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Anil Agrawal (Retired)     04 September 2009

guarantee vs surety

 If a cheque is given by the third party as surety and it bounces, is the drawer of the cheque liable under sec.138. 

If he gives cheque as guarantor, is he then also liable?

What is the difference?



Learning

 4 Replies


(Guest)

Yes he is liable u/s 138. There is no difference between surety and guarantor.

Brijesh (Lawyer)     07 September 2009

Yes the guarantor and/or surety both will be liable u/s 138 if a cheque issued by him/her is bounced/returned uncleared for insufficient funds.

Although a surety and a guarantor are both parties who make an express agreement to bind themselves for the performance of an act or the fulfillment of an obligation or duty of another, the distinctions between the contract of the two persons, and the obligations assumed under their contract, can be sharply made. A surety, as a general rule, is a party to the original contract of the principal, he signs his name to the original agreement at the same time the principal signs, and the consideration for the principal's contract is the consideration for the agreement of the surety's. The surety is therefore bound on his contract from the very beginning, and he is bound also to inform himself of the defaults of the principal debtor, and he is not in any part relieved from his obligations under the contract by the creditor's failure to inform him of the principal's default in the contract, for which contract the surety has become the security for. A guarantor, on the other hand, usually does not make his agreement to answer for the principal's debt or default, contemporaneously with the principal or by the same agreement, but his obligation is entered into subsequently to the making of the original agreement, and his agreement is not the contract that the principal makes, and hence a new consideration is required to support it. The contract of the principal's, not being the one the guarantor makes, he is not bound to inform himself of default, or failure of principal to perform his contract. The creditor is also under the obligation to inform the guarantor of the principal's default, not strictly in the sense of being obliged to give notice immediately after demand on the day the obligation matures, as in the case of an indorser, but if a failure to give notice materially prejudices the rights of the guarantor, the guarantor can claim a discharge on the obligation to the extent of the injury suffered.2 The contract of the guarantor is not only collateral, but it is secondary; the surety's contract is primary and direct.3

The guarantor is liable only after the default of the principal; the liability is established by the default of the principal, and by showing performance of the conditions of the contract.4 But on discussing the distinctions between the surety and the guarantor in respect to the liability assumed, we must remember that guaranties are of two kinds, the conditional guaranty, and the absolute guaranty. In the former the guarantor is only liable after the condition of the guarantor's contract is fulfilled. So, then, where A guarantees the collectibility of a certain sum for another person, his obligation matures when the creditor makes the showing that the debt is not collectible; this usually requires the exhausting of all the legal remedies to collect, as by securing a judgment against the principal debtor, and having execution issue on the judgment, together with the sheriff's return showing that the execution cannot be made, because the principal has no goods or property, that may be sold when levied on, to satisfy the execution. An absolute guaranty is one that arises where the guarantor fixes the time to pay, as of some date certain; in this kind of guaranty it is not necessary that the creditor first take steps against the principal to charge the guarantor, as, for instance, where the guaranty is for the payment of a bond according to its terms,5 or a guaranty for the payment of a promissory note at its maturity.6 It has also been held that an absolute guarantor is not discharged by the creditor's delay in enforcing payment from the principal.7 It may be said, further, that it makes little difference whether the promissor calls himself a surety or guarantor, the terms of the agreement will control, in determining whether it is to be considered a contract of a surety or of a guarantor.

PJANARDHANA REDDY (ADVOCATE & DIRECTOR)     07 September 2009

DEAR ANILJI,

CHEQUE BOUNCE DUE TO INSUFFICIENT OF FUNDS WITH SEVERAL REASONS ATRACTS 138NI ACT, THE CASE CAN BE TRAIL BY COURT WHETHER LEGAL ENFORCEBILITY IS THEIR FOR THE DEBT OR NOT EVEN IT IS SURETY OR GUARANTEE ARE ONE AND THE SAME. HOWEVER BRIJESH HAS CLARIFIRD AS PER THE INDIAN CONTRACT ACT 1872.

The main object of the section 138 of the said act is to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments.REGARDS...ponaka2008@gmail.com

 


 

Dharmesh Manjeshwar (Advocate/Lawyer)     09 September 2009

An important factor to be noted in such cases is that there has to be a writing which fastens the liability with the party who has issued the cheque ....


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