According to Section 129, “A guarantee which extends to a series of transactions Is called a continuing guarantee.” For example-
i)A, in consideration that B will employ C in collecting rents of B’s zamindari, promises B to be responsible to the amount of 5000 rupees for the due collection and payment by C of those rents. This is a continuing guarantee.
ii) A guarantees payment to B, a tea dealer, to the amount of Rs. 100 for any tea he may from time to time supply to C. B supplies C with tea of more than the value of Rs. 100 and C pays B for it. Afterwards B supplies C with tea to the value Rs. 200. C fails to pay. The guarantee given by A was a continuing guarantee, and he is accordingly liable to B to the extent for Rs. 100.
iii) A guarantees payment to B of the price of five 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. Afterwards B delivers four sacks to C, which C does not pay for. The guarantees given by A was not a continuing guarantee, and accordingly he is not liable for the price of the four sacks :S. 129.
Difference Between Ordinary and Continuing Guarantee:- The distinction between an ordinary and a continuing guarantee is that under the former, the surety is liable only in respect of a single transaction, whereas under the latter, the surety is prima facie liable in respect of any of the successive transactions which come within its scope.
The question whether a guarantee is continuing or not must be ascertained by looking to the intention of the parties and the surrounding circumstances. As said in one English case, the Court has power “ not to alter the language, but to fill up the instrument where it is silent and to apply it to the subject matter to which the parties intended it to be applied.”
How Can a Continuing Guarantee be Revoked?
There are two ways in which a continuing guarantee can be revoked-
1. BY Notice:- According to Section 130 , a continuing guarantee may at any time, be revoked by the surety, as to future transactions, by notice to the creditor, For Examples
i) A, in consideration of B’s discounting at A’s request, bills of exchange for C, guarantees to B, for twelve months, the due payment of all such bills to the extent of 5000 rupees. B discounts bills for C to the extent of 2000 rupees. Afterwards, at the end of three months, A revokes the guarantee. This revocation discharges A from all liability to B for any subsequent discount. But A is liable to B of the 2000 rupees on default of C
ii) 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 draw upon C. C accepts the bill. A gives notice of revocation. A dishonours the bill at maturity. A is liable upon his guarantee.
2. BY the Death of Surety:- According to S. 131, the death of the surety operates (in the absence of any contract to the contrary) as a revocation of continuing guarantee, so far as regards future transactions.
Future Transaction:- It is significant to note that a continuing guarantee can be revoked as to the future transactions only.
Courtesy:- Legal Point Foundation