Revocation Of Continuing Guarantee 135q15

PROJECT WORK ON REVOCATION OF CONTINUING GUARANTEE

ANIKET RANJAN

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CONTENT 1. INTRODUCTION___________________________________________04 2. GUARANTEE______________________________________________05 3. CONTINUING GUARANTEE_________________________________06 4. REVOCATION OF CONTINUING GUARANTEE_______________07-09 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. Guarantee is an undertaking to answer for the payment or performance of another person's debt or obligation in the event of a default by the person primarily responsible for it.1 A “Contract of Guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default.2 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. There are two types of guarantee: I.

Specific Guarantee.

II. Contuining 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. A guarantee which extends to a series of transactions is called a “Continuing Guarantee”.3 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

A continuing guarantee can be revoked in any of the following ways:

1. By Notice (Section 130):At any time, a continuing guarantee about future transactions can be revoked by the surety by notice to the creditor.No specific time has been provided under contract act for giving notice in respect of revocation of continuing guarantee. Therefore, such notice can be given at any time. Contract law provides no specific manner for giving a notice about revocation of continuing guarantee. Therefore, it is left for parties to choose the manner for giving such notice. It is essential that notice about revocation of continuing guarantee should be given by surety. It is also necessary that notice about revocation of continuing guarantee should be given to creditor. As far as revocation of continuing guarantee through notice is concerned, an important point is that guarantee should be about future transaction. 2. By Death of Surety (Section 131):In case of a continuing guarantee if the surety dies the contract is automatically revoked even if no notice of death of surety is given. But, under Section 131 of the Act the surety is liable for the existing transactions to which he had given a guarantee before his death. For example- Mulla guarantees the payment of Rs. 500 to Asraf a book seller for any book that he supplies to Braj from time to time. Asraf supplies to Braj a book whose price is Rs. 200. After this transaction Mulla dies. After the death of Mulla, Asraf supplies another book priced at Rs. 100. Mulla’s representative is liable only for the payment for the book of Rs. 200 to Asraf and not for the book of Rs. 100 because that book was supplied after his death. As far as revocation of continuing guarantee through surety’s death is concerned, an important point is that guarantee should be about future transaction. Revocation of continuing guarantee through surety’s death greatly depends uponnature of guarantee-contract. If it is incorporated into guarantee-contract that continuing guarantee will be revoked with the death of surety, then continuing guarantee is revoked at the surety’s death. Contrary to this, if such condition is not 6|Page

incorporated into the guarantee-contract, then continuing guarantee remains continued even after death of surety.

BY OTHER MODES 3. BY novation(Section 64):Novation, i.e., entering into a fresh contract, either between the same parties or between other parties, constitutes another mode of discharging a surety from the liability. If the parties to a contract (of guarantee) agree to substitute it with a new contract, the original contract need not be performed and so the surety stands discharged with regard to the old contract. For the surety, too, a fresh contract would have to be drafted. 4. By variance in the of the contract between debtor and creditor

(Section.133):Discharge of surety by variance in of contract any variance made without the surety’s consent, in the of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. For example- A becomes surety to C for B’s conduct as manager in C’s bank. Afterwards, B and C contract, without A’s consent, that B’s salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to over-draw, and the bank loses a sum of money. A is discharged from his suretyship by the variance made without his consent, and is not liable to make good this loss. 5. ByRelease or discharge of principal debtor(Section 134):The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. For example: A contracts with B to build a house for B for a fixed price within a stipulated time, B supplying the necessary timber. C guarantees A’s performance of the contract. B fails to supply the timber. C is thus discharged from his surety.

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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.

7. Creditor’s Act or Omission Impairing Surety’s Eventual Remedy (Section 139):If the creditor commits any act, which is inconsistent with the rights of the surety, or fails to perform any act that his duty to the surety requires him to do, such that the eventual remedy of the surety himself against the principal debtor is impaired; the surety is 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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