Section 169 The Indian Contract Act, 1872
Section 169 of the Indian Contract Act, 1872 states:
Section 169 – Effect of dissolution of firm on guarantee given for firm’s debt
Where a guarantee has been given for a firm and the firm is dissolved, the guarantee continues to be in force as regards any liability incurred by the firm before the dissolution.
Explanation:
If a person guarantees a debt or obligation of a partnership firm, and the firm later dissolves, the guarantee still remains valid and enforceable for any debts or liabilities that the firm had incurred before it was dissolved.
Key Points:
Guarantee is valid only for liabilities existing before dissolution.
Does not cover liabilities after dissolution.
Protects creditors for pre-dissolution debts.
Example:
A guarantees a loan taken by a firm XYZ. The firm XYZ is dissolved. The loan was taken before dissolution. A’s guarantee is still effective for that loan amount, even after the firm no longer exists.
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