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Discharge of Surety

Submitted to:Prof. Bansi Patel

Submitted By:Amit Gurav (MBA-B-014)

Shri Jairambhai Patel Institute of Business Management & Computer Applications (NICM-MBA)

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 GIVING A NOTICE

(SEC.130)

DEATH OF SURETY

(SEC.131)

NOVATION(SEC.62)

By Revocation

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.

BY REVOCATION

• 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.

BY REVOCATION

• 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

BY THE CONDUCT OF

THE CREDITORS

VARIANCE IN THE TERMS OF CONTRACT(SEC.133)

DISCHARGE OF PRINCIPLE DEBTORS(SEC.134)

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.

By the conduct of the creditor• 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.

By the conduct of the creditor• 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 hire-purchase 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.

By the conduct of the creditor• 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.

By the conduct of the creditor• 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 INVALIDATION OF CONTRACT

BY MISREPRESENTATION(SEC.142)

BY CONCEALMENT(SEC.143)

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

By Invalidation of Contract

• 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

By Invalidation of Contract

• 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.

By Invalidation of Contract

• 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.

T H A N K

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