Tag: #creditor

STANDING LAWS DO NOT ENVISAGE A PARENT WHO MAY HAVE INCURRED EXPENDITURE IN THE UPBRINGING OF A CHILD BEING VIEWED AS A CREDITOR: DELHI HC

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-Report by Sakshi Tanwar

The current petition for Letters of Administration has been filed by the mother [petitioner no.1], father [petitioner no.2], and brother [petitioner no.3] of the late Dr. Shruti Maitri,who died in Delhi on March 8, 2019. The LoA has been claimed in relation to properties.

FACTS

The second respondent is admittedly the deceased’s spouse, while respondents 3 and 4 arebodies formed to administer superannuation money in the Australian state of New SouthWales. According to the petitioners’ acknowledged case, the deceased married the secondrespondent in Delhi on December 3, 2017, in accordance with Hindu norms. According totheir claim, the deceased was injured on 02/03 February 2019 and travelled to India on 01March 2019 for necessary medical procedures and treatment. The petitioners also state thatthe deceased was admitted to a hospital on March 4, 2019, and underwent surgery onMarch 5, 2019. According to reports, the deceased developed a pulmonary embolism as aresult of post-operative complications on March 7, 2019, and died on March 8, 2019. The petition was based on an assumption that the first petitioner had been nominated as the beneficiary of the superannuation funds. In terms of an intimation dated 19 August 2019,the first petitioner was informed by respondent no. 3 of the proposed release of all monies standing to the credit of the superannuation fund of the deceased in favour of the secondrespondent.

APPEALANT’S CONTENTION

The petitioners maintained that because the deceased was an Indian citizen working inAustralia on a work permit, her inheritance would be administered under Indian law. Thepetitioners claimed in paragraph 35 of the current petition that the deceased had identifieda flat in Australia and, since she had not been given Permanent Resident status in thatcountry, the flat was purchased in the name of the second respondent. It is conceded thatthe flat was mortgaged and the instalments in respect thereof were paid out of the jointaccount maintained by the deceased and the second respondent. The petition for the grant of LoA was essentially based on the petitioners’ assertion that because the deceased and the second respondent purchased the properties in Australia together, with the formermaking substantial investments therein, the petitioners would be entitled to the grant of LoA by virtue of being the parents. Their claimed case was that the second respondent, thehusband,

is barred from pre-marriage and paternal assets. On 19 December 2019, the Court granted an injunction restraining the second respondent from either alienating or creating third-party interests in the immovable property in Australia or receiving superannuation funds standing to the credit of the investments made by the deceased. The Court also restrainedRespondent No. 3 from releasing any payments to either the second respondent or any third party.

RESPONDENT’S CONTENTION

The second respondent has filed objections to this petition, citing records kept by the FirstState Super Trustee Corporation, a body corporate established under the SuperannuationAdministration Act, 19965, as well as records kept by the State Super Financial ServicesAustralia Limited, to argue that the second respondent was the sole beneficiary of thesuperannuation funds. Reliance was also placed on the adjudicatory orders passed by theAustralian Financial Complaints Authority8 which too had recognized the right of thesecond respondent to be the sole beneficiary of all funds of the deceased held withrespondent no.3.

JUDGEMENT

The law, as it presently stands, does not envisage a parent who may have incurredexpenditure in the upbringing of a child being viewed as a creditor. Accordingly, and forall the aforesaid reasons, the petition fails and shall stand dismissed.

READ FULL JUDGEMENT: https://bit.ly/40QREgG

Continuing Guarantee: Nature and Revocation

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The present article is written by Priyanka Choudhary, currently pursuing BALLB from Mody University of Science and Technology, Lakshmangarh, Rajasthan.

INTRODUCTION

As per Section 6 of the Indian Contract Act, 1972 a “Contract of Guarantee” may be a sort of a contract that deals with the performance of the promise, or discharge of the liability and breaches of a 3rd party just in case of their default. A guarantee is often either in oral or written form. Contract of Guarantee deals with 3 parties, wherein the surety is that the one who acts because the party to fulfill the obligations and liabilities on a part of the defaulting party. The three parties to the Contract of Guarantee are:

  1. Surety – the party who gives the guarantee.
  2. Principal Debtor – the party in whose default the guarantee is given.
  3. Principle Creditor – the party to whom the guarantee is given.

