What does the law of bangladesh say about the policy of guarantee. It is discussed with some examples for comprehensive understanding. © anif nawaz

2. CONTINUING GUARANTEE
• A GUARANTEE WHICH EXTENDS TO A SERIES OF TRANSACTIONS IS CALLED
A CONTINUING GUARANTEE. (SEC. 129). A GUARANTEE COVERING A
SINGLE TRANSACTION MAY BE CALLED A SIMPLE GUARANTEE.

3. CONTINUING GUARANTEE
• EXAMPLE : 1
• KASSEM WAS EMPLOYED AS A DRIVER BY MR. HASHEM ON THE
RECOMMENDATION OF JOY FOR COLLECTION OF CREDIT PAYMENTS FROM
DELHI. JOY GUARANTEED KASSEM’S HONESTY AND PROMISED TO PAY IN
CASE OF ANY DEFAULT IN PAYMENTS COLLECTED BY HIM (KASSEM). THIS
IS A CONTRACT OF CONTINUING GUARANTEE

4. EXAMPLE: 2
SHAKIB GUARANTEED THAT HE WOULD PAY SHABBIR TK. 5,000 FOR
CONTINUOUSLY FOR SUPPLYING HIS FRIEND TAMIM A SPECIAL CLEANING
POWDER EVERY THREE MONTH. SHABBIR SUPPLIES TAMIM WITH CLEANING
POWDER FOR TK. 4,000 AND 5,000 WHICH TAMIM PAYS. THEN SHABBIR
SUPPLIES CLEANING POWDER FOR TK. 6,000 WHICH TAMIM DOES NOT PAY.
SHAKIB IS UNDER CONTINUING GUARANTEE AND IS LIABLE TO PAY
SHABBIR UP TO TK. 5,000 UNDER THE CONTINUING GUARANTEE CONTRACT.
CONTINUING GUARANTEE

5. HOW A CONTINUING GUARANTEE IS REVOKED
• A CONTINUING GURANTEE IS REVOKED UNDER THE FOLLOWING
CIRCUMSTANCES:
• 1) BY NOTICE OF REVOCATION BY THE SURETY: THE NOTICE OPERATES TO
CANCEL THE SURETY’S LIABILITIES AS REGARDS TRANSACTIONS
ENTERED INTO AFTER THE NOTICE. HE CONTINUES TO BE LIABLE FOR
TRANSACTIONS ENTERED INTO PRIOR TO THE NOTICE.- SEC130

6. • FOR EXAMPLE:
• 1. A GUARANTEE B TO PAY B BDT 1000. LATER A SENDS B A NOTICE
REGARDING THE REVOCATION OF THE GUARANTEE. HENCE THE GUARANTEE
IS REVOKED.

7. EXAMPLE
P GURANTEE Q,THAT HE WILL BEAR THE LIABILITIES OF Q IN A CERTAIN
COMPANY.LATER P DECIDES TO REVOKE THE GURANTEE.BUT ANY
TRANSACTIONS OCCURRED BEFORE P SENDS Q THE REVOCATION NOTICEIT
IS UNDER HIS LIABILITIES.

8. • 2) BY THE DEATH OF THE SURETY: "THE DEATH OF THE SURETY OPERATES,
IN THE ABSENCE OF A CONTRACT TO THE CONTRARY, A SARE VOCATION OF
A CONTINUING GUARANTEE, SO FAR AS REGARDS FUTURE TRANSACTIONS.
"SEC131.

9. FOR EXAMPLE:
• 1. A GUARANTEES TO B . LATER A DIES BECAUSE OF AN ACCIDENT. THE
STATE OF THE SURETY IS LIABLE FOR ALL TRANSACTIONS ENTERED INTO
PRIOR TO THE DEATH OF THE SURETY UNLESS THERE WAS A CONTRACT TO
THE CONTRARY. IT IS NOT NECESSARY THAT THE CREDITOR MUST HAVE
NOTICE OF THE DEATH.

