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

Kiran gives a guarantee to a lender for a loan to Sameer, on the express condition that the lender shall not act on it until Tarun has joined as co-surety. Tarun never joins, but the lender advances the loan. What is the position of Kiran's guarantee?

Kiran'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 fails if that person does not join. Tarun did not join.

  1. AIt is valid, and Kiran is liable for the full amount
  2. BIt is valid, and Kiran is liable for half the amount
  3. CIt is not valid, because the other person did not join as co-suretyCorrect
  4. DIt is valid, but only if Sameer consents

Explanation

Section 144 provides that where a guarantee is given on the contract that the creditor shall not act on it until another person joins as co-surety, the guarantee is not valid if that person does not join. Tarun did not join, so Kiran is not bound. Proportionate liability does not arise because the guarantee itself fails.

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