continuing guarantee

8/11/2019 Continuing Guarantee

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INDEX

1. Introduction

2. Definition of continuing guarantee

3. Liability of guarantordepends on terms of contract

4. Difference between warranty and guarantee

5. Leading case

6. Revocation of continuing guarantee

As to future transactions

By notice

Whether the surety can wavie his rights

Revocation of bond in court proceedings

7. Deed for continuing guarantee

8. Endnotes

9. Bibliography


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Continuing guarantee

Introduction

Continuing guarantee refers to a guarantee in which the guarantor will not be

liable unless a specified event occurs. This guaranty relates to a future liabilityof the guarantor under successive transactions that either continue the

guarantors liability, or from time to time renews it, after it has been satisfied is

called a continuing guarantee.

A continuing guarantee 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 guarantee is a contract clause that provides that the individualsigning the credit application on behalf of the company personally guaranties

that the company will pay the supplier. The continuing guarantee is typically set

forth in the credit application section of a purchase order. When goods are

delivered by a supplier to a purchaser without immediate payment, the supplier

is in effect extending credit to the supplier. This is why many purchase orders

contain credit applications. Continuing guaranties are a useful tool for suppliers,

but can be detrimental to the unwary employee, officer or owner of the

purchasing company, as evidenced.

A guarantee for a future performance may either be restricted to a debtor or

liability of a certain amount to be incurred once for all, or it may be continuing .

if liability extend but to a single transaction it is specific.


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Section 129 of Indian contract act:-

Continuing guarantee

A guarantee which extend to the series of transaction is called a continuing

guarantee . the guarantee to be a continuing guarantee must refer to a series of

the transaction of which, when the guarantee is given, some are unknown and

indefinite or not certain to come into existence.1where the guarantee has been

given for the performance of a definite arrangement which has already come

into existence and is not contingent and the consideration for which is not a

variable as a result of future dealing between parties, the contract is not one of

continuing guarantee .whether or not the transaction is continuing guarantee isto be determined by the term of the document . It is mainly a question of

construction .2

The guarantee which extend to series of transaction is called continuing

guarantee .since appellantrespondent no.2 stood as guarantor for cash credit

facility in favour of the defendant no.1-upto the extent of rs.2,50,000/-and that

was extend to series of transaction and over drawls made by the defendants no.1

principal debtor has overdrawn and , there of the appellant will be liable to the

extent of all the transaction including over drawls made beyond the extent of

Rs.2,50,000/-.3

The respondent in connection with the transaction executed in favour of

Stephen a guarantee in writing .the aggregate liability there under did not under

any circumstance exceed the sum of Rs18.00,000. The principal debtor failed to

pay. Suit was instituted by the appellants against the respondent who had failed

to satisfy any part of the demand made upon them . the privy council held that

upon its true construction the guarantee in question not in fact a continuingguarantee but one for fixed sum and question was not in fact a continuing

guarantee but one for a fixed sum and that the appellant were entitled to

judgement. Against the respondent with out extinguish remedies under the the

mortgage against the principal debtor.4

A limitation of the amount risked by the surety does not prevent a guarantee

being continuing so as to cover to the extent named the balance ultimately due

from the debtor. But, if the limiting word s define a particular transaction

contemplated , the guarantee is not continuing .


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In Bansidhar v. Government of Bengal5:-

A person became surety for a treasure of the collection .each year accounts were

examined a balance was struck and certified to be correct . on each occasion a

new bond was executed ,but the old bonds were neither cancelled nor given

back. subsequently ,on enquiries made, the treasure was found to have

embezzled moneys during each year. It was held that the guarantor was liable

under the old bond ,and that there had no innovation .

Nature of continuing guarantee :-

In a continuing guarantee a series transaction are guarantee .the guarantee of

fidelity of a person appointed as the clerk in bank does not amount to continuing

guarantee .this is because what is guarantee cannot be described as a series of

transaction . The peculiarity of a continuing guarantee is that it come to end by

the death of the surety as regard subsequent transaction originally covered by

the guarantee .

Liability of guarantordepends on terms of contract :-

A guarantors liability depends upon the terms of his contract. A continuing by

the guarantee s different from an ordinary guarantee .there is also a difference

between a guarantee which stipulates that the guarantor is liable to pay only

demand by the creditor , and the guarantee which does not contain such

condition, further depending on the terms of guarantee , the liability of a

guarantor may be limited to particular sum, instead of the liability being to the

same extent as that of the principal debtor . The liability to pay may arise , on

the principal debtor and the guarantor , at same time or at principal debtor , but

still enforceable against the guarantor, at the same time or different time . A

claim may be even time barred against the principal debtor, but still enforceable

against the guarantor. The parties may agree that the parties liability of the

guarantor shall arise at later point of time than the principal debtor.