10. DEBT LIABILITIES OF THE SURETY
• 1. COEXTENSIVE: THE NATURE AND EXTENT OF SURETY'S LIABILITY IS
COEXTENSIVE OF THE PRINCIPLE DEBTOR ACCORDING TO THE SECTION
128 OF INDIAN CONTRACT ACT. THIS MEANS THE SURETY HAS THE SAME
LIABILITY AS THE PRINCIPLE DEBTOR. IF THE PRINCIPLE DEBTOR
DOESN'T PAY ON TIME THEN THE SAME AMOUNT OF THE LIABILITY WILL
FALL ON THE SHOULDERS OF SURETY!

11. • EXAMPLES:
• EX-1: A HAS TAKEN A LOAN OF 100000 FROM B AND C IS THE SURETY. IF A FAILS TO PAY THE AMOUNT TO B
ON THE DUE DATE THEN C HAVE TO PAY THE FULL AMOUNT!

12. • EX-2: Z GUARANTEES TO Y THE PAYMENT OF A BILL OF EXCHANGE BY X,THE
ACCEPTOR. SOMEHOW THE BILL IS DISHONOURED BY X. THEN Z IS LIABLE
FOR THE AMOUNT OF BILL.

13. • 2.INCREASES OR DECREASES IN LIABILITY: WHEN THE PRINCIPAL
DEBTOR IS INCREASED OR DECREASED THE LIABILITY OF SURETY WILL
ALSO BE INCREASED OR DECREASED.

14. EXAMPLE
• ACCORDING TO THE PREVIOUS EXAMPLE OF A,B AND C MUST HAVE TO PAY
THE OTHER EXPENSES SUCH AS INTERESTS OR CHARGES ALONG WITH THE
100000. THESE EXTRA EXPENSES WILL ALSO BECOME THE LIABILITY OF
C. OR IF A RECEIVED 5% DISCOUNT THEN C WILL ALSO PAY THE
DISCOUNTED AMOUNT WHICH IS 95000!

15. • 3. SECONDARY LIABILITY: A SURETY'S LIABILITIES IS SECONDARY AND
COMES INTO FORCE ONLY WHEN THE PRINCIPLE DEBTOR DEFAULTS IN HIS
PAYMENT. IF THE SURETY HIMSELF BECOMES INSOLVENT BEFORE THE
PRINCIPAL DEBTOR DEFAULTS ON HIS PAYMENTS HE WILL NOT BE LIABLE
TO PAY ANY AMOUNT GUARANTEED BY HIM.

16. EXAMPLE
• IF A HAS TAKEN THE LOAN OF 100000 FROM B FOR 6 MONTHS. AND C IS THE
SURETY HERE. NOW, IF C BECAME INSOLVENT BEFORE THAT 6 MONTHS
THEN C WILL NOT LIABLE TO PAY ANY AMOUNT GUARANTEED BY HIM.

17. • 4. LIABILITY RESTRICTED TO VALID CONTRACT: IF CREDITOR MAKES A
CONTRACT WITH REPRESENTATION OR FRAUD THEN THE SURETY HAS THE
RIGHT TO TREAT IT AS A VOIDABLE CONTRACT.

18. •
A CONTRACT OF SURETYSHIP IS A TYPE OF INSURANCE POLICY, WHERE
THE SURETY(INSURANCE COMPANY) PROMISES THE CREDITOR THAT IF
THE PRINCIPAL DEBTOR FAILS TO PERFORM, THE SURETY WILL
UNDERTAKE GOOD- FAITH PERFORMANCE INSTEA

19. • LIABILITY OF TWO PERSONS, PRIMARILY LIABLE, NOT AFFECTED BY
ARRANGEMENT BETWEEN THEM THAT ONE SHALL BE SURETY ON OTHER'S
DEFAULT:
THIS LAW SAYS ABOUT 2 TYPES OF CONTRACT. FIRST ONE IS BETWEEN A
GROUP TWO PERSON AND A THIRD PERSON. AND ANOTHER ONE IS BETWEEN
THE TWO PERSON IN THAT GROUP.

