Kinds of guarantee, a contract of guarantee may be a particular guarantee for any specific dealings only or a continued guarantee.
Table of Contents
There are two types of guarantees, the kinds of guarantee are;
- Specific/Particular Guarantee, and
- Continuing/Ongoing Guarantee
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| Kinds of Guarantee |
Specific Guarantee
Specific guarantee is only for one debt or any specific dealing. It involves associates finishing once the such debt has been paid to the creditor.
In simple words, when a guarantee is given in respect of a single debt or particular transaction and is to come to an end when the guaranteed transaction or debt is paid, it is called a Specific Guarantee or Simple/Particular Guarantee.
Illustration: - A is the owner of the law books store and A supplies a set of bare acts to B, under this B does not pay for the books but his friend C would make the payment. In this contract, C’s liability comes to end at the moment when the price of the books is paid to A. This is a contract with a specific guarantee.
Continuing Guarantee
Continuing guarantee has been defined under section 129 of the Indian Contract Act, 1872 as ‘A continuing guarantee is a type of guarantee which extends to a series for the transactions.’
The most important feature of the continuing guarantee is that it applies to a series of transactions in the contract. Hence, when a guarantee is given for an entire consideration, it cannot be termed a continuing guarantee.
Illustration: - A is the owner of a car and B is the friend of A, B wants to give A’s car to his brother C for 2-3 days once a month for 5 years on a rental basis, and A agrees to the same and made a contract with C for 5 years on the guarantee of B. This is the duty of B to receive the rent from C and remit the same to A. This is the contract of continuing guarantee.
Revocation of Continuing Guarantee
What is a revocation of continuing guarantee? As the continuing guarantee is given for an existing loan then it cannot be revoked further, as once an offer is accepted then it becomes final and cannot take back. Thus, continuing guarantee also cannot be revoked.
But, the continuing guarantee can be revoked for future transactions. Therefore, a contract of guarantee revocation can be made in the following two ways;
- By Notice
- By Death of Surety
By Notice
As per section 130 of the Indian Contract Act, 1872, a continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.
In simple words, the continuing guarantee can be revoked by giving notice to the creditor but this applies to future transactions only. And, just by providing mere notice of revocation of guarantee, the surety cannot waive off all his responsibilities and still remain liable for all the transactions that have been made by the surety before giving notice.
Illustration: - A guarantees to B to the extent of Rs. 50,000, that C shall pay for all the goods bought by him for the next three months. B sells goods worth Rs. 30,000 to C. A gives notice for revocation of the contract of guarantee, and C is made liable for Rs. 30,000. If any goods are sold to C after the notice of revocation of the guarantee contract, A shall not be made liable for the same.
By Death of Surety
As per section 131 of the Indian Contract Act, 1872, 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.
As the death of the surety operates as a revocation of the continuing guarantee concerning the transactions taking place after the death of the surety due to the absence of a contract. Whereas, the estate of the deceased surety is liable for those transactions which had already taken place during the lifetime and before the death of the surety.
But, after the death of the surety, the estate of the deceased surety will not be made liable for the future transactions taken after the death of the surety, even if the creditor has no knowledge of the death of the surety.
FAQ
What are the types of guarantee?
Kinds of guarantee, a contract of guarantee may be a particular guarantee for any specific dealings only or a continued guarantee. There are two types of guarantees, the kinds of the guarantee are 1) Specific/Particular Guarantee, and 2) Continuing/Ongoing Guarantee
What is a specific guarantee?
When a guarantee is given in respect of a single debt or particular transaction and is to come to an end when the guaranteed transaction or debt is paid, it is called a Specific Guarantee or Simple/Particular Guarantee.
What is guarantee contract law?
A contract of guarantee is a contract to perform the promise or discharge the liability, of a third person in case of his default.
Who are the three parties of the contract of guarantee?
As per the definition of a contract of guarantee, there are three parties involved in the contract of guarantees and they are; 1. Principal Debtor: - The principal debtor borrows or is liable to pay and on whose default the guarantee is given. 2. Creditor: - The creditor is the party to the contract who has given something of value to borrow and stands to receive the payment for such a thing and to whom the guarantee is given. 3. Surety/Guarantor: - Surety is the party to the contract of guarantee who gives the guarantee to pay in case of default of the principal debtor.