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CMA Foundation · Fundamentals of Business Laws and Business Communication · Meaning of Indemnity, Guarantee, Pledge, Agent

Anil orally assures a supplier, 'If Bharat does not pay for the goods you deliver to him, I will pay you.' The supplier delivers the goods on this assurance. What is the legal position regarding the form of the guarantee?

The guarantee is valid, because Section 126 says a guarantee may be either oral or written. Anil's oral promise to pay if Bharat defaults is a contract to discharge a third person's liability, and no writing, registration or signature by the debtor is required.

  1. AThe guarantee is void because it is not in writing
  2. BThe guarantee is valid because a guarantee may be oral or writtenCorrect
  3. CThe guarantee is valid only if registered
  4. DThe guarantee is valid only if Bharat also signs it

Explanation

Section 126 states that a guarantee may be either oral or written. No registration or signature by the principal debtor is required. So the oral assurance is a valid guarantee, and the claim that writing is mandatory is wrong.

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