20. • FIRST CONTRACT: WHEN THE GROUP OF TWO PERSON CONTRACT WITH A
THIRD PERSON TO TAKE CERTAIN LIABILITY.
• SECOND CONTRACT: INVOLVES CONTRACT BETWEEN THE TWO PERSON IN
THE GROUP THAT, ONE OF THEM SHALL BE LIABLE ONLY ON THE DEFAULT
OF THE OTHER.

21. • HERE, THE FIRST CONTRACT WILL NOT BE AFFECTED BY SECOND CONTRACT
AS THE THIRD PERSON IS NOT PARTY OF SECOND CONTRACT, ALTHOUGH
THE THIRD PERSON MAY HAVE BEEN AWARE OF SECOND CONTRACT'S
EXISTENCE.

22. • A CONTRACT OF SURETYSHIP IS A TYPE OF INSURANCE POLICY, WHERE
THE SURETY(INSURANCE COMPANY) PROMISES THE CREDITOR THAT IF
THE PRINCIPAL DEBTOR FAILS TO PERFORM, THE SURETY WILL
UNDERTAKE GOOD- FAITH PERFORMANCE INSTEAD

23. WHEN IS A SURETY DISCHARGED FROM LIABILITIES?
• THE LIABILITY OF A SURETY UNDER A CONTRACT OF GUARANTEE COMES
TO AN END UNDER ANY ONE OF THE FOLLOWING CIRCUMSTANCES:
1. NOTICE OF REVOCATION: IN THE CASE CONTINUING GUARANTEE, A
NOTICE BY THE SURETY TO THE CREDITOR STATING THAT HE WILL NOT BE
RESPONSIBLE, WILL REVOKE HIS LIABILITY AS REGARDS ALL FUTURE
TRANSACTIONS. HE WILL REMAIN LIABLE FOR ALL TRANSACTIONS
ENTERED INTO PRIOR TO THE DATE OF NOTICE. –(SEC. 130)

24. 2. DEATH OF SURETY: IN THE CASE OF A CONTINUING GUARANTEE THE
DEATH OF A SURETY DISCHARGES HIM FROM ALL LIABILITIES AS REGARDS
TRANSACTIONS AFTER HIS DEATH UNLESS THERE IS A ANOTHER CONTRACT.
–(SEC. 131)

25. • 3 .VARIATION OF CONTRACT: “ANY VARIANCE, MADE WITHOUT THE
SURETY’S CONSENT IN THE TERMS OF THE CONTRACT BETWEEN THE
PRINCIPAL DEBTOR AND THE CREDITOR, DISCHARGES THE SURETY AS TO
TRANSACTIONS SUBSEQUENT TO THE VARIANCE.” –(SEC. 133)

26. EXAMPLE 1
A BECOMES SURETY TO C FOR PAYMENT OF RENT BY B UNDER A LEASE.
AFTERWARDS B AND C CONTRACT TO HIKE THE RENT, WITHOUT INFORMING
A. A WOULD HENCE, BE DISCHARGED FROM HIS LIABILITY AS A SURETY FOR
ACCRUING SUBSEQUENT TO THE VARIANCE IN TERMS OF THE CONTRACT
WITHOUT HIS CONSENT.

27. EXAMPLE 2
C CONTRACTS TO LEND B RS 5,000 ON MARCH 1. A GUARANTEES REPAYMENT.
C PAYS RS 5,000 TO B ON JANUARY 1, A IS DISCHARGED FROM HIS
LIABILITY, AS THE CONTRACT HAS BEEN VARIED FOR EARLY RELEASE OF
LOAN BY THE CREDITOR.

28. • 4. RELEASE OR DISCHARGE OF PRINCIPAL DEBTOR: THE SURETY IS
DISCHARGED BY ANY CONTRACT BETWEEN THE CREDITOR AND THE
PRINCIPAL DEBTOR, BY WHICH THE PRINCIPAL DEBTOR IS RELEASED, OR
BY ANY ACT OR OMISSION OF THE CREDITOR, THE LEGAL CONSEQUENCE OF
WHICH IS THE DISCHARGE OF THE PRINCIPAL DEBTOR. -(SEC. 134)

29. EXAMPLE
• A CONTRACTS WITH B TO BUILD A HOUSE FOR B FOR A FIXED PRICE
WITHIN A STIPULATED TIME, B SUPPLYING THE NECESSARY TIMBER. C
GUARANTEES A’S PERFORMANCE OF THE CONTRACT. B FAILS TO SUPPLY
THE TIMBER. C IS THUS DISCHARGED FROM HIS SURETY.

