LEGAL AND REGULATORY ASPECTS OF BANKING (LRAB) 

Unit - 42: Contacts of Guarantee 

​​Legal & Regulatory Aspects of Banking - 

Unit - 42 : Contracts of Guarantee 
Contract means an agreement enforceable by law. There must be lawful proposal by one party and the other party must accept the proposal to enter into a contract. 

A Contract of Guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default . 

The Contract of Guarantee is applicable in banking products like performance guarantee, Financial Guarantee, Co- acceptance , etc . 

Banks generally obtain guarantee as a form of collateral for a debt. All these examples where a contract of guarantee applies .  

The person who gives the guarantee is called the surety .

The person in respect of whose default the guarantee is given is called the principal debtor . 

The person to whom the guarantee is given is called the creditor / beneficiary . 

A guarantee which extends to a series of transactions is called a continuing guarantee. 

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