Question

Which of the following is not an essential of a Contract of Guarantee

• A. Concurrence of three parties
• B. Surety's distinct promise to be answerable
• C. Liabilities to be legally enforceable
• D. Existence of only one contract

Hint:

Remember a Contract of Guarantee as a triangle of relationships: Creditor-Debtor, Creditor-Surety, and Surety-Debtor. This implies three parties and three underlying agreements (two express, one implied). Therefore, the idea of "only one contract" is fundamentally wrong.

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
The question asks to identify which of the given options is not an essential element of a valid Contract of Guarantee under the Indian Contract Act, 1872.

Step 2: Detailed Explanation:
A contract of guarantee is defined in Section 126 of the Indian Contract Act. It is a contract to perform the promise, or discharge the liability, of a third person in case of his default.
The essential elements are:
1. Three Parties: There are three parties involved: the Principal Debtor (who owes the liability), the Creditor (to whom the liability is owed), and the Surety or Guarantor (who gives the guarantee). Their concurrence is essential. So, (A) is an essential.
2. Primary and Secondary Liability: There must be a primary liability of the principal debtor. The surety's liability is secondary and arises only on the default of the principal debtor. The surety must make a distinct promise to be answerable for this liability. So, (B) is an essential.
3. Existing Debt: There must be a legally enforceable debt or promise for which the guarantee is given. So, (C) is an essential.
4. Three Contracts: A contract of guarantee is tripartite in nature and involves three distinct contracts, although they may not all be express:
- Contract between the Creditor and the Principal Debtor.
- Contract between the Surety and the Creditor.
- An implied contract between the Surety and the Principal Debtor (where the principal debtor is liable to indemnify the surety if the surety has to pay).
Therefore, the statement (D) Existence of only one contract is incorrect. There are typically three contracts involved.

Step 3: Final Answer:
The existence of only one contract is not an essential element of a contract of guarantee; in fact, there are three contracts.