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CMA Intermediate · Business Laws and Ethics · Special Contracts - Indemnity and Guarantee; Bailment and Pledge; Laws of Agency

Anil gives a guarantee to a bank on the condition, forming part of the contract, that the bank shall not act upon it until Bimal has also joined in it as co-surety. Bimal never joins, but the bank advances the loan to the debtor. Is Anil's guarantee valid?

Anil's guarantee is not valid. Under Section 144, when a guarantee is given on the condition that the creditor will not act on it until another person joins as co-surety, it is invalid if that person does not join. Bimal did not join.

  1. AValid, because the bank has acted in good faith
  2. BValid, but only for half of the loan amount
  3. CNot valid, because the other person did not join as co-suretyCorrect
  4. DValid, because a guarantee may be oral or written and the condition is irrelevant

Explanation

Section 144 states that where a guarantee is given on a contract that the creditor shall not act upon it until another person has joined as co-surety, the guarantee is not valid if that other person does not join. Since Bimal did not join, Anil's guarantee fails.

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