Continuous Guarantee
Chapter VIII, Section 129 to Section 131 of the Indian Act, 1872 establishes the provisions regarding the "Continuing Warranty or Guarantee " Section 129 of the Indian Contract Act defines the Continuing Warranty. Sections 130, 131 and section 133 of said Law deal with the revocation of the continuous guarantee. The Continuous Guarantee can be revoked by notification, by the death of the guarantee and by variation in the terms of the contract between the debtor and the creditor.
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A Guarantee that extends to a series of transactions is called a "Continuous Guarantee". (Sec. 129). A guarantee can be an ordinary guarantee or a continuous guarantee. In the case of an ordinary guarantee, the guarantee is responsible only with respect to a single transaction, but in the case of a continuous guarantee, the guarantee is responsible with respect to any of the successive transactions that come within its scope.
Therefore, in consideration of the fact that B will employ C in the collection of B's zamindari rent, he promises that B will be liable, in the amount of 5,000 rupees, for the collection and payment by C of those rents. This is an ongoing guarantee.
But deciding whether a guarantee is limited to a particular transaction or extends to a series of transactions is not always easy. In difficult cases, the proper course is always to determine the intention of the parties and the intention is best determined by observing the relative position of the parties at the time of the instrument
Revocation of the continuous guarantee.
An ongoing warranty or Guarantee can be revoked in the following ways.
(a) Revocation of the Continuing Guarantee by notification to the Creditor (Section.130)
(b) Revocation of continuing guarantee by surety's death (Section.131)
(c) Due to variation in the terms of the contract between debtor and creditor. (Section.133)
(A) Revocation of the Continuing Guarantee by notification to the Creditor (Section 130)
A continuous guarantee can, at any time, be revoked by the guarantee regarding future transactions by notifying the creditor. (Sec. 130).
The Madras High Court ruled that as long as the liability of the primary debtor is available, the continuing guarantee will also be co-extensive. [Tamil Nadu Industrial Investment Corporation Ltd., Chennai v. M / s Sundarsanan Industries, Chennai, (2008) (3) L.W. 714 (Mad.)]
In Sita Ram Gupta v. Punjab National Bank et al., (2008) (5) S.C.C. 711, where the appellant clearly agreed that the guarantee that he had entered into with the Bank was a continuous guarantee and the same must remain in operation for all subsequent transactions. The Supreme Court held that the appellant could not claim benefits under section 130 of the Contract Law, since he had waived the benefit by signing a guarantee agreement with the Bank.
Example:
(a) A, in consideration of B's discount at A's request, a bill of exchange for C, guarantees to B, for twelve months the overdue payment of all those invoices in the amount of 5,000 rupees, B discount invoices for C in the measure of 2,000 rupees. Then, after three months, A revokes the warranty. This revocation releases A from all liability to B for the subsequent discount. But A is subject to B for 2,000 rupees, by default of C.
(b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills that B shall draw upon him. B draws upon C, C accepts the bill. A gives notice of revocation. C dishonors the bill at maturity. A is liable upon his guarantee.
(B) Revocation of continuing guarantee by surety's death (Section 131) :
The death of the guarantee operates, the absence of any contract to the contrary, as a revocation of a continuous guarantee, regarding future transactions (Sec. 131). A warranty representative is responsible for all warranty transactions prior to your death. When the consideration of the continuous guarantee is indivisible, it cannot be revoked even by the death of the guarantee and its assets remain responsible for future obligations. [Hastan Ali v. Wali Ullah, (1930) 28 All. L.J. 127].
(C) Due to variation in the terms of the contract between debtor and creditor. (Section 133)
Article 133 of said Law works as follows:-
Discharge of the guarantee for variation in the terms of the contract Any variation made without the consent of the guarantee, in the terms of the contract between the main debtor and the creditor, discharges the guarantee regarding the transactions after the variation.
Illustrations
(a) C contracts loans for B 5,000 rupees on March 1. A guarantees the refund. C pays Rs 5,000 to B on January 1, A is released from his liability, as the contract has been varied, since C could sue B for the money before March 1.
(b) C agrees to appoint B as its employee to sell goods at an annual salary, once A assures C of properly accounting for the money received by him as such employee. Then, without the knowledge or consent of A, C and B agree that B must be paid a commission for the goods sold by him and not for a fixed salary. A is not responsible for B's subsequent misconduct.
(c) A becomes collateral for C for B's conduct as manager in C's bank. Subsequently, B and C contract, without A's consent, that B's salary will be increased and that he will be responsible for a quarter of overdraft losses. B allows a customer to overdraw and the bank loses a sum of money. A discharges its bond for the variation made without your consent, and is not responsible for compensating this loss.
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