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

Meera guarantees payment to Sharma Traders up to Rs 1,00,000 for any goods the trader may from time to time supply to Kiran Stores. Sharma Traders supplies goods worth Rs 1,00,000, which Kiran Stores pays for. Later it supplies goods worth Rs 2,00,000 and Kiran Stores defaults entirely. Meera's liability is:

Meera is liable for Rs 1,00,000. Her guarantee covers goods supplied from time to time, so it is a continuing guarantee. The earlier payment does not end it, and on the later default her liability extends only to the agreed maximum of Rs 1,00,000.

  1. ANil, because the first supply was fully paid
  2. BRs 2,00,000, the full unpaid price
  3. CRs 1,00,000, the limit of the guaranteeCorrect
  4. DRs 3,00,000, the total of both supplies

Explanation

The guarantee covers goods supplied from time to time, so it extends to a series of transactions and is a continuing guarantee (as in the tea-dealer illustration to Section 129). Earlier payment does not exhaust it. Meera is liable on the later default up to her limit of Rs 1,00,000. Rs 2,00,000 ignores the cap.

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