A continuing guaranty is at its inception an offer from the guarantor and is accepted by the creditor each time the latter does a specified act (e.g., extending credit to the debtor). Typically, such a guaranty reserves in the guarantor the power to revoke it unilaterally prior to action by way of acceptance by the creditor.
Decedent and his business partner made arrangements for plaintiff corporation to supply their business with certain merchandise on a regular basis. As part of the deal, decedent and his partner entered into a continuing guaranty undertaking to pay at maturity all indebtedness of the business for goods sold and delivered to it by plaintiff. Several years later decedent was adjudged incompetent. Plaintiff sought to recover money for goods delivered after the adjudication of incompetency. The trial court granted defendant executor's motion for summary judgment and dismissed plaintiff's action to recover money for merchandise supplied to decedent on credit. The appellate court reversed the trial court’s decision.
Could plaintiff validly recover money from decedent’s partner for goods delivered, on the ground that decedent and his partner had entered into a continuing guaranty undertaking to pay at maturity all indebtedness of the business for goods sold and delivered to it by plaintiff?
Because a continuing guaranty involved a renewal of the offer on each occasion of an acceptance thereof by the offeree, it was arguable that the guaranty became invalid once decedent was adjudged incompetent. Contracts with lunatics and insane persons were invalid, subject to the qualification that a contract made in good faith with a lunatic, for a full consideration, which had been executed without knowledge of the insanity, or such information as would lead a prudent person to the belief of the incapacity, would be sustained.