Assignment-2
Explain each mode of discharge of surety.
When the liability of the surety is extinguished, he is said to be discharged; A surety may be discharged:
(i) By revocation.
(ii) By the act or conduct of the creditor.
(iii) By invalidation of the contract of guarantee.
I. Discharge of surety by revocation:
(a) Revocation by notice (Sec. 130):
A continuing guarantee may, at any time, be revoked by the surety, as to future transactions, by notice to the
creditor.
But a specific guarantee cannot be revoked if the creditor has given the loan.
(b) Revocation by death (Sec. 131):
The death of the surety operates, in the absence of any contract to contrary, as a revocation of continuing
guarantee
for futurethe
between transactions. The estate of the deceased surety will not be liable for any transactions entered
creditor
to a and the principal-debtor even if the creditor has no notice of death. In case the parties have agreed
notice
death isof surety’s death, then notice of death will be necessary. Under English Law also, notice of surety’s
necessary.
(c) Discharge of surety by novation (Sec. 62):
A contract of guarantee is a species of the general contract. As such, a contract of guarantee is discharged by
novation, i.e., by substituting a new contract in place of the old one. The original contract is discharged.
II. Discharge of surety by the act or conduct of the creditor:
(a) By variation in terms of contract (Sec. 133):
Any variance made without the surety’s consent, in the terms of the contract between the principal-debtor
and the
creditor, discharges the surety as to transactions subsequent to the variance.
(b) By release or discharge of principal-debtor (Sec. 134):
A suretyisis discharged by any contract between the creditor and the principal-debtor by which the principal
debtor
released
principal-or by an act or omission of the creditor, the legal consequence of which is the discharge of the
debtor.
(c) By compounding by the creditor with the principal debtor (Sec. 138):
A contract between the creditor and the principal debtor by which the creditor makes a composition with, or
promises
to
thegive time to or not to sue, the principal-debtor, discharges the surety, unless such contract is made with
consent
of the surety.
It sho
uld be noted that the surety is discharged only if the contract to give time to principal- debtor is made by the
creditor with the principal-debtor. Therefore, if a contract is made with a third party, the surety is not
discharged.
III. Discharge of Surety by Invalidation of the Contract :
(a) By obtaining guarantee by misrepresentation (Sec. 142):
Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his
knowledge
and assent, concerning a material part of the transaction, is invalid.
(b) By obtaining guarantee by concealment (Sec. 143):
Any guarantee which the creditor has obtained by means of keeping silence as to the material facts of
circumstances
is invalid.
(c) By the failure of the co-surety to join (Sec. 144):
Where a person gives guarantee upon a contract that the creditor shall not act upon it until the other co-
surety has
joined, the guarantee is not valid if the other person does not join.