A ‘contract of guarantee‘ is a contract to perform the promise, or discharge the liability, of a third person in case of his default.
- 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’.
- A guarantee may be either oral or written.
129. ‘Continuing guarantee’—
A guarantee which extends to a series of transactions, is called a ‘continuing guarantee’.
(a)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 rents. This is a continuing guarantee.
(b)A guarantees payment to B, a tea-dealer, to the amount of £ 100, for any tea he may from time to time supply to C. B supplies C with tea of above the value of £ 100, and C pays B for it. Afterwards, B supplies C with tea of the value of £ 200. C fails to pay. The guarantee given by A was a continuing guarantee, and he is accordingly liable to B to the extent of £ 100.
(c)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 guarantee given by A was not a continuing guarantee, and accordingly he is not liable for the price of the four sacks.
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.
(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 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 dishonours the bill at maturity. A is liable upon his guarantee.
131. Revocation of continuing guarantee by surety’s death—
The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.