30. • 5. ARRANGEMENT WITH PRINCIPAL DEBTOR: WHERE THE CREDITOR,
WITHOUT THE CONSENT OF THE SURETY, MAKES AN ARRANGEMENT WITH
THE PRINCIPAL DEBTOR FOR COMPOSITION, OR PROMISES TO GIVE HIM
TIME OR NOT TO SUE HIM, THE SURETY WILL BE DISCHARGED. –(SEC. 135)
• WITH A THIRD PERSON: WHERE A CONTRACT TO GIVE TIME TO THE
PRINCIPAL DEBTOR IS MADE BY THE CREDITOR WITH A THIRD PERSON,
AND NOT WITH PRINCIPAL DEBTOR, THE SURETY IS NOT DISCHARGED. –
(SEC. 136)

31. EXAMPLE:
• C, THE HOLDER OF AN OVERDUE BILL OF EXCHANGE DRAWN BY D AS
SURETY FOR B, AND ACCEPTED BYB, CONTRACTS WITH M TO GIVE TIME TO
B. D IS NOT DISCHARGED.

32. • 6. CREDITOR’S FORBEARANCE TO SUE DOES NOT DISCHARGE
SURETY: ONLY FORBEARANCE ON THE PART OF THE CREDITOR TO SUE THE
PRINCIPAL DEBTOR, OR TO ENFORCE ANY OTHER REMEDY AGAINST HIM,
DOES NOT DISCHARGE THE SURETY, UNLESS OTHERWISE AGREED. –(SEC.
137)

33. • EXAMPLE:
• B OWES TO C A DEBT GUARANTEED BY A. THE DEBT BECOMES PAYABLE, C
DOES NOT SUE B FOR A YEAR AFTER THE DEBT HAS BECOME PAYABLE. A IS
NOT DISCHARGED FROM THE SURETY SHIP.

34. • EXAMPLE:
• FAILURE TO SUE THE PRINCIPAL DEBTOR UNTIL RECOVERY IS BARRED BY
STATUE OF LIMITATION DOES NOT OPERATE AS A DISCHARGE OF THE
SURETY.

35. • 7.RELEASE OF ONE CO-SURETY
• IF THERE ARE CO-SURETIES, THE RELEASE OF LIABILITY OF ONE SURETY
DOES NOT MEAN THE SURETY OF OTHERS IS DISCHARGED AS WELL.
• EXAMPLE: A, B AND C GUARANTEES G THAT H WILL MAKE A CAR FOR HIM.
FOR ANY REASON IF A IS DISCHARGED FROM HIS SURETY DOES NOT MEAN
B AND C IS ALSO DISCHARGED

36. • 8.ACT OR OMISSION IMPAIRING SURETY'S EVENTUAL REMEDY:
• IF THE CREDITOR DOES ANYTHING OR DOESN'T PERFORM AN ACT WHICH HE
WAS OBLIGED TO DO FOR THE SAKE OF THE SURETY. IT MEANS DOING OR
NOT DOING SOMETHING WHICH WAS NECESSARY FOR THE RIGHTS OF THE
SURETY.

37. • EXAMPLE: B CONTRACTS TO BUILD A SHIP FOR C FOR A GIVEN SUM, TO BE
PAID BY INSTALMENTS AS THE WORK REACHES CERTAIN STAGES. A
BECOMES SURETY TO C FOR B’S DUE PERFORMANCE OF THE CONTRACT. C,
WITHOUT THE KNOWLEDGE OF A, PREPAYS TO B THE LAST TWO
INSTALMENTS. A IS DISCHARGED BY THIS PREPAYMENT.

