Banking · Contract of Guarantee
Mr. X and Mrs. X, a married couple, entered into a continuing guarantee agreement with Mr. Y, a car dealer, in 2021. The agreement allowed Mrs. X to purchase cars on credit up to a limit of Rs. 50,000. In March 2023, Mr. X notified Mr. Y of the revocation of the guarantee. However, Mr. Y failed to communicate this change to his sales team, and Mrs. X purchased another car worth Rs. 15,000 in May 2023. What is Mr. X's liability regarding the Rs. 15,000 car purchase made after the revocation of the guarantee?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Mr. X remains liable for all transactions until Mrs. X explicitly acknowledges the dissolution of the guarantee agreement.
- 2Mr. X is jointly liable along with Mr. Y's sales team because the miscommunication caused a business loss.
- 3Mr. X is not liable for the Rs. 15,000 transaction because a continuing guarantee can be revoked by the surety at any time for future transactions by notice to the creditor.✓
- 4Mr. X is responsible for paying up to the original Rs. 50,000 limit, which means he must cover the Rs. 15,000 purchase because the limit was not exceeded.
Correct answer
Mr. X is not liable for the Rs. 15,000 transaction because a continuing guarantee can be revoked by the surety at any time for future transactions by notice to the creditor.
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