What Is a Guarantee, and Who Is Liable for It?

Suppose a person says: I will give you ten lakh rupees only when you provide A's guarantee. A comes and gives it to you in writing that you should give B ten lakh rupees, and if B does not pay you back, I will pay you. B and C enter into a transaction. C gives B ten lakh rupees, and A comes in as the guarantor.

Now, if a time period is written into that guarantee — that if he does not pay within one year, then I will pay — then that person cannot demand from you before that one year is up.

Has C, who gave B ten lakh rupees, made every possible effort within their legal limits to recover the amount? Does the claim contain details stating: I made every possible effort to get the ten lakh rupees back from B, he is not paying, now you gave the guarantee, now you pay his money back?

Is it possible that B already returned the ten lakh rupees, and then took a further ten lakh rupees on your guarantee alone, without informing you? If the first ten lakh has already been returned, and he took a further ten lakh, then you are discharged of liability. You have no responsibility at all.

If he has filed a claim against you and B is not made a party to it, and he is demanding only from you, even then you are discharged of liability; and if B has died, even then you are discharged of liability, because after someone's death the whole picture changes. You had given a guarantee for B that if B, while alive, does not pay, I will pay. Now if B has died, your guarantee ended the moment he died.

Now C has other remedies — that he can go after the heirs. Various turns keep coming up in law; when dealing with any matter, different facts and circumstances come to light, and you have to proceed according to them. Now let us look a little more closely at how a guarantee ends upon death. He will demand from B; B will not pay, so he will come to you, and when he comes to you and you refuse, he will file a claim — he will first make B a party, and make you a party afterward. His first claim to prove will be that I gave money to B; the second claim is on the basis of his guarantee. If B has died, the law says that a claim cannot be filed against a deceased person in his own name, and if he makes the heirs a party, the heirs never gave a guarantee to pay or not pay, so they cannot be made a party. The nature of the guarantee is the foundation — you need to look closely at what the nature of the guarantee is, and only then proceed further.

I have told you the facts — in light of them, see at what stage your case stands. Has he written in his claim that he made all these final efforts, or has he not? If not, it means he cannot bypass B and file a claim directly against you — merely writing that I demanded from him and he refused, so now A should pay — that cannot work like that.

This is not the law of guarantee. The law of guarantee is about what steps were taken. When a loan is taken from a bank, a guarantor is kept, a vetting certificate is made, and all documents are verified in it. One thing to look for is whether all those documents are properly attached to the claim, showing that we made our complete, final efforts and C is still not paying.