38. • 9. LOSS OF SECURITY
• IF THE CREDITOR LOSES OR PARTS WITH ANY SECURITY GIVEN TO HIM BY
THE PRINCIPAL DEBTOR AT THE TIME THE CONTRACT TO GUARANTEE WAS
ENTERED INTO, THE SURETY IS DISCHARGED TO THE AMOUNT OF THE
VALUE OF THAT SECURITY.
• EXCEPTION: THE SURETY CONSENTED TO THE RELEASE OF SUCH SECURITY.

39. • 10.MISCELLANEOUS
• A CONTRACT OF GUARANTEE IS INVALID IF IT IS OBTAINED BY
• 1.MISREPRESENTATION,
• 2.KEEPING SILENT ABOUT IMPORTANT CIRCUMSTANCES OR
• 3.A CO-SURETY FAILING TO JOIN THE TERMS OF THE CONTRACT.

40. • A SURETY HAS THE FOLLOWING RIGHTS:
• 1. RIGHT OF SUBROGATION: UPON PAYMENT OR PERFORMANCE OF ALL
THAT HE IS LIABLE FOR, HE IS INVESTED WITH ALL THE RIGHTS WHICH
THE CREDITOR HAD AGAINST THE PRINCIPAL DEBTOR. —SEC. 140.

41. • 2. RIGHT TO INDEMNITY: IN EVERY CONTRACT OF GUARANTEE THERE IS
IMPLIED PROMISE BY THE PRINCIPAL DEBTOR TO INDEMNIFY THE
SURETY; AND THE SURETY IS ENTITLED TO RECOVER FROM THE
PRINCIPAL DEBTOR WHATEVER SUM HE HAS RIGHTFULLY PAID UNDER
THE GUARANTEE, BUT NO SUMS WHICH HE HAS PAID WRONGFULLY. —SEC.
145.

42. • ILLUSTRATIONS:
• B IS INDEBTED TO C, AND A IS SURETY FOR THE DEBT. C DEMANDS
PAYMENT FROM A- AND ON HIS REFUSAL SUES HIM FOR THE AMOUNT. A
DEFENDS THE SUIT, HAVING REASONABLE GROUNDS FOR DOING SO, BUT
IS COMPELLED TO PAY THE AMOUNT OF THE DEBT WITH COSTS. HE CAN
RECOVER FROM B THE AMOUNT PAID BY HIM FOR COSTS, AS WELL AS THE
PRINCIPAL DEBT.

43. • C LENDS B A SUM OF MONEY, AND A, AT THE REQUEST OF B, ACCEPTS A BILL
OF EXCHANGE DRAWN BY B UPON A TO SECURE THE AMOUNT. C, THE HOLDER
OF THE BILL, DEMANDS PAYMENT OF IT FROM A, AND, ON A’S REFUSAL TO
PAY, SUES HIM UPON THE BILL. A NOT HAVING REASONABLE GROUNDS
FOR SO DOING, DEFENDS THE SUIT, AND HAS TO PAY THE AMOUNT OF THE
BILL AND COSTS. HE CAN RECOVER FROM B THE AMOUNT OF THE BILL, BUT
NOT THE SUM PAID FOR COSTS, AS THERE WAS NO REAL GROUND FOR
DEFENDING THE ACTION.

44. SURETY'S RIGHT TO BENEFIT OF
CREDITOR'S SECURITIES:
A SURETY IS ENTITLED TO THE BENEFIT OF EVERY SECURITY WHICH THE
CREDITOR HAS AGAINST THE PRINCIPAL DEBTOR AT THE TIME WHEN THE
CONTRACT OF SURETYSHIP ENTERED INTO, WHETHER THE SURETY KNOWS OF
THE EXISTENCE OF SUCH SECURITY OR NOT; AND IF THE CREDITOR LOSES, OR
WITHOUT THE CONSENT OF THE EXISTENCE OF SUCH SECURITY OR NOT; AND IF
THE CREDITOR LOSES, OR WITHOUT THE CONSENT OF THE SURETY, PARTS WITH
SUCH SECURITY, THE SURETY IS DISCHARGED TO THE EXTENT OF THE VALUE OF
THE SECURITY.

