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Wednesday, 19 September 2012

Under what circumstances a guarantee can be terminated






The guarantee or surety can be terminated in various ways. In the following circumstances it can be terminated.

1. Death Of The Guarantor :-
The guarantor will not remain in force when the bank receives the notice of his death. The legal representative is responsible before the death of the guarantor.

2. Revocation By The Guarantor :-
The guarantor can cancel the continuing guarantee by notice to the creditor as to future transaction.

3. Death Of The Debtor :-

The guarantee is terminated automatically after the death of the principal debtor. In such case creditor can recover the amount due by the debtor from his estate. In case of default by the legal heir of the debtor, the creditor can demand from the guarantor.

4. Insanity Of The Surety :-
When the creditor comes to know about the in sanity of the surety, the guarantee terminates.

5. Bankruptcy Of The Debtor :-
In case of bankruptcy the banker stops the accounts operation and guarantee comes to an end.
In such case demand is made upon the surety for the payment of the guaranteed debt.

6. Fraud And Misrepresentation :-

The guarantee obtained by fraud and misrepresentation is invalid.

7. Payment Of Debt :-

If the debt is paid by the debtor on due date, the guarantee is discharged.

8. Changes In Agreement :-
When the creditor changes the terms and conditions of the agreement with the debtor, then surety is discharged.

9. Negligence Of The Creditor :-

If the creditor neglects something which he is bound to do for the protection of the surety. In this case surety will be discharged.

10. Changes In Constitution :-
If the constitution of the firm changes, it may terminate the guarantee.

11. Discharge Of Debtor :-

By any agreement between the creditor and debtor or any act if the principal debtor is discharged then surety will be automatically discharged.

12. Unauthorized Extension Of Time :-
If the debtor grants extension of time to the debtor without the consent of the surety then guarantee is revoked.

13. Amalgamation Of Banks :-
If two or more banks amalgamate the guarantee will cease for all future transactions unless there is an agreement.

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