Welcome To Presentation On Discharge of Surety

Shri Jairambhai Patel Institute of Business Management & Computer

Applications (NICM-MBA) Submitted to: Prof. Bansi Patel
Submitted By: Amit Gurav (MBA-B-014)
DISCHARGE OF SURETY
A surety is said to be discharge when his liability comes to an end
BY REVOCATION
BY THE CONDUCT OF THE CREDITORS
BY INVALIDATION OF CONTRACT
By revocation
BY GIVING A NOTICE (SEC.130)
DEATH OF SURETY (SEC.131)
NOVATION (SEC.62)

BY REVOCATION
1. BY NOTICE (SEC.130) A specific guarantee cannot be revoked by the
surety if the liability has already accrued. a continuing guarantee may at any
time be revoked by the surety as to future transaction by the notice to the
creditor. But the surety remains liable for transaction already entered into.
For e.g. A guarantee to B, to the extent of Rs.10,000 that C shall pay all the
bills that B shall drawn upon him. B draws upon C. C accepts the bills. A

gives notice of revocation. C dishonors the bills at maturity. A is liable upon

his guarantee.

2. BY DEATH(SEC.131) The death of the surety operates in the absence of

any contract to the contrary as a revocation of a continuing guarantee so far
as future transactions . The deceased surety s estate will not be liable for
any transaction entered into between the creditor and the principal debtor
after the death of surety, even if the creditor has no notice of death.
3. BY NOVATION(SEC.62)
Novation means substitution of a new contract of guarantee for an old one
either between the same parties or between one of the old parties and a new
party, the consideration for the new contract being the mutual discharge of
the old contract. The original contract of guarantee in such a case comes to
an end.

VARIANCE IN THE TERMS OF CONTRACT(SEC.133)

DISCHARGE OF PRINCIPLE DEBTORS(SEC.134)
BY THE CONDUCT OF THE CREDITORS
COMPOUNDING BY CREDITORS WITH PRINCIPAL DEBTORS(SEC.135)
CREDITOR S ACT OR OMISSION IMPAIRING SURETY EVENTUAL
REMEDY(SEC.139)
LOSS OF SECURITY(SEC.141)

By the conduct of the creditor

 1.BY VARIANCE IN TERMS OF CONTRACT(SEC133) A surety is liable for

what he has undertaken in the contract. When the terms of the contract
between the principal debtor and the creditor are varied without the surety s
consent , the surety is discharged as to the transactions subsequent to the
variance. For e.g. C contracts to lend P Rs.5000 on 1st March. S guarantees
repayment . C pays the amount to P on1st January. S is discharged from his
liability, as the terms of the contract have been varied.
2. BY RELEASE OR DISCHARGE OF PRINCIPAL DEBTOR(SEC.134) The surety
is discharged by any contract between the creditor and the principal debtor,
by which the principal debtor is released, or by any act or omission of the
creditor, the legal consequences of which is discharged of the principal
debtor. But the surety is not discharged by operation of law. For e.g. A
contract with B for a fixed price to build a house for B within a stipulated
time, B supplying the necessary timber. C guarantees A4 s performance of
the contract . B omits to supply the timber. C is discharged from his
suretyship.

3. BY CREDITOR COMPOUNDING WITH THE PRINCIPAL DEBTOR(SEC135) a

contract between the creditor and the principal debtor, by which the creditor
makes a composition with, or promises to give time to, or not to sue the
principal debtor discharges the surety unless the surety assents to such
contract. For e.g. P purchased a motor car from C under hirepurchase
agreement on guarantee of S for the due performance of the agreement . C
for the valuable consideration gives P further time for payment of one of the
instalments. Held the giving of time to P discharged S from any further
liability under the guarantee.

4.BY CREDITOR S ACT OR OMISSION IMPAIRING SURETY S EVENTUAL

REMEDY(SEC139)
if the creditor does any act which is inconsistent with the rights of the surety,
or omits to do any act which his duty to the surety requires him to do, and
the eventual remedy of the surety himself against the principal debtor is
thereby impaired,the surety is discharged.
For e.g. A puts M as apprentice to B and gives a guarantee to B for M s
fidelity. B promises on his part that he will, at least once a month see M make
up the cash. B omits to see this done, as promised, and M embezzles. A is
not liable to B on his guarantee.

5.BY CREDITOR LOSING SECURITY AGAINST THE PRINCIPAL DEBTOR(SEC141)

if the creditor loses or, without the consent of the surety, parts with the
security he has against the principal debtor at the time when the contract of
suretyship is entered into, the surety is discharged to the extent of the value
of the security.
For e.g. C advances to B, his tenant Rs.2,000 on the guarantee of A. C has
also further security for Rs.2,000 by a mortgage of B s furniture. C cancels
the mortgage. B becomes insolvent and c sues a on his guarantee. A is
discharged to the extent of the value of the security.

BY MISREPRESENTATION(SEC.142)
BY CONCEALMENT(SEC.143) BY INVALIDATION OF CONTRACT BY FAILURE OF
A CO-SURETY TO JOIN(SEC.144)
BY FAILURE OF CONSIDERATION

By Invalidation of Contract
1. BY MISREPRESENTATION (SEC.142) Where a creditor misrepresents to the
surety regarding the material facts, the guarantee is invalid and therefore
the surety is discharged
2.BY CONCEALMENT(SEC.143)
When a creditor obtains guarantee by concealing or keeping silent over the
materials facts, the surety is discharged as the guarantee is invalid. For
e.g. C engage p as a clerk to collect money for him. P fails to account for
some of his receipts and c, in consequences, calls upon him to furnish
security for his duly accounting. S gives his guarantee for p s duly
accounting. C does not acquaint s with p s previous contract . P afterwards
makes default. The guarantee is invalid

3.BY FAILURE OF CO-SURETY TO JOIN(SEC.144)

Where a person gives a guarantee upon a contract that a creditor shall not
act upon it until another person has joined in it as co-surety the guarantee is
not valid if that person does not join.
For e.g. S2 signed a guarantee given to a bank which on the face of it was
intended to be joint and several guarantee of S1,S2,S3 and S4. S4 did not
sign and afterwards died. The bank did not agree with s1,s2 and s3 to
dispense with s4 s signatures. Held s2 was not liable.
4. BY FAILURE OF CONSIDERATION
Where in a contract of guarantee there is a failure of consideration as
between the creditor and the principal debtor, the surety is discharged.