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Section 260: Sections 239 to 266 [Repealed by the Indian Partnership Act, 1932]

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Act 1872
Section 75 All 266 Sections of Indian Contract Act Section 77

Legal Commentary & Landmark Judgments: Section 260

Section 260 historically provided for the automatic revocation of a continuing guarantee given to or for a firm as to future transactions upon any change in the constitution of the firm, now reenacted as Section 38 of the Indian Partnership Act, 1932 and reflected in Section 130 and 139 of the Contract Act.

  • Revocation by Reconstitution: Any change in the constitution of the firm—whether by the admission of a new partner, retirement, expulsion, or death—automatically revokes a continuing guarantee as to future transactions in the absence of contrary agreement.
  • Protection of Surety's Risk Assessment: Anchored in the doctrine that a surety's guarantee is personal to the exact creditworthiness and integrity of the specific individuals composing the partnership at the time the guarantee was given.
  • Prospective Operation: Revocation operates strictly prospectively; the surety remains fully liable for all transactions, advances, and debts accrued prior to the constitutional change.
  • Modern Reenactment in Section 38 IPA 1932: Repealed by Act 9 of 1932 and reenacted verbatim as Section 38 of the Indian Partnership Act, 1932.
Key Landmark Precedents:
  • Backhouse v. Hall (1865) 6 B&S 507: Landmark precedent holding that a guarantee given to a banking firm was revoked as to future advances upon the admission of a new partner, as the risk profile had fundamentally changed.
  • State Bank of Saurashtra v. Chitranjan Rangnath Raja (1980) 4 SCC 516: The Supreme Court recognized the discharge of a surety when the underlying security or status of the debtor enterprise undergoes a material unauthorized variation.
  • M.S. Anirudhan v. Thomco's Bank Ltd. AIR 1963 SC 746: The Supreme Court held that any material alteration in the contractual arrangement between creditor and principal debtor without the surety's consent discharges the surety under Contract Act principles.
Courtroom Practice & Strategic Litigation Guidance:

When defending a personal guarantor against a bank's enforcement suit on partnership credit lines, examine whether the borrower firm underwent reconstitution (e.g. death or retirement of a partner). If so, plead statutory revocation of the guarantee under Section 38 of IPA 1932 for all advances made after the reconstitution date.

Section 75 All 266 Sections of Indian Contract Act Section 77