REVOCATION OF CONTINUING GUARANTEE SECTION 38

In any contract of guarantee, it is necessary that subsequent to the making of the contract, the terms should not be varied.

Any variance in the terms, without surety's consent, discharges the surety from liability as to future transactions.

Similarly, in a contract of continuing guarantee S.129 ICA between a partnership firm and any third party, it is expected that the constitution of the firm will remain the same during the continuance of such a contract.

If there is a change in the constitution of the firm either by the introduction of a new partner to the firm or by a partner ceasing to be one, any continuing guarantee, given to the firm or to the third party in respect of the transactions of the firm, is automatically revoked as to future transactions unless there is an agreement to the contrary.

The basis of the rule is that when there is continuing guarantee given to the firm or to the third party by the firm that is always with the assumption that the same persons who are partners at the time of such guarantee, shall continue to be there for the whole period of such guarantee.

Therefore, such a guarantee continues to be operative so long as there is no change in the constitution of the firm, but upon such a change the guarantee is revoked as regards future transactions.

NEEL COMUL MOOKERJEE V. BIPRO DAS MOOKERJEE. 1901 28 Cal. 597.

In that case a guarantee was given for the conduct of the cashier of the firm known as "N.C. Mookerji”.

Subsequently, there was a change in the constitution of the firm and its name was also changed to “N. Mookerji & Son”.

It was held that on this change the guarantee was revoked and the surety was not liable for the conduct of the cashier subsequent to such change.