should also be supported by some
consideration. A guarantee without consideration is void9. For suretys promise, it is not
necessary that there should be a direct consideration between the creditor and surety; it is enough
that the creditor had done something for the benefit of the principal debtor. Benefit to the
principal debtor constitutes a sufficient consideration to the surety for giving the guarantee. This
is clear from sec 127 which read as under
Anything done, or any promise made for the benefit of the principal debtor may be a
sufficient consideration to the surety for giving the guarantee.
Illustrations
(a) B requests A to sell and deliver to him goods on credit. A agrees to do so , provided C promises
will guarantee the payment of the prices of the goods .C promises to guarrntee the payment in
consideration of As promise to deliver the goods . this is a sufficient consideration for Cs
promise
4. Consent of the surety should not have been obtained by misrepresentation or

concealment
The creditor should not obtain guarantee either by any misrepresentation or concealment of any
material facts concerning the transaction. If the guarantee has been obtained that way, the
guarantee is invalid. The position is explained by section 142 and 143 which are as under
142. Guarantee obtained by misrepresentation invalid.-Any guarantee which has been
obtained by means of misrepresentation made by the creditor , or with his knowledge ans
assent, concerning a material part of the transaction, is invalid.

8 Mountstephens vs lakeman, 1871 lr 7 QB 196 ,2012 Ex, affirmed ,LR 7 HL 17.

9 Janak paul vs dhokal mall kidarbux ,(1935) 156 IC 200,
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143. Guarantee obtained by concealment invalid.- Any guarantee which the creditor has
obtained by means by means of keeping silence as to material circumstances is invalid
Illustrations
(a) A engages B as a clerk to collect money. B fails to account for some of his receipts and A in
consequence calls upon him to furnish security for his duly accounting gives his guarantee for B
s duly accounting . A does not acquaint C with Bs previous conduct. B afterwards makes
default . the guarantee is invalid
(b) A guarantee to C payment for iron to be supplied by him to B to the amount of 2000 tons. B and
C have privately agreed that B should pay five rs er ton beyond the market price, such excess to
be applied in liquidation of an old debt. This agreement is concealed from A is not liable as a
surety.
According to the above stated provision, obtaining a persons consent to act a surety either by
misrepresentation, or by keeping silence as regards material circumstances, renders such a
contract invalid. Keeping silence as regards material circumstances, which could affect the
suretys mind to stand as surety or not, would render the guarantee void. Thus if a cashier has
been found guilty of embezzlement, but this fact is not disclosed when a surety has been made to
guarantee the future conduct of the cashier, the surety will not be liable as such, under these
circumstances. Similarly, if a surety is made to guarantee an employees existing and future
liabilities, without being informed that the said employee is already indebted to an extent more
that of the guarantee , the guarantee is invalid.10

10 Lee vs jones, (1863) 17 CBNS 482 (Ex Ch)

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Liability of surety: its nature and extent

According to section 128 , the liability of the surety is coextensive with that of that of the
principal debtor, unless it is otherwise provided by the contract
The provisions that the suretys liability is coextensive with that of the principal debtor mean that
his liability is exactly the same as that of the principal debtor. For instance, the principal debtor
makes a default in the payment of the debt Rs 10000. The creditor may recover from the surety
the sum of 10000 plus the interest becoming due thereon as well as the amount spent by him in
recovering that amount. This may be further explained by the e.g. A guaranteed to B the payment
of bill of exchange by C, the acceptor. A is liable not only for the amount of the bill but also for
any interest and charges which may have become due on it. If the principal debtors liability is
reduced ,e.g. after the creditor has recovered the part of the sum due from him out of his
property, the liability of the surety is also reduced accordingly.11In Narayan singh vs
chattarsingh12it has been held that if the principal debtors liability is scaled down in an
amendment decree or otherwise extinguished in whole or in part by a statute, the liability of the
surety pro tanto be reduced or extinguished. If the principal debtor happens to be a minor and the
agreement is made by him is void, the surety too cannot be made liable in respect of the same
because the liability of the surety is coextensive with that of principal debtor. It has been held in
an English case13 , that the guarantee of the loan or an overdraft to an infant is void, because the
loan to infant is itself is void ab initio.

