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

Ramesh gave a continuing guarantee to HDFC Bank for the running account of Vikas Agencies. Ramesh dies on 1 March. The guarantee has no clause dealing with death. Vikas Agencies draws further amounts on 15 March. What is the position regarding the 15 March drawals?

The estate is not liable for the 15 March drawals. Unless the contract says otherwise, the death of the surety revokes a continuing guarantee as regards future transactions. Amounts drawn before the death remain covered, but later drawals fall outside the guarantee.

  1. ARamesh's estate is liable, as a guarantee binds legal heirs automatically
  2. BRamesh's estate is not liable for them, as death revokes a continuing guarantee for future transactionsCorrect
  3. CThe guarantee is revoked even for transactions before 1 March
  4. DThe guarantee continues until the bank gives notice to the heirs

Explanation

Absent a contrary contract, the surety's death revokes a continuing guarantee only as regards future transactions. The 15 March drawals are future, so the estate is not liable for them. Option 3 is wrong because earlier transactions are not affected.

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