INDEX

1. Introduction
2. Definition of continuing guarantee
3. Liability of guarantor depends 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













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 liability
of 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 individual
signing 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.




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.
1
where 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 is
to 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 appellant respondent 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 continuing
guarantee 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 .


In Bansidhar v. Government of Bengal
5
:-
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 guarantor depends 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
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 seller
with 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 and
reselling 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 properly
produced 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.


Leading case
Bank Of India vs Aiyars Advertising And Marketing
7
... 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
the risk and the expenses of the 1st defendant as Attorneys for and in the name
of the 1st defendant
Manager and Director of defendant No. 1 and that this defendant should be
relieved from the guarantee. It is averred that these notices in substance and
effect these were one months notice of termination of the guarantee. It is
averred that by the letters of 14th May, 1974, the 6th defendant had terminated
the guarantee. It is averred that with effect from 1st July, 1974 this defendant
ceased to be liable to the plaintiffs under the guarantee. It is averred that on 30th
June, 1974 in the Cash Credit Account, the 1st defendant had a debit balance of
Rs. 19,66,881-71 ps. It is averred that after 30th June, 1974 the plaintiffs
permitted defendant No. 1 to continue to operate the said account. It is averred
that after 30th June, 1974 the plaintiffs lent and advanced large amounts to
defendant No. 1. It is averred that this defendant is not liable for the amounts
lent and advanced by the plaintiffs to the 1st defendant after 30th June, 1974. It
is averred that after 30th June, 1974, defendant No. 1 has re-paid to the
plaintiffs amounts exceeding Rs. 19,66,881-71 ps. and interest thereon

130. 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.
Illustrations
(a) 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 5,000 rupees. B discounts bills for C to the extent of 2,000 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 for the 2, 000 rupees, on default of C.
(b) A guarantees to B, to the extend 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.


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 .
8
when 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.
11
Similarly, 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









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
WHEREAS the Principal Debtor has an account with the Bank, and the Bank
shall make advances to and
for the accommodation of the Principal Debtor.
AND WHEREAS the Surety, hereby guarantees to the Bank the payment of all
sums of money that may
be due from the Principal Debtor from time to time on the general balance of
the said account subject to
the covenants hereinafter contained.
NOW THIS DEED WITNESSESETH and the parties hereto mutually agree as
follows:
1. That the maximum liability of the Surety shall at all time be limited to the
sum of Rs. _____ with interest
thereon @___% per annum. The guarantee hereby given shall be a continuing
guarantee. It shall not be
considered satisfied either wholly or partially by the payment at any time
hereafter of any sum of money
for the time being due upon such general balance as agreed. However, the same
shall, subject to the
aforesaid limit, be a security for all future sums at any time due hereafter.
2. Any neglect or forbearance on the part of the Bank in enforcing payment of
any moneys against the
Principal Debtor, which is intended to be hereby secured or granting of time for
the payment thereof shall
not in any way release the Surety of his liability under this guarantee.
3. That the guarantee herein before contained shall not be affected by the death
of the Surety unless
within two calendar months of the death of the Surety a notice in writing has
been given to the Bank by
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:




















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. 317:129
I.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:













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 Act Pollock & Mulla
4. The Indian contract act ,1872 and tender Sanjiv Rows

Websites
www.indiankanoon.com
wiki.lawdepot.com/wiki/Continuing_Guarantee
www.indianlawcases.com
www.vakilno1.com