Section 38 of  the Indian partnership Act, 1932 deals with the cases of revocation of the continuing guarantee given to a firm. 

Section 38 :      

            The section, lays down that a continuing guarantee given to a firm, or to a third party in respect of the transactions of a firm is in the absence of agreement to the contrary, revoked as to future transactions from the date of any change in the Constitution of the firm 
        
Case Law :

      N.C. Mukherjee v. Biro Das. 

                    In this case 'A' was a surety to the firm "N.C. Mukherjee" for the conduct of B, a cashier in the firm of N.C. Mukherjee. Later on a change took place in the Constitution of the firm and its name was altered to "N.C. Mukherjee & Sons". It was held that surety was not liable for B's defamations subsequent to the change in the Constitution of the firm.

Effect of change -

        Section 38 deals with the effect of the change in the Constitution of a firm on continuing guarantee and provides that any change in the Constitution of a firm will have the effect of revoking a continuing guarantee given to that firm or to a third party in respect of transactions of a firm, from the date of change in the Constitution of the firm, unless there is an agreement to the contrary.

       The provision of this section is based on  established rule that any change in the Constitution of a firm without the consent of surety will alter risk of surety. The rule laid down in the section is that change in the Constitution of the firm will have effect of revoking as To a future transactions any continuing guarantee that may have been given to the firm or to a third party in respect of any transaction of the firm unless there is agreement to the contrary.

    "Continuing guarantee." -- The expression "continuing guarantee" has been defined in section 129 of the Indian contract Act as follows : 

       "A guarantee which extends to a series of transactions is called continuing guarantee." This continuing guarantee may be revoked. Section 130 of Indian contract Act deals with the revolution of continuing guarantee and provides that :
    
  "A continuing guarantee may at any time be revoked by the surety as to future transactions, by notice to the creditor."

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