Q. Explain the modes of discharge of surety, as mentioned under Indian Contract Act, 1872.

 

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Answer

When the surety is no longer liable to perform his part of promise as per the terms of the agreement, the surety is said to be discharged from his liability. The Indian Contract Act recognizes the following modes of discharge:

 

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1.      By Revocation: (Section 130)

The surety can revoke continuing guarantee by notifying the creditor with respect to the future transactions. 

Revocation becomes effective for the future transactions while the surety remains liable for transactions already entered into.

Illustration: Nisha guarantees Avinash for making purchases from Shivani to an extent of 10000rupees. After one-month Nisha revokes guarantee by giving notice to Shivani. Here, Nisha will be liable for the supplies till the point she revoked her guarantee.

 

2.      By death of surety: (Section 131):

Unless any contract to the contrary, A continuing guarantee is also terminated by the death of the surety. The termination is only with respect to the future transactions and the heirs of surety are liable for transactions that have already taken place.

 

3.      By variance: (Section 133)

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

Exception of this Section:

A.      If the alteration is beneficial in nature for surety: Anirudhan v The Thomco’s Bank Ltd.

B.      If the alteration should be unsubstantial/immaterial to the main object of the contract.

 

4.      Discharge of surety by release or discharge of principal (Section 134)

if the principal debtor is release because of any contract between creditor and principal debtor or by any act or omission of the creditor, then the surety is released. This section is connected with the section 128 of ICA which says that the liability of the surety is co-extensive with that of principal debtor. 

 

 

5.      Discharge of surety when creditor compounds with, gives time to or agrees not to sue principal debtor (Section 135);

This Section provides for three modes of discharge from liability:

A.      To make a composition/compromise with principal debtor,

B.      promise to give time to, or

C.      not to sue the principal debtor.

 

6.      Creditors act/omission impairing surety’s eventual remedy (Section 139)

This section provides 2 conditions for its applicability:

A.      The creditor either does something which is inconsistent with the rights of the surety or omits to do his duty towards the surety, and

B.      Because of this the eventual remedy of the surety that he had against the principal debtor is impaired(weakened), the surety is discharged.

 

7.      Loss of securities (Section 141).

This section mentions that if the creditor losses or parts with any security without the consent of the surety, then the surety will be discharged from his liability for the value of the security so parted with or lost. It is totally immaterial that surety knew about the securities or not.

 

8.      Discharge by the invalidation of the contract

Due to following reasons, contract stands invalidated and surety discharged with his liabilities:

A.      Guarantee obtained by misrepresentation (Section 142);

B.      Guarantee obtained by concealment (Section 143);

C.      Failure of a co-surety to join a surety (Section 144).

 

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