But in the present case, the guarantee deeds specifically state that the guarantors

agree to pay satisfy the bank on demand and interest will be payable on


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demand ,the limitation begins to run when the demand is made and the

guarantor commits breach by not complying with the demand.6

Difference between warranty and guarantee?

A warranty is a promise to replace or repair an item if the item does not satisfy

the terms of the warranty.

A guarantee is a promise to return the money paid to purchase an item if the

item does not satisfy the terms of the guarantee.

A guarantee is a document to protect consumer rights. It is a promise by a sellerwith a buyer for complete replacement of the item/ article or product; usually

guarantee is valid for a fixed period of time. It has a legal status, even if we do

not pay for or it was offered free of cost by a seller.Warranty is also a document

that protects consumer rights. It is more or less like insurance policy for that we

have to pay certain amount to come into legal contract. So on the basis of this

legal bond the company can be taken to court if it does not bound what has been

agreed in the warranty document. Warranty covers only repair of the article.

Guarantee is more in manufacture, Warranty is more in distribution andreselling parts; for example, a company manufacture a scooter is liable for

manufacture guarantee, on the other hand, some importer or distributor resell

the products will use warranty .

A guarantee is giving you their word (kinda like an empty promise.) A warranty

is in writing that they will correct any problem within the scope of the warranty.

Take a warranty over a guarantee anytime. A warranty is a pledge or a promise

given by the grantor that the product, item, or whatever it is that they re

warranting, is designed to be serviceable for its intended use, and was properlyproduced according to standards considered "usual and normal." A guarantee is

a warrant of serviceability that the grantor makes that the item will perform its

intended purpose for a given length of time without failing. If it fails to function

properly for its intended purpose, the grantor usually makes a pledge of repair,

or replacement.


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Leading case

Bank Of India vs Aiyars Advertising And Marketing7... on 25 November,

1993

The facts are as follows : By and pursuant to an application made by the 1st

defendant company, on 19th November 1973, the plaintiffs granted to the 1st

defendant company a Cash Credit Facility in a sum of Rs 20 lakhs with interest

thereon. The amount due under said facility were guaranteed by defendants 2 to

8 under a Deed of guarantee dated 19th November 1973, and by defendant No.

9 under another Deed of guarantee dated 19th November, 1973. The suit is for

recovery of the amounts due under the said Cash Credit Facility against the 1st

defendant as the Principal Debtor and against the other defendants as

guarantors. 3. After the date of the filing of the suit, by an order dated 30th

April 1976 the 1st defendant has been ordered to be wound up and the Official

Liquidator, High Court, Bombay is appointed as the Liquidator of the 1st

defendant Company. The plaint has therefore been amended on 22nd September

1976 and the Official Liquidator has been brought on record. 4. The original

concerned, there is no evidence before the Court. These Issues would in any

case have had to be answered against the Official Liquidator. Except for slight

variations the defences taken by all the other defendants are common. The

defendants have all averred that the Demand Promissory Note, the Letter of

Continuing Security and the Letter of guarantee were on printed forms. They

aver that at the time that they endorsed the Promissory Note in favour of the

plaintiffs and executed the Letter of Continuing Security and the Letter of

guarantee, there were blanks in the said Promissory Note and the said Letters.

The defendants aver that at time that they executed the Letter of guarantee on

19th November, 1973, the amount and the rate of interest were not filled in and

that the same were left blank. Thus execution on 19th November, 1973 is

admitted. The defendants aver that the amount and rate of interest were

subsequently filled plaintiffs. The defendants aver that the signatures of

defendants on the Promissory Note, Letter of Continuing Security and the Letter

of guarantee were obtained by the plaintiffs prior to the filling in the blank

places. All the defendants aver, in substance, that under the Deed of Charge and

Hypothecation, the Book debts of the 1st defendant are charged and

hypothecated in favour of the plaintiffs. The defendants aver that book debts of

app. Rs. 46 lakhs were available. The defendants aver that under Clause 4 of the

Deed of Charge, on default of 1st defendant the plaintiffs were given a right, at


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As to future transactions:-

The expression as to future transactions to implied that the section is limited

to cases where the series of transactions ,distinct and separate from one another,

is contemplated .It is otherwise in the case of entire consideration.

