Discharge of Surety

Introduction

A surety is not bound indefinitely under a contract of guarantee. The Indian Contract Act, 1872 provides various situations where a surety is discharged from liability.

These rules protect the surety from unfair extension or alteration of liability.

Meaning / Definition

Discharge of surety means release (freeing) of the surety from his obligation under the contract of guarantee.

Once discharged, the surety is no longer liable for the debt or obligation of the principal debtor.

Modes or Types

By Revocation of Contract of Guarantee

By Notice (Section 130)

• Surety can revoke a continuing guarantee by giving notice
• Revocation applies only to future transactions
• Surety remains liable for past transactions

By Death of Surety (Section 131)

• Death revokes continuing guarantee for future transactions
• Estate of surety remains liable for past transactions

By Novation (Section 62)

• When a new contract replaces the old one
• Original guarantee ends and surety is discharged

By Conduct of Creditor

By Variance in Terms (Section 133)

• Any change in contract terms without surety’s consent discharges the surety
• Exception: If change is not material (important) or is beneficial

By Release of Principal Debtor (Section 134)

• If principal debtor is discharged, surety is also discharged

By Arrangement with Principal Debtor (Section 135)

• If creditor gives time, settles, or agrees not to sue, surety is discharged
• Exception: If surety agrees to such arrangement

Mere Forbearance

• Delay by creditor in suing debtor does not discharge surety

Release of Co-surety (Section 138)

• Release of one co-surety does not discharge others

By Creditor’s Act or Omission (Section 139)

• If creditor’s act harms surety’s rights or remedies, surety is discharged

By Loss of Security (Section 141)

• If creditor loses or gives up security without consent, surety is discharged to that extent

By Invalidation of Contract

Misrepresentation (Section 142)

• Guarantee obtained by false statement is invalid

Concealment (Section 143)

• Guarantee obtained by hiding important facts is invalid

Failure of Co-surety to Join (Section 144)

• If guarantee depends on another surety joining and he does not join, contract is invalid

Practical Example

A guarantees B’s loan taken from C. Later, C changes the terms of loan without A’s consent. A is discharged from liability because the contract terms were changed.

Summary

• Surety can be discharged by revocation, conduct of creditor, or invalid contract
• Revocation may occur by notice, death, or novation
• Change in contract without consent discharges surety
• Release of principal debtor discharges surety
• Loss of security reduces surety’s liability
• Misrepresentation or concealment makes guarantee invalid
• Law protects surety from unfair increase in liability