11 Harigopal aggarwal vs state bank of india a.i.r. 1956mad 211

12 A.I.R. 1973 raj 347
13 Coutts & co vs browne lecky ,(1947) k.b. 104
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Concept of Warranty
In business and legal transactions, a warranty is an assurance by one party to the other party that
specific facts or conditions are true or will happen; the other party is permitted to rely on that
assurance and seek some type of remedy if it is not true or followed. In a contract of sale of
goods there may be various terms or stipulations. Such stipulation may be either conditions or
warranties. If a stipulation forms the very basis of contract, or as stated in sec 12(2), is essential
to the main purpose of contract it is called condition. On the other hand if stipulation is not
essential to the main purpose of contract, it is called as warranty. For e.g. if a woman orders a red
sari, it being agreed between her and the seller that it will be send by post (registered) and she
will pay the price by 15th Jan, the day of her marriage .in this case the stipulation regarding the
color of the sari as well as the date of supply are essential to the main purpose of the contract.
And a conditions whereas stipulation regarding the time of payment of the price and the mode of
dispatch of the goods are not essential to the main purpose of the contract but are only collateral,
they are warranties. There is no hard and fast rule to which stipulation is a condition and which
one is a warranty .whether a stipulation in a contract of sale is a condition or a warranty depends
in which case on the construction of the contract.

Stipulation as to time
According to sec 55 of Indian contact act, if the time of the performance of the performance of
contract is of the essence of the contract and the promisor makes a delay in the performance of
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the contract the contract is voidable at the option of the promisor . on the other hand, if the time
of performance is not of the essence of the contract , the delayed performance by the promisor
entitles the promise to claim damages only for the loss occasioned to him. Regarding to the
various stipulations as to time sec 11 provides as under:
Unless a different intention appears from the terms of the contract, stipulations as to time of
payment are not deemed to be of the essence of a contract of sale. Whether any other
stipulation as to time is of the essence of the contract or not depends on the terms of contract.
It may be noted that the general rule stated in sec 11 is that time of payment of the price is not
deemed to be of the essence of contract. Therefore if the buyer makes a delay in the payment of
the price, the seller cannot avoid the contract on that account but he can only claim compensation
for the same.14However parties are free to express a different intention in their contract. They
may make time as an essence of contract.. In such a case the delay in the payment by the buyer
would enable to avoid the contract. Whether any stipulation is a essence of contract depends
upon the terms and condition of contract15. Where date is extended, the extended date is also an
essence of contract.16

Consequences of the breach of a condition or a warrenty.

Since a condition is a stipulation essential to the main purpose of the contract its breach by one
party entitles the other to treat the contract as repudiated. For e.g. , if a seller makes a breach of
contract , the buyer may reject the goods . Similarly, if the breach is made by the buyer, the
seller may treat it as a breach of contract and not the perform his own part of obligation. Thus if a
14 American pipe comp vs state of u.p. air 1983 cal 186
15 Andard mount ltd. Vs curewell (india) ltd AIR 1985 delhi 45
16 Orrissa textile ltd vs ganesh das ltd, air 1961 pat 107 at p. 109
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lady orders a red sari to deliver it by 15 Jan so that she can wear it on 16 on the day of occasion
but a seller supplies a black sari or supplies the sari on 18 Jan there is a breach of condition, the
lady buyer can treat the contract as repudiated, she can reject the goods and sue the seller for
improper performance.
As discussed above, a warranty is a stipulation collateral to the main purpose of contract, its
breach is not considered to be a serious. The breach of the warranty by one party entitles the
other only to claim damages rather than avoiding the contract17. Thus, for e.g. the buyer agrees to
pay the price in advance by 15 dec and the goods are to be delivered on 15 Jan, but the buyer
makes payment late, say on 25 dec, the sellers remedy in such case is to claim compensation,
because, according to sec 11, the time of payment of price is generally deemed to be a
warrantee.
There are 3 options left for buyer on the breach of condition by the seller
(a) Treat the contract as repudiated
(b) Waive the condition
(c) Treat the breach of condition as breach of warranty.

