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CMA Intermediate · Business Laws and Ethics · Special Contracts - Indemnity and Guarantee; Bailment and Pledge; Laws of Agency

Kavita gave a continuing guarantee to a supplier for goods to be supplied to her nephew over the next two years. She died after six months, and there is no contract to the contrary. Which statement is correct?

The guarantee is revoked only as regards future transactions. Under Section 131, the surety's death revokes a continuing guarantee for future dealings in the absence of a contrary contract, so liability for transactions already entered into before death is not wiped out by the revocation.

  1. AThe guarantee is revoked as regards future transactions, but liability for transactions already made continuesCorrect
  2. BThe guarantee is revoked entirely, including liability for transactions already made
  3. CThe guarantee continues for the full two years against her legal heirs for all transactions
  4. DThe guarantee is revoked only if the supplier is notified of the death

Explanation

Section 131 says the surety's death, absent a contrary contract, revokes a continuing guarantee so far as regards future transactions. Hence transactions already made before death remain covered, while later supplies are not. The option claiming entire revocation wrongly extends the section to past transactions.

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