CONTINUING GUARANTEE

CONTINUING GUARANTEE (Section-129)

 A guarantee which extends to a series of transactions, is called a “continuing guarantee”.

 Applies to all the transactions entered into by the principal debtor until it is revoked by the surety.

 Not confined to a single transaction, it applies to a series of separable, distinct transactions.

 Continuing guarantee is concerned with continuing transactions and not the time period of such

transactions.
 ILLUSTRATION

A gave his house to B on a lease for ten years on a specified lease rent. C guaranteed that B, would fulfill his obligations.

After seven years B stopped paying the lease rent. ‘A sued him for the payment of rent. C then gave a notice revoking his

guarantee for the remaining three years.

Here C would not be able to revoke the guarantee.

The lease for ten years is an entire indivisible consideration and cannot be classified as a series of transactions and

hence is not a continuing guarantee

 EASTERN BANK LTD V PARTS SERVICES OF INDIA LTD, (AIR 1986 CAL 61)

 This case dealt with the situation where both amount and the period of guarantee were limited.

 The court held that a continued guarantee could be limited to a period (as one year in this instant case).

 It rightly emphasized that "continuing guarantee speaks of continuing transactions, not the period off such transaction".

 The court took into consideration a letter on the basis of which the guarantee was written.

 The case involved a point of law of limitation which was crucially inter-woven with the terms and nature of the guarantee.
 KAY V GROVES((1829) 6 BING 276)  

 G provides guarantee in following terms “I hereby agree to be answerable to K for the amount of five sacks of flour to be

delivered to T, payable in one month."

 Five sacks were actually supplied and T paid for them. Further supplies were made during the same month, for which T failed

to pay.

 The surety was then sued

 The court held that it was not a continuing guarantee and, therefore, there was no liability for parcels delivered for

various subsequent periods.

 REVOKATION OF A CONTINUING GUARANTEE

 A continuing guarantee is said to be revoked as regards to the future transactions to

be entered between the debtor and the creditor, in the following ways:

1. By notice of revocation by the surety (Section 130)

2. By death of the surety (Section 131)

 BY GIVING A NOTICE (Section-130)

 A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the

creditor.

 Continuing guarantees can be revoked by giving notice to the Creditor but this applies only to future

transactions.

 By giving a notice the surety cannot waive off his responsibility and still remains liable for all the

transactions that have been placed before the notice was given by him.
 ILLUSTRATION

 A guarantees to B to the extent of Rs. 10,000, that C shall pay for all the goods bought by him during the

next three months.

 B sells goods worth Rs. 6,000 to C. A gives notice of revocation, C is liable for Rs. 6,000. If any goods

are sold to C after the notice of revocation, A shall not be, liable for that.

 If the contract of guarantee includes a clause that a notice of a certain period of time is required before the

contract can be revoked, then the surety must comply with the same as said in  Offord v Davies (1862).
 OFFORD V DAVIES (1862). 12 CBNS

Facts–

 The defendant, agreed to secure money to advance to a third party on discount for the space of twelve calendar months.

 The defendant subsequently broke their promise and did not pay the plaintiff the sums of money that were required by the agreement.

 The plaintiff became liable to pay the bills of exchange, not paid for by the defendant, and this caused the plaintiff to lose the money that would have been

earned had the bills been paid at the correct time.

 The defendants claimed that they had withdrawn their guarantee for the money before the first payment and therefore were not required to advance the money.

 The plaintiff argued that the defendant could not withdraw the offer and that they had not accepted the defendant’s withdrawal.

 The court held that this offer could be withdrawn within the specified time period, which in this case was twelve months unless the agreement had been acted

upon. The court also held that the withdrawal of such an offer should be communicated effectively, otherwise this would not be valid and the opposing party

would still be capable of accepting the offer.

 BY DEATH OF SURETY (Section 131)

 Revocation of the continuing guarantee in respect to the transactions taking place after the death of surety

 Legal representatives will continue to be liable for transactions entered into before his death.

 The estate of deceased surety is, however, liable for those transactions which had already taken place

during the lifetime of the deceased.

 DURGA PRIYA CHOWDHURY V. DURGA PADA ROY ((1928)ILR55CAL154)

 The surety had guaranteed the due collection and payment of the rent of Creditor’s Zamindari by the Principal Debtor to the

extent of Rs 600 in consideration of employment of Principal debtor as agent.

 Surety dies, The Principal debtor defaulted and the creditor sued him and legal representatives of the surety.

 Surety bond contained the additional stipulation that the surety’s heir and legal representative would be bound by the terms

of the security bond in the same way in which he was bound by them.

 Guarantee was not revoked even after the death of the surety and his heirs were liable for any act of the debtor during his

continuance in the service.