Question no.5

 

Question

What is meant by the discharge of a surety? Explain the various circumstances in which a surety is discharged from liability under the Indian Contract Act, 1872. Discuss the relevant provisions with suitable examples.

Answer

A surety is a person who gives a guarantee for the performance of the promise or discharge of the liability of a third person. The person in respect of whose default the guarantee is given is called the principal debtor, and the person to whom the guarantee is given is called the creditor.

The Indian Contract Act, 1872 provides several circumstances in which a surety may be discharged from liability.

1. Revocation of continuing guarantee — Section 130

A continuing guarantee may be revoked by the surety, as regards future transactions, by giving notice to the creditor.

Example: A guarantees payment to B for goods supplied to C for one year. A subsequently revokes the guarantee. A remains liable for transactions made before revocation but not for future transactions.

2. Death of surety — Section 131

The death of the surety operates, in the absence of a contract to the contrary, as a revocation of a continuing guarantee with respect to future transactions.

3. Variance in terms of contract — Section 133

Any variance made without the surety's consent in the terms of the contract between the principal debtor and creditor discharges the surety as to transactions subsequent to the variance.

4. Release or discharge of principal debtor — Section 134

If the creditor releases the principal debtor by a contract or by an act or omission resulting in the discharge of the principal debtor, the surety is discharged.

5. Creditor compounds with, gives time to, or agrees not to sue the principal debtor — Section 135

If the creditor, without the surety's consent, makes an agreement with the principal debtor to give him time, not to sue him, or to compound with him, the surety is discharged.

6. Creditor's act or omission impairing surety's eventual remedy — Section 139

If the creditor does any act inconsistent with the rights of the surety, or omits to do something which his duty to the surety requires, and thereby impairs the surety's eventual remedy against the principal debtor, the surety is discharged.

7. Loss of security — Section 141

A surety is entitled to the benefit of every security held by the creditor against the principal debtor. If the creditor loses or parts with such security without the consent of the surety, the surety is discharged to the extent of the value of the security.

Conclusion

Thus, the liability of a surety is not absolute in every situation. The law protects the surety where the creditor, without the surety's consent, changes the underlying contract, releases the principal debtor, gives additional time, prejudices the surety's remedy, or loses securities available to the surety.

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