Guarantees play an important role in contracts, especially in business transactions where one party assures the other about the performance or repayment by a third party. Under the Indian Contract Act, 1872, Section 129 deals specifically with continuing guarantees. Unlike a one-time or simple guarantee, a continuing guarantee covers a series of transactions and creates ongoing responsibility for the surety. This article breaks down the concept of continuing guarantee, its revocation under Section 131, and how it differs from a simple guarantee, using examples and case laws.
What is a Continuing Guarantee?
A continuing guarantee is a type of guarantee that applies to a series of transactions over time. It means the surety promises to be responsible not just for one specific transaction but for multiple transactions that may happen in the future between the principal debtor and the creditor.
For example, if A agrees to be liable for any rent collected by C on behalf of B up to ₹5,000, it is a continuing guarantee. Similarly, if A promises to guarantee any tea B supplies to C from time to time, A remains liable for the unpaid amount up to a fixed limit, even if the supply continues beyond one transaction.
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However, not all guarantees are continuing in nature. If a guarantee is given for a one-time transaction, like for five sacks of flour, and that transaction ends, any further supply is not covered unless explicitly stated. As held in Nottingham Hide Co vs Bottrill (1873), the court must look at the facts and intentions behind the contract to decide whether a guarantee is continuing.
Revocation of Continuing Guarantee – Section 130 & 131
According to section 130 of the Act, A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor
Further, according to Section 131, the death of the surety automatically revokes a continuing guarantee for future transactions, unless the contract states otherwise. This means the surety’s legal heirs won’t be liable for new transactions after the death.
In Durga Priya v. Durga Pada (1928), the Calcutta High Court emphasized that each contract must be carefully reviewed to determine whether such revocation applies or if the guarantee survives even after the surety’s death.
Difference Between Continuing and Simple Guarantee
A continuing guarantee can be cancelled either by giving notice to the creditor or automatically on the surety’s death (if the contract allows it). On the other hand, a simple guarantee is for a single transaction and generally ends when that specific promise is fulfilled. In a continuing guarantee, the surety’s liability can last over a long period and for multiple transactions, while in a simple guarantee, the surety’s responsibility ends as soon as the debt is paid or the obligation is completed.
Judicial interpretation
In Gerrad v. James, it was held that even if a company director guarantees a contract that is beyond the powers of the company (ultra vires), the director may still be held personally liable. Similarly, in Jagannath v. Shivnarayan, the Bombay High Court clarified that if a principal debtor is discharged by law, the surety’s liability may still continue.
Concluding Remark
The concept of continuing guarantee is crucial in contracts that involve ongoing dealings, as it ensures the creditor is protected throughout multiple transactions. While the surety’s liability in such cases can be long-lasting, the law also provides ways to limit it, such as revocation by notice or upon the surety’s death. The difference between continuing and simple guarantees lies in the duration and scope of liability. Through landmark judgments, Indian courts have clarified that a surety’s responsibility is not just symbolic—it is binding and enforceable unless specifically limited by the contract. Understanding these principles helps in drafting more precise and legally sound contracts in the business and financial world.