For example – T, comes in contract with Y to deliver to him 10 litres of fruit juice a day, provided if G acts as a surety to be liable on behalf of Y if the latter fails to form the payment for 10 litres of fruit juice to T. Now, if Y fails to form payment to T, then G will need to make the required payment. 

WHAT IS CONTINUING GUARANTEE?

Under section 129 of the Indian Contract Act of 1872, the definition is of continuing guarantee is given which says an unbroken guarantee may be a sort of guarantee which applies to a series of transactions. It applies to all or any transactions entered into by the principal debtor until it’s revoked by the surety. Therefore Bankers always like better to have an unbroken guarantee in order that the guarantor’s liability isn’t limited to the first advances and would also reach all subsequent debts.

The most important feature of a unbroken guarantee is that it applies to a series of separable, distinct transactions. Therefore, when a guarantee is given for a whole consideration, it can’t be termed as a unbroken guarantee.

These guarantees have a group deadline and time-frame or are for a hard and fast duration, maybe one month, one year, etc. Continuing Guarantee doesn’t come to an end after the discharge of one promise or repayment of single debt or transaction. it’s within the hands of the Surety to form sure that the liability regarding time or amount is often limited consistent with his wishes and interest. Under Continuing Liability, Surety is responsible for unpaid and left balance at the top of the guarantee.

It is of two types, (i) Prospective (ii) Retrospective. The previous one is given for future debt(s) and therefore the latter one is given for existing debt(s).

Illustration

A person named ‘G’ gave his house to ‘L’ on a lease for ten years on a specified lease rent. ‘V’ guaranteed that ‘L’, would fulfill his obligations. After seven years ‘L’ stopped paying the lease rent. ‘G’ sued him for the payment of rent. ‘V’ then gave a notice revoking his guarantee for the remaining three years. ‘V’ wouldn’t be ready to revoke the guarantee because the lease for ten years is a whole indivisible consideration and can’t be classified as a series of transactions and hence isn’t an unbroken guarantee.

SPECIFIC AND CONTINUING GUARANTEE

(i) Specific Guarantee: It is a kind of guarantee which is given for a specific transaction or debt. For example – ‘V’ borrowed Rupees 1 lakh from Yes Bank. The guarantee was given by ‘P’ for the repayment of the loan. ‘P’s liability ends as soon as ‘V’ repays the amount of loan to Yes Bank.

(ii) Continuing Guarantee: It is a type of guarantee given for more than one transaction. For example – ‘P’ guarantees payment to ‘V’, a coffee-dealer, in the amount of Rs. 5000, for any coffee he may supply to ‘L’ from time-to-time. ‘V’ supplies ‘L’ with coffee to above the value of Rs. 5000, and ‘L’ pays ‘V’ for it. Afterward, ‘V’ supplies ‘L’ with coffee to the value of Rs. 5000. However, ‘L’ fails to pay and the guarantee given by ‘P’ was a continuing guarantee, and thus, he is accordingly liable to ‘V’ to the extent of Rs. 5000.

NATURE OF CONTINUING GUARANTEE CONTRACT

The vital aspect of a unbroken Guarantee is that it’s applicable and pertains to a series and multitudes of separate, and distinct transactions. Therefore, when a guarantee is given for an entire consideration, it can’t be defined as an unbroken guarantee. 

In the case of Nottingham Hide Co vs. Bottrill, it had been stated that “the facts, circumstances, and intention of every case has got to be looked into for determining if it’s a case of continuous guarantee or not. If the contracts are entered into by misrepresentation or fraud made by the creditor regarding material circumstances or by concealment of fabric facts by the creditor, the contract are going to be considered invalid and void. Once the guarantor commits to his liability by paying the specified debt to the creditor, he steps into the shoes of the creditor and avails all the rights that the creditor had over the principal debtor.”

All transactions entered by the principal debtor until they’re revoked by that security shall be subject to a unbroken guarantee. A guarantee for future transactions are often revoked at any time by notification to the debtors. However, for transactions entered before such cancellation of the guarantee the liability of a guarantor shall not be reduced.

LIABILITY OF THE SURETY CONTINUING GUARANTEE CONTRACT

Under Section 128 of the Indian Contract Act, 1872, the principle of Surety’s liability is given which states that the liability of the Surety is co-extensive alongside that of the Principal Debtor unless it’s otherwise provided by the contract. The Surety continues to be responsible for transactions given by the Creditor to the Principal Debtor. The Surety is responsible for any amount which can become due from time-to-time dealings or transactions between the Creditor and therefore the Principal Debtor. But whenever the Surety revokes his guarantee, he discharged from his liability. Liability of the Surety is secondary to the contract and consequently, if the principal debtor isn’t liable, the surety also will not be liable.

