Continuing guarantee Where a guarantee extends to a series of transaction, it is called as Continuing guarantee. Chapter VIII, Section 129 to Section 131 of the Indian Contract Act, 1872 deals with the provisions relating to Continuing guarantee
1) Definition of Continuing Guarantee
Section 129 of the Indian Contract Act, 1872 defines continuing guarantee as "A guarantee which extends to a series of transaction, is called, a “continuing guarantee”.
(a) A, in consideration that B will employ C in collecting the rents of B’s zamindari, promises B to be responsible, to the amount of 5,000 rupees, for the due collection and payment by C of those rents. This is a continuing guarantee.
(b) A guarantees payment to B, a tea-dealer, to the amount of £ 100, for any tea he may from time to time supply to C. B supplies C with tea of above the value of £ 100, and C pays B for it. Afterwards, B supplies C with tea of the value of £ 200. C fails to pay. The guarantee given by A was a continuing guarantee, and he is accordingly liable to B to the extent of £ 100.
(c) A guarantees payment to B of the price of five sacks of flour to be delivered by B to C and to be paid for in a month. B delivers five sacks to C. C pays for them. Afterwards B delivers four sacks to C, which C does not pay for. The guarantee given by A was not a continuing guarantee, and accordingly, he is not liable for the price of the four sacks.
2) Revocation of Continuing Guarantee
A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.
(a) A, in consideration of B’s discounting, at, A’s request, bills of exchange for C, guarantees to B, for twelve months, the due payment of all such bills to the extent of 5,000 rupees. B discounts bills for C to the extent of 2,000 rupees. Afterwards, at the end of three months, A revokes the guarantee. This revocation discharges A from all liability to B for any subsequent discount. But A is liable to B for the 2,000 rupees, on default of C.
(b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills that B shall draw upon him. B draws upon C, C accepts the bill. A gives notice of revocation. C dishonours the bill at maturity. A is liable upon his guarantee.
3) Modes of Revocation of Continuing Guarantee
A continuing guarantee can be revoked by the Surety in the following ways
(i) By Notice:
A continuing guarantee can be revoked by the surety by giving notice to the Creditor as regards future transactions only.
(ii) By Death of the Surety:
If surety dies, the continuing guarantee regarding the future transaction will stand revoked. Section 131 of the Indian Contract Act, 1872 deals with Revocation of continuing guarantee by surety's death it runs as follows:
"The death of the surety operates, in the absence of any contract to the contrary, as a revocation of ma continuing guarantee, so far as regards future transactions."
(iii) Other Mode:
Continuing guarantee is revoked by all such modes when the surety is discharged from the liability.
4) Relevant Case law
State Bank of India Vs. Gemini Industries (2001) 3 Guj CD 1885
In this case, a guarantee for a cash-credit account has been held to be a continuing guarantee. The sureties could not claim to be discharged from their liability by reason of the fact that the goods in the hypothecated store were changed.
R.K. Devan V. State of Uttar Pradesh, AIR 1956 Mad 211
In the case, Court held that the Liability of deceased surety can be imposed against his legal heirs but only to the extent of the property inherited by them.
1) Contract of Guarantee
2) Remedies for Breach of a Contract
3) Free Consent : What is Consent ? When it is Free ?
4) What is Consideration and what are Kinds of Consideration ?
5) Difference between Promissory Note and bill of exchange