45. • ILLUSTRATIONS
(A) C ADVANCES TO B, HIS TENANT, 2,000 RUPEES ON THE GUARANTEE OF
A. C HAS ALSO FURTHER SECURITY FOR THE 2,000 RUPEES BY A MORTGAGE
OF B'S FURNITURE. C, CANCELS THE MORTGAGED. B BECOMES INSOLVENT
AND C SUES A ON HIS GUARANTEE. A IS DISCHARGED FROM LIABILITY TO
THE AMOUNT OF THE VALUE OF THE FURNITURE.

46. • (B) A, AS SURETY FOR B, MAKES A BOND JOINTLY WITH B TO C, TO SECURE
A LOAN FROM C TO B. AFTERWARDS, C OBTAINS FROM B A FURTHER
SECURITY FOR THE SAME DEBT. SUBSEQUENTLY, C GIVES UP THE FURTHER
SECURITY. A IS NOT DISCHARGED.

47. CO-SURITIES
• WHERE TWO OR MORE PERSONS ARE CO-SURETIES FOR THE SAME DEBT OR
DUTY, THEY ARE CALLED CO-SURETIES.

48. • WHEN TWO PARTIES CO-SURETIES FOR THE SAME DEBT, THEY ARE BOTH
LIABLE TO PAY.
1.IT DOES NOT MATTER IF THEY ARE TIED THROUGH SAME OR DIFFERENT
CONTRACT.
2.IT DOES NOT MATTER IF THEY KNOW ABOUT EACH OTHER’S EXISTENCE.
3.AS LONG AS THERE IS NO CONTRACT SPECIFYING THE PORTION OF THE
DEBT THEY HAVE TO PAY, BOTH THEIR PAID SUM IS EQUAL.

49. • EXAMPLE (A)
• A, B AND C ARE SURETIES TO D FOR THE SUM OF 3,000 RUPEES LENT TO E. E
FAILS TO PAY. A, B AND C ARE LIABLE TO SHARE THE DEBT EQUALLY AND
TO PAY 1000 RUPEES EACH.

50. • EXAMPLE(B)
• A B AND C ARE SURETIES TO D FOR THE SUM OF 1000 RUPEES LENT TO E
AND THERE IS A CONTRACT BETWEEN A, B AND C THAT A IS TO BE
RESPONSIBLE TO THE EXTENT OF ONE-QUARTER, B TO THE EXTENT OF ONE-
QUARTER, AND C TO THE EXTENT OF ONE-HALF. E FAILS TO PAY. AS
BETWEEN THE SURETIES, A IS LIABLE TO PAY 250 RUPEES, B 250 RUPEES
AND C 500 RUPEES(ACCORDING TO THEIR CONTRACT).

51. • LIABILITY OF CO-SURETIES BOUND IN DIFFERENT SUMS
CO-SURITIES WHO ARE BOUND IN DIFFERENT SUMS ARE LIABLE TO PAY
EQUALLY AS FAR AS THE LIMITS OF THEIR RESPECTIVE OBLIGATION
PERMIT.SEC.147

52. • FOR EXAMPLE: A,B,AND C AS SURETIES FOR D,ENTER INTO THREE
SEVERAL BONDS,EACH IN A DIFFERENT PENALTY,SEQUENTIALLY
10000,20,000 AND 40000 TK. CONDITIONS FOR D'S DULY ACCOUNTED TO
E.D MAKES DEFAULT TO THE EXTENT OF 30000TK...IN THIS CASE A,B,C
ARE EACH LIABLE TO PAY 10000 TK EQUALLY.

53. • FOR EXAMPLE: A,B,AND C AS SURETIES FOR D,ENTER INTO THREE
SEVERAL BONDS,EACH IN A DIFFERENT PENALTY,SEQUENTIALLY
10000,20,000 AND 40000 TK. CONDITIONS FOR D'S DULY ACCOUNTED TO
E.D MAKES DEFAULT TO THE EXTENT OF 40000TK...IN THIS CASE A,IS
LIABLE TO PAY 10000 TK B AND C ARE LIABLE TO PAY 15,000 TK