Kinds of Guarantee and Revocation of Continuing Guarantee

Introduction

A contract of guarantee can differ based on the nature of liability undertaken by the surety. The Indian Contract Act, 1872 recognises different kinds of guarantees depending on whether the guarantee is for a single transaction or a series of transactions.

Understanding these types and their revocation is important for determining the extent and duration of the surety’s liability.

Meaning / Definition

A guarantee is classified based on the scope of liability:

• A guarantee for a single transaction is called a specific guarantee
• A guarantee for a series of transactions is called a continuing guarantee (Section 129)

A continuing guarantee remains in force until it is revoked (cancelled).

Modes or Types

Specific Guarantee

A specific guarantee is given for a single debt or transaction.

• Liability ends once the debt is paid or obligation is performed
• It does not extend to future transactions

Continuing Guarantee

A continuing guarantee extends to a series of transactions.

• Liability continues for multiple transactions
• It remains valid until revoked
• It may be limited to a fixed amount

Revocation of Continuing Guarantee

By Notice (Section 130)

The surety can revoke the guarantee by giving notice to the creditor.

• Revocation applies only to future transactions
• Surety remains liable for past transactions

By Death of Surety (Section 131)

• Death of surety revokes the guarantee for future transactions
• Liability continues for past transactions
• Parties may agree otherwise by contract

By Discharge of Surety

A continuing guarantee is revoked when the surety is discharged by law:

• Novation (new contract replacing old one) – Section 62
• Change in terms of contract – Section 133
• Discharge of principal debtor – Section 134
• Arrangement between creditor and debtor – Section 135
• Creditor’s act harming surety’s rights – Section 139
• Loss of security – Section 141

Important Case Law

• Kay v. Groves
  Guarantee for a single transaction is a specific guarantee.

• Lloyd’s v. Harper
  Employment guarantee is treated as a single transaction.

• Wingfield v. De St Cron
  Surety is not liable for obligations after valid revocation.

• Durga Priya v. Durga Pada
  Effect of death depends on terms of the contract.

Practical Example

A guarantees payment to B for goods supplied to C from time to time up to ₹100. This is a continuing guarantee. If A revokes the guarantee, he will not be liable for future supplies but remains liable for past dues.

Summary

• Guarantees are of two types: specific and continuing
• Specific guarantee applies to a single transaction
• Continuing guarantee applies to a series of transactions
• Continuing guarantee can be revoked by notice or death
• Revocation affects only future transactions
• Surety remains liable for past transactions
• Can also be revoked by discharge of surety under law