What Is Continuing Guarantee

Juliet D'cruz

What Is Continuing Guarantee?

Are you curious to know what is continuing guarantee? You have come to the right place as I am going to tell you everything about continuing guarantee in a very simple explanation. Without further discussion let’s begin to know what is continuing guarantee?

A continuing guarantee is a type of financial agreement that allows a person or company to guarantee the debt of another party for an extended period of time. In this blog, we will explore what a continuing guarantee is, how it works, and some of the key considerations when entering into this type of agreement.

What Is Continuing Guarantee?

A continuing guarantee is a financial agreement in which a guarantor agrees to guarantee the debt of a borrower for an extended period of time. In this type of agreement, the guarantor assumes responsibility for the borrower’s debt if the borrower is unable to pay.

Continuing guarantees are often used in commercial transactions, such as loans, leases, and credit accounts. For example, a business owner may enter into a continuing guarantee agreement to guarantee the debt of their company, or a landlord may require a continuing guarantee from a tenant to ensure that rent payments are made on time.

How Does Continuing Guarantee Work?

When a continuing guarantee is established, the guarantor assumes responsibility for the borrower’s debt until the guarantee is terminated. The guarantor is typically required to sign a contract that outlines the terms of the agreement, including the amount of the guarantee, the duration of the guarantee, and any other relevant details.

If the borrower is unable to pay their debt, the creditor may pursue the guarantor for payment. The guarantor is legally obligated to pay the debt under the terms of the continuing guarantee agreement.

Key Considerations For Continuing Guarantee

Before entering into a continuing guarantee agreement, it is important to consider the following factors:

  • Risk: Assuming responsibility for someone else’s debt carries risk. If the borrower defaults on their debt, the guarantor may be required to pay a significant amount of money.
  • Duration: Continuing guarantees can last for an extended period of time, so it is important to consider the length of the guarantee before entering into an agreement.
  • Terms and Conditions: The terms and conditions of a continuing guarantee agreement should be carefully reviewed before signing. It is important to ensure that the agreement is fair and reasonable, and that there are no hidden fees or obligations.

Conclusion

A continuing guarantee is a financial agreement in which a guarantor assumes responsibility for the debt of a borrower for an extended period of time. This type of agreement is commonly used in commercial transactions and carries risk for the guarantor. Before entering into a continuing guarantee agreement, it is important to carefully review the terms and conditions and consider the potential risks and obligations.

FAQ

What Is Continuing Guarantee Under The Indian Contract Act?

A continuing guarantee is defined under section 129 of the Indian Contract Act, of 1872. A continuing guarantee is a type of guarantee which applies to a series of transactions. It applies to all the transactions entered into by the principal debtor until it is revoked by the surety.

What Is Continuing Guarantee When And How Is It Revoked?

A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor. Illustrations. (a) A, in consideration of B’s discounting, at As request, bills of exchange for C, guarantees to B, for twelve months, the due payment of all such bills to the extent of 5,000 rupees.

What Is The Case Of Continuing Guarantee?

In the former event which is a simple guarantee, the surety�s liability comes to an end as soon as payment is made by the principal debtor for the goods sold. While in the continuing guarantee, the surety remains liable for future transactions to the extent of his guarantee.

What Is The Difference Between A Continuing Guarantee And An Ordinary Guarantee?

Difference between continuing guarantee and a simple guarantee

In continuing guarantee, the transaction can go on for a long period of time, therefore, the surety will be held liable for a long time as well whereas, in a simple guarantee, the surety liability is over when the debt is paid or the performance is done.

 

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