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 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.
Revocation of Continuing Guarantee
A continuing guarantee means a promise given by one person (surety) for many future transactions.
The person who gave the guarantee (surety) can cancel (revoke) it at any time by informing the lender (creditor). But this cancellation works only for future transactions. The surety is still responsible for transactions that already happened before the cancellation.
Example (a)
A asks B to give loans (by discounting bills) to C. A promises (guarantees) B that for 12 months, he will be responsible up to ₹5,000 if C does not pay.
- B gives ₹2,000 to C.
- After 3 months, A cancels the guarantee.
Result: A is not responsible for any future loans given after cancellation. But A is still responsible for ₹2,000 already given, if C fails to pay.
Example (b)
A promises B that he will guarantee payment up to ₹10,000 for any bills B gives to C.
- B gives a bill to C.
- C accepts the bill (agrees to pay).
- After that, A cancels the guarantee.
- Later, C does not pay the bill on time.
Result: A is still responsible, because the bill was accepted before cancellation.