Skip to content

CS Professional · Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Mr. Kapoor guaranteed repayment of a cash credit facility to Meera Exports, a continuing guarantee covering all future drawals. Mr. Kapoor died on 1 March. The bank allowed further drawals by Meera Exports on 15 March, and the legal heirs of Mr. Kapoor were not told. The guarantee deed has no clause on death. What is the effect of his death on the guarantee?

Death revokes the continuing guarantee for future transactions. Absent a contrary contract, the surety's death ends cover for drawals after it, such as those on 15 March, while earlier drawals stay guaranteed. No notice from the heirs is needed.

  1. AIt revokes the guarantee for drawals made after his deathCorrect
  2. BIt revokes the guarantee for all drawals, including those before death
  3. CIt has no effect until the heirs give notice of revocation
  4. DIt continues for future drawals, since the bank acted in good faith

Explanation

The death of the surety operates, absent a contrary contract, as a revocation of a continuing guarantee so far as future transactions are concerned. Drawals before death remain covered. Since the deed has no contrary clause, the 15 March drawals are outside the guarantee. Requiring notice from heirs is not a condition in the law.

Did you get it right without looking?

One question tells you little. A timed set on Advances, Securities and Documentation shows your real accuracy, how long you take and where you lose marks.

Practise Advances, Securities and DocumentationFree diagnostic mock

More Advances, Securities and Documentation questions