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

Which statement correctly distinguishes a pledge from a contract of guarantee as defined in the Indian Contract Act, 1872?

A pledge involves delivering goods as security for a debt or promise, while a guarantee is a contract to perform a third person's promise or discharge his liability if he defaults. Guarantee need not be written, as it may be oral or written.

  1. AA pledge requires delivery of goods as security, whereas a guarantee is a contract to perform a third person's promise or discharge his liability on defaultCorrect
  2. BBoth require delivery of goods to the creditor
  3. CA guarantee must always be written, while a pledge may be oral
  4. DA guarantee is a bailment of goods, while a pledge involves three parties

Explanation

A pledge is a bailment, so it needs delivery of goods as security. A guarantee under Section 126 is a contract to perform the promise or discharge the liability of a third person on his default, and it may be oral or written. The option saying a guarantee must be written is wrong because Section 126 allows oral guarantees.

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