DIFFERENT MODES OF REVOCATION CONTINUING GUARANTEE CONTRACT

  • By giving a Notice – When a transaction has been made and it’s ongoing, the Surety’s liability with regards thereto particular transaction can’t be canceled or revoked. It applies to future transactions only. The liability cannot be revoked or waived off by the Surety just by giving notice. If a contract of guarantee involves a clause of a certain time duration that’s required to be met out before the contract is often revoked or stand canceled, then the Surety cannot avoid the liabilities, at no chance. 

In the case Offord v. Davies, the surety had guaranteed the repayment of bills that were to be discounted by the Creditor for the Debtor. It had been to be finished a period of 2-year up to the quantity of $800. The Creditor continued to discount the bills even when the Surety had revoked his guarantee before any bill was discounted, the Debtor defaulted on paying bills. The court held that after the surety revoked for the bills he wasn’t responsible for it as it was discounted after he revoked the guarantee. 

  • On the death of the Surety – A continuing guarantee contract involves an end by the death of the Surety. As regards future transactions, it automatically stands revoked. However, the Surety’s heirs are often held responsible for those transactions that were made before his death. If there’s any provision within the respective contract of guarantee stating that on Surety’s death, his property or legal representatives or heirs or agents are often held responsible and responsible for any liability or breach incurred, then it might be a contract contrary to the meaning of Section 131 of the Indian Contract Act, 1872, and therefore the guarantee isn’t revoked even after the death of the Surety.

In Durga Priya Chowdhury v. Durga Pada Roy, the Surety gave a guarantee for the gathering and therefore the payment of rent of Creditor’s Zamindari by the Principal Debtor. An amount of Rs. 700 alongside the consideration of the utilization of the Principal Debtor as an agent was put forth. Later, on the death of the Surety, the Principal debtor defaulted and therefore the creditor sued him and the legal representatives of the Surety. The legal representatives of the Surety pleaded that being an unbroken guarantee, it stood canceled automatically with the death of the Surety. “The provisions of the guarantee stated that the heirs and therefore the representatives of the Surety would be bound and liable by the terms of the guarantee within the same way because the surety was bound by it. The learned judges held that the guarantee wasn’t revoked even after the death of the Surety and his heirs were liable.”

  • Changes made in the terms and conditions of the contract without Surety’s Consent – A contract of continuous guarantee is revoked when there’s any change and amendment made within the terms and conditions of the acceptance between the Principal Debtor and therefore the Creditor without the consultation and consent of the Surety. The Surety is free of his liability on the furtherance of the transaction to the variations made.

In the case of Bishwanath Agarwal vs. depository financial institution of India, the Surety executed an unbroken guarantee up to the extent of Rs. 1,75,000 for securing the loan amount and interest payable by the Principal Debtor to the creditor from time to time. The Debtor defaulted in paying the loan and overdraws were made beyond that limit within the same loan account without the consent of the Surety. “The Surety was held liable only up to Rs. 1,75,000 and he wasn’t bound for the opposite overdraws allowed by the bank to the Debtor without the consent of surety.”

CONCLUSION

Contract of continuous Guarantee is defined under the Indian Contract Act, 1972. the essential function here is to guard the Creditor against any quite loss arising from the breach of contract on a part of the Principal Debtor. Whether it is specific or continuing, every contract of guarantee involves three parties- Principal Debtor, Creditor, and Surety. The burden of liability of the Principal Debtor. It’s essential on a part of the Surety to take care while getting into such a contract. Contract of continuous Guarantee plays a really prominent role within the English Law also. Thus, it becomes vital for a contract of guarantee to exist so as to guard the creditor.

BIBLIOGRAPHY

  1. Avtar Singh, Contract & Specific Relief Act (12th Edition). 
  2. Continuing guarantee. http://www.legalserviceindia.com/legal/article-3950-continuing-guarantee-nature-and-modes-of-revocation.html.
  3. Rachit Garg, Continuing guarantee: nature and modes of revocation, https://blog.ipleaders.in/continuing-guarantee-nature-modes-revocation/. 
  4. Srishti Chawla, What is Contract of Guarantee, https://blog.ipleaders.in/contract-of-guarantee/.

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