Revocation of continuing guarantee – Section 38

In any contract of guarantee, it is necessary that subsequent to making of a contract the term should not be varied. Any variance in terms without surety’s consent discharges the surety from liability as to future transaction. Similarly, in contract of continuing guarantee between a partnership firm and 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 change in constitution of the firm any continuing guarantee is automatically revoked as to future transaction unless there is agreement to contrary.

This point can be explained by referring to Neel Kamal Mukherjee v. B.D. Mukherjee. In that case, a guarantee was given to conduct of cashier of the firm known as N.C. Mukherjee. Subsequently, there was change in the constitution of the firm and its name was also changed to N. Mukherjee & Sons. It was held that on this change guarantee is revoked and the surety was not liable for conduct of cashier subsequent to change.

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