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CMA Foundation · Fundamentals of Business Laws and Business Communication · Meaning of Indemnity, Guarantee, Pledge, Agent

Anil guarantees to a supplier payment of the price of five sacks of flour to be delivered to Babu and paid for in a month. Five sacks are delivered and Babu pays. Later four more sacks are delivered and Babu does not pay. Anil's liability for the four sacks is:

Anil is not liable for the four sacks. His guarantee covered only one specific delivery of five sacks, not a series of transactions, so it was not a continuing guarantee. Once that delivery was paid for, the guarantee was exhausted and did not reach later supplies.

  1. ANil, as the guarantee was not a continuing guaranteeCorrect
  2. BFull price of the four sacks, as it is a continuing guarantee
  3. CHalf the price of the four sacks
  4. DLiable only if Anil gave written notice of the guarantee again

Explanation

The guarantee related to one specific delivery of five sacks, not a series of transactions. It was therefore not a continuing guarantee, as shown in illustration (c) to Section 129. It ended when that delivery was paid for, so Anil is not liable for the later four sacks.

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