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What Is A Continuing Guarantee and What Are Its Modes of Revocation

A continuing guarantee allows a guarantor to cover a series of transactions between a creditor and debtor without needing a new guarantee for each transaction. Key points: 1. A continuing guarantee extends to multiple transactions over time, while a simple guarantee covers a single transaction. 2. A continuing guarantee can be revoked by the guarantor at any time by providing notice to the creditor. The guarantor remains liable for transactions that occurred before revocation. 3. A guarantee of a servant's employment is usually not considered continuing, as employment is seen as a single transaction. However, case law has differed on whether guarantee remains if the servant leaves employment.

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998 views4 pages

What Is A Continuing Guarantee and What Are Its Modes of Revocation

A continuing guarantee allows a guarantor to cover a series of transactions between a creditor and debtor without needing a new guarantee for each transaction. Key points: 1. A continuing guarantee extends to multiple transactions over time, while a simple guarantee covers a single transaction. 2. A continuing guarantee can be revoked by the guarantor at any time by providing notice to the creditor. The guarantor remains liable for transactions that occurred before revocation. 3. A guarantee of a servant's employment is usually not considered continuing, as employment is seen as a single transaction. However, case law has differed on whether guarantee remains if the servant leaves employment.

Uploaded by

Nitya Nand Pandey
Copyright
© © All Rights Reserved
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What is a continuing Guarantee and what are its modes of revocation.

Continuing Guarantee (Section-129)

As per section 129, a guarantee which extends to a series of transactions is called a


continuing guarantee.
Means-
1. There shall be a guarantee
2. Such guarantee extend to a series of transaction

Illustrations –
1. A promises B, in consideration that if B will employ C for the collection of rents of B's
zamindari, A will be responsible to the amount of 5000/- for due collection and payment
by C of those rents. This is a continuing guarantee.
It means-
Whenever C will collect the rent and C does dishonest by the Rs. of 5000, then A will be
responsible.

2. A guarantees payment to B, a tea-dealer, for any tea that C may buy from him from
time to time to the amount of Rs 100. Afterwards, B supplies C tea for the amount of
200/- and C fails to pay. A's guarantee is a continuing guarantee and so A is liable for Rs
100.

3. A guarantees payment to B for 5 sacks of rice to be delivered by B to C over the period


of one month. B delivers 5 sacks to C and C pays for it. Later on B delivers 4 more sacks
but C fails to pay. A's guarantee is not a continuing guarantee and so he is not liable to
pay for the 4 sacks.

Thus, it can be seen that a continuing guarantee is given to allow multiple transactions
without having to create a new guarantee for each transaction.
In the case of Nottingham Hide Co vs Bottrill 1873, it was held that the facts,
circumstances, and intention of each case has to be looked into for determining if it is a
case of continuing guarantee or not.
Revocation of Continuing Guarantee (S. 130)
1. By Notice (S. 130)
2. By death (S. 131)
3. By variance (S. 133)
4. Release or discharge of principle debtor (S. 134)
5. Composition, extention of time and promise not to sue (S. 135)
6. By impairing surety’s remedy (S. 139)

1. By Notice- As per section 130, a continuing guarantee can be revoked at any time
by the surety by notice to the creditor.

Once the guarantee is revoked, the surety is not liable for any future transaction
however he is liable for all the transactions that happened before the notice was
given.

Illustrations. 1 – A promises to pay B (shopkeeper) for all groceries bought by C


for a period of 12 months if C fails to pay. In the next three months, C buys 2000/-
worth of groceries. After 3 months, A revokes the guarantee by giving a notice to B.
C further purchases 1000 Rs of groceries. C fails to pay. A is not liable for 1000/- rs
of purchase that was made after the notice but he is liable for 2000/- of purchase
made before the notice.

This illustration is based on the old English case of Oxford vs Davies.

Question – The guarantee of a servant is a continuing guarantee or simple guarantee ?

In the case of Lloyd's vs Harper 1880, it was held that employment of a servant is one
transaction. The guarantee for a servant is thus not a continuing guarantee and cannot be
revoked as long as the servant is in the same employment.

However, in the case of Wingfield vs De St Cron 1919, it was held that a person who
guaranteed the rent payment for his servant but revoked it after the servant left his
employment was not liable for the rents after revocation.
Illustration 2. A guarantees to B, to the amount of 10000 Rs, that C shall pay for the
bills that B may draw upon him. B draws upon C and C accepts the bill. Now, A revokes
the guarantee. C fails to pay the bill upon its maturity. A is liable for the amount upto
10000Rs.

2. By death of surety- As per section 131, the death of the surety will be a revocation of
a continuing guarantee with regards to future transactions, if there is no contract to the
contrary.

It is important to note that there must not be any contract that keeps the guarantee alive
even after the death. In the case of Durga Priya vs Durga Pada AIR 1928, Cal HC held
that in each case the contract of guarantee between the parties must be looked into to
determine whether the contract has been revoked due to the death of the surety or not. If
there is a provision that says death does not cause the revocation then the contract of
guarantee must be held to continue even after the death of the surety.
Q. Differentiate between a contract of Indemnity and a contract of Guarantee.

Contract of Indemnity
Contract of Guarantee (S. 126)
(Section 124)

It is a bipartite agreement between the It is a tripartite agreement between the


indemnifier and indemnity-holder. Creditor, Principal Debtor, and Surety.

Liability of the surety is not contingent upon


Liability of the indemnifier is contingent upon
any loss. It is only depend upon the failure of
the loss.
principal debtor.

Liability of the Surety is secondary to the


Liability of the indemnifier is primary to the contract and consequently if the principal
contract. debtor is not liable, the surety will also not be
liable.

The undertaking in a guarantee is collateral to


The undertaking in indemnity is original. the original contract between the creditor and
the principal debtor.

There are three contracts in a contract of


guarantee –
an original contract between Creditor and
There is only one contract in a contract of
Principal Debtor,
indemnity - between the indemnifier and the
a contract of guarantee between creditor and
indemnity holder.
surety, and
an implied contract of indemnity between the
surety and the principal debtor.

The reason for a contract of indemnity is to


make good on a loss if there is any.

Once the indemnifier fulfills his liability, he


does not get any right over any third party. He
can only sue the indemnity-holder in his own
name.

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