A material change in the guaranteed situation may justify a

revocation . And , in the absence of a contract to the contrary ,as provided by

the section a continuing guarantee may, at any time , be revoked ,as to future

transactions by notice to the creditor.

By notice:-

A person who have entered to a contract of guarantee can revoke at the same by

giving notice to other party .8when a continuing guarantee is cable of

revocation by notices, there must be distinct notice of withdrawal and mere

denial of the guarantee by the surety when impleaded as a defendant cannot

operate as a notice.9 A notice revoking a continuing guarantee just a day

before the performance of contract not illegal.10

Whether the surety can wavie his rights:-

The surety can wavie his right available to him under the various provision of

chapter viii of the act. It is line with long established precedent that any one

have a right to waive advantage offered bylaw.

As a general rule , any person can enter into a binding contract

to waive the benefits conferred upon him by an act of parliament or, as it is said,

can contract himself out of the act, unless it is shown that such an agreement is

in the circumstance of the particular case contrary to public policy .

Revocation of bond in court proceedings-

It has been held by the Bombay High Court that this section does not apply to a

surety bond required by the court on the appointment of a guardian of the

property of minor.11Similarly, the weight of authority is for the proposition that

the section can have no application to surety bonds given in probate and

administration proceedings.12


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DEED OF CONTINUING GUARANTEE TO A BANK

THIS DEED of guarantee is made on the ____ day of _____

BETWEEN

M/s______ Pvt. Ltd. having their offices at _______ (hereinafter called "the

Surety" which expression

shall unless such an interpretation is repugnant to the context, include its

successors and assigns) of the

first part

AND

The ____ Bank, having its head-office at _____ (hereinafter called "the Bank"

which expression shall

unless such an interpretation is repugnant to the context, include its successors

and assigns) of the

second part.

AND

M/s_______, a partnership firm having their office at ______ (hereinafter

referred to as the "Principal

Debtor" which expression shall unless such an interpretation is repugnant to the

context, include its

successors and assigns) of the third part


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the Suretys representatives. It shall not be affected by any change in the

constitution of the Bank or in

the constitution of the Principal Debtor.

4. That any account settled between the Bank and the Principal Debtor shall be

conclusive evidence

against the Surety of the amount due on the said account and shall not be

questioned by the Surety.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the

date first above written.

Bank Surety Principal Debtor

________________

________________

________________

Witnesses:


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End note :

1. Kanti chand v. Udaya bhansha , A.I.R.1925 Nag .7 at.p p.9:80

I.C.349:22 N.I.R.158

2. Hansan Ali v.waliullah,A.I.R1930 All.730 at p.731:1971

3. Bishwanath Agarwala v. State bank of India ,2005(30)AIC 709 at

p.713(jhar)4. Alfred Ernest Mitchel v. Carr Lazarus Philips,A.I.R 1931 p.c. 224

at pp.224-25.

5. Bansidhar v. Government of Bengal 9B.L.R. 364 :14M.I.A.86.

6. Syndicate bank v. Chanveerappa Beleri,A.I.R2006 s.c.1874 at

pp.1880-81

7. Bank Of India vs Aiyars Advertising And Marketing ... on 25

November, 1993

8. Sherumal v.L.Greenfield, A.I.R.1930 sind 316 at p. 317:129I.C897

9. Bhikabhai v. Bhai Bhuri , ILR 27 418:BOM.L.R.396

10.Wali Muhammad v. Ganpat , A.I.R.1931All.243 at p.244:I.L.R52

All1014:132I.C813:1931A.L.J74.

11.Bai Somi v. Choksi Ishwaradas , I.L.R19 Bom.245

12.Ma Myo Zim v. Ma Pwa , A.I.R, 1921 U.B. 25 at

p.26:36I.C.1000;sudbraya v. Ramgammal I.L.R., 28 Mad.

161:Kandhaya v. Manki , I.L.R. 31 All.56:


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Bibliography

Books

1. Law of Contracts 1&2- G.C.V. Subba Rao

2. Contracts- R.K.Bangia

3. Indian Contract Act and Specific Relief ActPollock & Mulla

4. The Indian contract act ,1872 and tenderSanjiv Rows

Websites

www.indiankanoon.com

wiki.lawdepot.com/wiki/Continuing_Guarantee

www.indianlawcases.com

www.vakilno1.com
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