Breach of condition to be treated as breach of warranty and remedy for

breach
Section 13 of sales of goods act , 1930 provides that a breach of a condition is treated as a
breach of warranty in following cases :
(a) When the buyer waives the condition or elects to treat it as a breach of warranty and not
as good ground for treating the contract as repudiated, :or
(b) When the contract is not severable and the buyer has accepted the goods or part thereof.
17 Sec 12(3)
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Sec 13 (1) leaves it to the volition of the buyer of the buyer to treat the breach of condition as
breach of warranty . under the circumstances mentioned in sec 13(2) , even though there is a
breach of condition by the seller the buyer has no rights of repudiation the contract but his only
remedy is a claim to damage by treating the breach of condition as breach of warranty .When the
contract of sale is not severable and the buyer has accepted the goods or a part there of , the
breach of condition has got to be treated as a breach of warranty. The idea behind this provision
is that when the buyer has the choice of either accepting or rejecting the goods and he choose to
accept them , his right of rejection is no more exercised. Merely taking goods delivery of goods
by the buyer does not necessarily mean the acceptance of them.

Remedy for breach

Section 59(1) says that where there is a breach of warranty by the seller, or where the buyer
elects or is compelled to treat any breach of a condition on the part of the seller as breach of
warranty. The buyer is not by reason only of such breach of warranty entitled to reject the goods
but he may
(a) Set up against the seller the breach of warranty in diminution or extinction of the price:,
or
(b) Sue the seller for the damage for breach of warranty.
It is thus, settled that the buyer has no rights to reject the goods or repudiate the sale
transaction, for the breach of a warranty.

Difference between guarantee and warranty

The necessity of a guarantee emerged as a means of protection to safeguard the right of the
consumer. With the strength of the guarantee, a seller is liable to make the complete replacement
of the purchased item, in case it was found to be below the prescribed standard. This is given by
the seller or the manufacturer of a product to the customer and remains valid for a fixed period.
The guarantee is a legal instrument irrespective of whether the customer paid for the article or
not. Likewise, the warranty is also an instrument to safeguard the rights of a consumer. It
requires payment on the part of the customer to make it legally viable as in the case of an
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insurance policy. With the strength of the warranty, the seller or the manufacturer is liable to face
the judicial courts if the seller or the manufacturer fails to comply with the provisions of the
warranty on their part. Warranty is only relevant to the repairing of articles. A guarantee is
generally given by manufacturers whereas the warranty is provided by most of the retail sellers
or distributors. In a case of motorcycle purchase, there is the guarantee from the manufacturer
and the seller has to provide the warranty on the vehicle from his part. The main difference
between guarantee and warranty lies in the dissimilarity of expectations in both the cases.
Generally, it is believed that one can get his money back with the strength of a guarantee, if the
product is defective or does not provide the assured standard. Warranty, on the other hand
implies the provision of getting the article repaired if the product is defective. The most common
in the recent period is the use of a limited warranty, which places conditions on the parts of an
article, the quality of damage incurred and the time period of validity of the document. Naturally,
the expectation in a warranty is reduced by the expression they use in the warranty document and
hence the expectations are minimal. Therefore there is a vast difference in the essence and spirit
of guarantee and warranty which the consumer must understand before expecting the benefit of
such a document on the purchase he makes.

Conclusion
A guarantee is a document to protect consumer rights. It is a promise by a seller with a buyer for
complete replacement of the item/ article or product; usually guarantee is valid for a fixed period
of time. It has a legal status, even if we do not pay for or it was offered free of cost by a seller.
Warranty is also a document that protects consumer rights. It is more or less like insurance policy
for that we have to pay certain amount to come into legal contract. So on the basis of this legal
bond the company can be taken to court if it does not bound what has been agreed in the
warranty document. Guarantee is more in manufacture, Warranty is more in distribution and
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reselling parts; for example, a company manufacture a scooter is liable for manufacture
guarantee, on the other hand, some importer or distributor resell the products will use warranty
A guarantee is giving you their word .A warranty is in writing that they will correct any problem
within the scope of the warranty. Take a warranty over a guarantee anytime.

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