Saturday, October 06, 2007

Contract Act_Practical Problems_4

A executes a guarantee in favour of a bank as security for a loan to B. Later, A contends that the guarantee is not enforceable as it is not supported by consideration as he was not paid any guarantee commission. Is A's stand correct in law?

A contract of guarantee must also be supported by lawful consideration. However, it is not necessary that something must have been done for the benefit of the

guarantor. Anything done for the benefit of the principal debtor is a sufficient consideration to support the promise of the guarantor.

Section 127 of the Indian Contract Act, 1872 lays down that, "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." Thus, A's stand shall not be upheld as correct.

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