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How to protect my house which is given as the bank guarantee?

Shivendra Pratap Singh

Advocate (Lucknow)

Online advising since Oct. 2014

Civil Law

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How to protect my house which is given as the bank guarantee? My father-in-law signed as a guarantor for a loan (to an unknown person from a loan shark). He put home papers as collateral (but the house is on mother-in-laws name, not father-in-law). My mother-in-law expired last year. My wife is the only child. What is liability towards such a loan?

Question asked from: Karnataka

That guarantee was void ab initio. Your father in law had no right in that property. The said property was the self acquired property of your mother in law. Property papers prima facie prove the right of your mother in law. Hence, your father in law had no right to alienate or transfer that property in the lifetime of your mother in law.

Since your mother in law was alive at the time when the house was presented as a bank guarantee. Therefore, your father in law had no right to present that property as collateral for the loan. A guarantor who is not the owner of the property cannot keep it as a collateral for the loan. In this scenario you should file a civil suit for declaration of your right and cancellation of collateral.   

After the death of your mother in law her daughter and husband became entitled to inherit that property. Both have equal share in that property. But so far collateral is concerned, it is void from the beginning. Hence, the bank cannot claim that the bank guarantee is legally valid. 

Bank guarantee is void ab initio

According to Section 6 of the Transfer of Property Act, a person cannot claim a right in property in which he has only spes successionis. In devoid of title or right in the property the guarantee is void. Spes successionis means a chance of succession. It states about the mere possibility that a person may have the property in succession after the death of the current owner. 

If your mother in law might have made a testamentary will or gifted that property to her daughter, then your father in law would have no right in the property. Hence, there was a doubt towards the guarantor’s ownership in the property when it was submitted as a collateral. 

However, after the death of your mother in law your father in law became 50% shareholder in that property. But in such a situation the bank guarantee is void ab initio. When the bank guarantee is void from the beginning then the bank cannot claim that guarantee is valid because the guarantor, afterward, got 50% share in the property.

File a civil suit

Your wife accrued 50% share in that property. Since that property has been given as bank guarantee hence, she should immediately file a declaratory suit under Section 34 of the Specific Relief Act. The court shall declarate her right in the property because she is the legal heir of the deceased owner. 

So far as bank guarantee is concerned, she should claim cancellation of collateral because that guarantee is void ab initio. She can claim both rights in the same civil suit. Make the bank as a necessary party. 

shivendra pratap singh advocate

Shivendra Pratap Singh

Advocate (Lucknow)

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