The agreements or Contracts between various parties are framed and validated by the Indian Contract Act. Contract Act is one of the most central laws that oversees and regulates all the business wherever an agreement or deal is to be reached. The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An agreement enforceable by law”. In other words, it can be said that a contract is anything that is an agreement and enforceable by the law of the land.

Continuing Guarantee

Section 129 of the Indian Contract Act, 1872 defines continuing guarantee. A guarantee which extends to a series of transactions is called a continuing guarantee. It is not confined to a single transaction. In this guarantee, the surety is liable to pay the creditor for all the transactions. However, it is very important to find out if the guarantee is a continuing one or not.

The main feature of a continuing guarantee is that it is applicable to a series of separable, distinct transactions. Therefore, when a guarantee is given for an entire consideration, it cannot be called as a continuing guarantee.

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.

Modes of Revocation of Continuing Guarantee

The circumstances in which the continuing guarantee can be revoked are as follows :

1. By Notice: The continuing guarantee may be revoked at any time by the surety as to future transactions by due notice to the creditor [section 130]
2. By Death: Death of the surety operates as a revocation of the continuing guarantee with reference to the future transactions unless the contract otherwise provides, [section 131]
3. By Variation in the Contract: If any variation is done in the terms of the contract of guarantee between the creditor and the principal debtor without the knowledge of the surety, the contract of guarantee is revoked.
4. By Novation: The/contract of guarantee will be revoked when the parties agree to substitute a new ‘contract for the old contract or rescind or alter the old contract, [section 133]
5. By Creditors Act of Omission: Any omission by the creditor which repairs the eventual remedy of the surety against the debtor amounts to revocation of the contract of guarantee.

Illustrations

1. B, in consideration that C will employ D in collecting the rents of C’s zamindari, promises C to be responsible, to the amount of 10,000 rupees, for the due collection and payment by D of those rents. This is a continuing guarantee.
2. B a guarantees payment to C, a tea-dealer, to the amount of $ 100, for any tea he may from time to time supply to D. C supplies D with tea above the value of $ 100, and D pays C for it. Afterward, C supplies D with tea of the value of £ 200. D fails to pay. The guarantee given by B was a continuing guarantee, and he is accordingly liable to C to the extent of $ 100.
3. A guarantees payment to B of the price of six 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. Afterward, B delivers three 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.
4. X guarantees to Y, to the extent of 20,000 rupees, that Z shall pay all the bills that Y shall draw upon him. Y draws upon Z, Z accepts the bill. X gives notice of revocation. Z dishonors the bill at maturity. X is liable upon his guarantee.

Case Laws

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, the 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.

Conclusion

It can be concluded that a continuing guarantee can be revoked either through surety’s death or through notice to a creditor or only when a guarantee is about some future transaction. In absence of guarantee about some future transaction, a continuing guarantee cannot be revoked through surety’s death or through notice to a creditor.