A. Discharge of surety by the conduct of the creditor:-
According to Sec. 126, surety is a person who promises to take the responsibility to cover up the promise or discharge the liability of the third person in case of his default. When the liability comes to an end, a surety is said to be discharged.
Following are the cases through which the surety may be discharged form his liability by the conduct of the creditor:-
1. Variance in terms of contract:
As per Section 133, any variance, made without the opinion of the surety, in terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to variance.
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2. Discharge of principal debtors:
ADVERTISEMENTS:
Under Section 134, a surety is discharged by any contract between the principal debtors and the creditors by which the principal debtors, released or by any act or omission of the creditor. The consequence or effect of this is the discharge of the principal debtor.
If the principal debtor is discharged by operation of law or if the creditor omits to sue the principal debtor within the period of fixed time, the surety will not be discharged, even though the principal debtors are released.
3. Compounding by creditor with the principal debtor:
According to Section 135, if there is any contract between the principal debtor and the creditor, with which the creditor makes composition with, or promises to give time to or not to sue, the principal debtors discharges the surety, till the surety gives his consent to such contract.
ADVERTISEMENTS:
Under the following circumstances, the surety is not discharged under this head :-
(i) Where a contract to give time to the principal debtor is made by the creditor with a third person and not with principal debtor (Section 136).
(ii) As per Section 137, the surety would not be discharged by mere forbearance on the part of the creditor to issue the principal debtors.
(iii) Where there are two sureties, a release by the creditor of one of them will not discharge the other; nor does it free the surety so released from his responsibility to the other sureties (Sec. 133)
ADVERTISEMENTS:
(iv) By loss of security (Section 141): The surety is discharged from his liability to the level of the value of security if the creditors loses or without the consent of the surety pasts with any security given to him at the time of the contract of guarantee.
(v) The surety will be discharged where a guarantee is obtained by misrepresentation or concealment of the material fact.
B. Discharge by invalidation of the Contract:
According to the Indian Contract Act, 1872, a contract of guarantee may like any other contract be avoided. If it becomes void? Voidable at the consent of the surety Section 142, 143 and 144. Lays down the provisions regarding the invalidation of guarantee the provision are as follows:
1. Guarantee obtained by misrepresentation (Sec. 142):
The contract becomes invalid, when the guarantee is obtained by means of misrepresentation of the material fact.
2. Guarantee obtained by concealment (Sec. 143):
When the guarantee is given by the creditor by means of keeping silence as the material part of the contract, the contract becomes invalid.
3. Failure of co-surety to join a surety (Sec. 144):
Where the condition is that the creditor will not act upon it unfull another person has joined in it as co-surety fails, the guarantee becomes invalid.