(b) On the recommendation of M S, a wealthy landowner employs P as administrator of his estate. It was P`s duty to collect rent from S tenants each month and transfer it to S by the 15th of each month. M, guarantee this agreement and undertake to compensate for any mistakes made by P. This is a contract for the continuous warranty. The contract between the guarantor and the principal debtor is that of compensation. The principal debtor indemnifies the guarantor that if he pays the amount in case of delay committed by him, he will compensate him in case of loss. This contract, if it is not explicit, is always implicit. In some cases, the guarantee is not fully fulfilled, but there is a defence against any claim against the guarantor for additional amounts borrowed (Wittman (UK) Ltd v Willdav Engineering S.A. [2007] EWCA Civ 824). In the case of a guarantor who was led to believe that he was merely securing a bank loan, but that the guarantee in fact covered “all direct or indirect debts and liabilities” of the principal debtor, the bank was prevented from collecting “indirect liabilities” (Royal Bank of Canada v. Hale [1961] 30 DLR (2d) 138). (b) A sells and delivers goods to B.C then asks A to refrain from suing B for one year for debt and promises that if C does so, he will pay it in default of B. A undertakes to yield as desired.

This is sufficient consideration for the promise of C. In State Bank of India v. Premco Saw Mill (1983), the state-owned bank informed the debtor-defendant and also threatened to take legal action against her, but her husband agreed to become guarantor and undertook to pay the debt, and also signed a promissory note in favour of the state bank, and the bank has renounced the threatened measures. It was found that this patience and acceptance on the part of the bank was a good consideration for the guarantor. There must be consideration between the creditor and the guarantor to make the contract enforceable. The consideration must also be legal. In a collateral arrangement, the consideration received from the principal debtor is considered sufficient consideration for the guarantor. The guarantee must not be obtained by distorting the facts to the guarantor. Although the guarantee contract is not an uberrimae fidei contract, i.e. in absolute good faith, and therefore does not require the full disclosure of all essential facts by the principal debtor or creditor to the guarantor before entering into a contract.

But the facts likely to influence the extent of the guarantor`s liability must actually be presented In the event of default by the principal debtor, when the guarantor settles the principal debtor`s debt, the principal debtor is entitled to demand all the guarantees that the principal debtor has given to the creditor. The guarantor is entitled to any guarantee, whether obtained before or after the creation of the guarantee, and it also does not matter whether the guarantor is aware of these guarantees or not. It can be seen that some courts have relied only on the third illustration at p. 127, while many others have relied on the wording of the above section. The courts have also held that illustrations cannot limit or extend the definition and scope of an article. To comment on the validity of past debts as valid consideration for the guarantee, principle u/s 127 of the Contracts Act must be read largely in accordance with the basic elements of a contract, although there may be slight deviations (“guarantee” is a specific contract). There are three different principles that must be taken into account when analyzing the validity of past debts as a valid consideration in a guarantee contract. First, any contract (in general) requires consideration that has some value in the eyes of the law. It does not have to be appropriate.

It is established in Indian contract law that consideration in a contract in the case of voluntary services rendered (section 25(2) of the Contracts Act) and services performed is valid upon request. Second, a simple “recommendation” is different from a “request.” Finally, a guarantee contract is concluded in favour of the principal debtor and not the principal creditor. Past voluntary service refers to any service provided without prior request or commitment to provide the service and there is a commitment to pay for that past service in the future. Under the Indian Contracts Act, voluntary service performed includes an act performed voluntarily for the “slip of the tongue”. If a guarantee is given for past debts, there is no voluntary service in favor of the guarantor at the time of the loan application, but in favor of the principal debtor. The idea here is that the guarantor is not taken into account anywhere when presenting a loan prior to the principal debtor. In addition, once the creditor enters into a contract with the debtor for advance payment to the debtor, he is legally bound by the contract, and it is generally accepted that the performance of a task to which a person is legally bound does not constitute a valid consideration for a new promise, unless there are practical advantages to the promise. Consequently, debts owed to a principal debtor cannot be read in Article 25(2) of the Law on contracts in order to constitute valid consideration. Previous deliveries made on demand have long been interpreted as valid consideration under section 2(d) of the Contracts Act.

This was confirmed in Lampleigh v. Believe that a past service provided on request is a valid consideration for a subsequent commitment. In Upton-on-Severn DRC v. Powell, it was concluded that, although there is no subsequent promise for a previous action brought on application, the court can draw an implied undertaking in the claim. It also took place in the case of Sindha Shri Ganpat Singh Ji v. Abraham, who was provided to a minor at his request, but continued on the same request after reaching the age of majority, was a valid consideration for the minor`s promise of payment. Therefore, past debts may constitute a valid consideration in a collateral arrangement if the benefit has been advanced to the principal debtor at the request of the future guarantor. Here, a distinction must be made between “request” and “recommendation”. An application is “a notice of request from the person that causes the other party to do something in connection with a contract.” A recommendation, on the other hand, allows individuals and institutions to express their views and opinions about a person or organization without liability for damages (if any) suffered by the third party (to whom the recommendation is given) as a result of such a recommendation, provided that the referrer acts in good faith. In one case, the court reported in Juggot Indur Narain Roy Choudhry v. Nistarinee Dassee adopted a saying that a person is not liable as guarantor of a loan that the lender submits to a third party on the simple recommendation of the lender. Thus, it is clear that past debts can be a valid consideration if the creditor has suffered a disadvantage in order to grant the debtor an advantage at the request of the guarantor.

In the event that the creditor has asserted the advantage to the debtor without prior application by the guarantor, this means that the creditor has voluntarily taken the risk of extending the advantage to the debtor without the guarantor taking it into consideration […].