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CONTINUING GUARANTEE
ANIKET RANJAN
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CONTENT
1. INTRODUCTION___________________________________________04
2. GUARANTEE______________________________________________05
3. CONTINUING GUARANTEE_________________________________06
5. CONCLUSION______________________________________________10
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INTRODUCTION
Literally guarantee means a formal promise or assurance that certain conditions will be
fulfilled. As assurance that certain conditions will be fulfilled. As far as contract law is
concerned, such kind of guarantee is usually established through a contract of guarantee.
Under contract law, guarantee can be classified into different kinds. One of its kinds one
is continuing guarantee.Continuing guarantee can be defined as a guarantee, which
extends to a series of continuing transactions. Generally, indefinite numbers of
transactions are dealt in continuing guarantee. Such guarantee can be in respect of future
transactions, which is to be conducted during fixed period of time. A Continuing
Guarantee cannot be revoked except in certain conditions, but it will be applicable only to
future transaction and surety will still be liable for the past transactions.
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GUARANTEE
Guarantee is a legal term more comprehensive and of higher importance than either
warranty or "security". It most commonly designates a private transaction by means of
which one person, to obtain some trust, confidence or credit for another, engages to be
answerable for him. It may also designate a treaty through which claims, rights or
possessions are secured.
There are three parties involved in the ‘Contract of Guarantee’. The person who gives the
guarantee is called the ‘surety’; the person in respect of whose default the guarantee is
given is called ‘the principal debtor’ and the person to whom the guarantee is given is
called the ‘creditor’. The contract of guarantee may be either written or oral. Contract of
Guarantee is usually entered into to secure the honesty and fidelity of someone who is to
be appointed to some offce, or to secure some one from injury arising out of some wrong
committed by another. It must satisfy all the essential features of a valid contract.
I. Specific Guarantee.
1
https://dictionary.cambridge.org
2
The Indian Contract Act, 1872, Section 126.
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CONTINUING GUARANTEE
Continuing guarantee refers to a guarantee in which the surety will not be liable unless a
specified event occurs. This guarantee relates to a future liability of the surety under
successive transactions that either continue the surety’s liability, or from time to time
renews it, after it has been satisfied is called a continuing guaranty.
For example- 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 rent. This is a continuing guarantee.
It was stated in case of Liberty Bank vs Shimokawa that continuing guaranty may be
revoked at any time by the guarantor in respect to future transactions, unless there is a
continuing consideration as to the transactions that the guarantor does not give up.
A continuing guaranty may be revoked at any time by the guarantor in respect to future
transactions, unless there is a continuing consideration as to the transactions that the
guarantor does not give up.
3
The Indian Contract Act, 1872, Section 129
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REVOCATION OF CONTINUING GUARANTEE
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incorporated into the guarantee-contract, then continuing guarantee remains continued
even after death of surety.
BY OTHER MODES
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6. Compounding by Creditor with the Principal Debtor(Section 135): Where the
creditor, without the consent of the surety arrives at a settlement with the principal debtor,
or promises to give him more time, or promises not to sue him by a contract between the
creditor and the principal debtor, the surety is absolved from the liability, unless the
surety assents to such contract.
Where, however, a contract to give time to the principal debtor is made by the creditor
with a third person, and not with the principal debtor, the surety is not discharged.
For example C, the holder of an overdue bill of exchange drawn by A as surety for B, and
accepted by B, contracts with M to give time to B. A is not discharged.
For example- B contracts to build a ship for C for a given sum, to be paid in installments
as the work reaches certain stages. A becomes surety to C for B’s due performance of the
contract. C, without the knowledge of A, prepays the last two installments to B. A is
discharged by the prepayment.
8. By Loss of Security: If the creditor loses, or without the consent of the surety, parts
with such security, the surety is discharged to the extent of the value of the security. It is
immaterial whether the surety was or is aware of such security or not. For instance, C
advances to B, his tenant, Rs 2,000 on the guarantee of A. C has also a further security for
Rs 2,000 by a mortgage of B’s furniture. C, however cancels the mortgage. B becomes
insolvent and C sues A on his guarantee. A is discharged from liability to the amount of
the value of the furniture.
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CONCLUSION
A Contract of Guarantee is a tripartite contract including three parties i.e. the principal
debtor, creditor, and the surety and must follow all the essentials of a valid contract for its
validity. Continuing Guarantee is a type of contract of guarantee which extends to a series
of transactions. A continuing guarantee includes series of transactions and the surety is
liable for each of them but it can be revoked through eight ways. The continuing
guarantee can be revoked as to future transactions only and the surety will still be liable
for the past transaction.
So, we can conclude that continuing guarantee is an essential part of contract and it
cannot be revoked but to certain exceptions.
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