Discharge of surety from liability

DISCHARGE OF SURETY

Section 130 (revocation by the surety). 

This section permits the revocation when it is a continuing guarantee as regards to the future transactions only. However when the transaction has already been made, surety's liability with regard to that transaction cannot be revoked by a subsequent notice. When the consideration is single and indivisible, the revocation as to the future transactions is not possible. For instance in the case of guarantee for a servant on employment. (Lloyds v. Harper, Gopal Singh v. Bhawani Prasad). In Sita Ram Gupta v. Punjab National Bank, the court held that the provisions of the agreement can override section 130 of the Indian Contrct Act and the guarantor can give away his right provided under section 130 of Indian Contract Act. 

Section 131 (death of the surety). 

This section provides that the guarantee as regards to the future transactions automatically terminates when the surety dies, untill and unless contrary to this is provided in the contract of guarantee.

Section133 (variance in the terms of the contract). 

If there is any variance in the terms of the contract between principal debtor and creditor without the consent of the surety, the surety gets discharge as regards to the transactions subsequent to such a change. The reason for this is that the surety agrees to the contract which no longer exists. In Bonar v. Macdonald, court cleared the stance on the situation. In Amrit Lal v. State Bank of Travancore, the court held that if there is a written contract of guarantee, and the variation made is not written but only orally, then the surety will not be discharged and the validity of the contract will not be affected. However it is important to note that in Anirudhan v. Thomco's Bank, it was held that when the alteration was not prejudicial to the interest of the surety, the surety was not discharged of his liabilities. 

Section134 (by release or discharge of the principal debtor). 

If by any contract between the creditor and the principal debtor, the principal debtor is released, or by any act or omission of the creditor the principal debtor is discharged, then the surety, whose liability is coextensive with that of the principal debtor as mentioned in section 128, will also be discharged or released. The another reason for this can be concluded from section 140 of the act. 

However it is to be noted here that any compromise between principal debtor and creditor after the decree has been passed, does not discharged the surety as ruled in Charan Singh v. Security Finance Pvt. Ltd. 

Where there are co-sureties, release of one them by the creditor does not discharge the other (section 138). Even if one of the co sureties is released by the creditor, he is not released from his responsibility to contribute to other sureties (section 146). 

Section135 (when creditor compounds with, gives time to or agrees not to sue the principal debtor). 

According to section 135, if there is a contract between the principal debtor and creditor, where the creditor makes composition with the principal debtor or where the creditor promises to give time to the principal debtor or where the creditor promises not to sue the principal debtor, without the consent of surety, the surety is discharged. 

When the creditor and the principal debtor compromise in a suit according to which the debtor was allowed to pay the money after nine months of the compromise, without the consent of the surety,  that lead to the discharge of surety. (Kurian v. The Alleppey C.C.M.S. Society). 

In Amrit Lal v. State Bank of Travancore, it was held that agreement between creditor and principal debtor for payment in installments also amounts to giving time to the principal debtor, thus discharging the surety. This position remains unchanged even after the joint decree is passed. (Maharashtra Apex Corp v. Poovappa Salian). 

However it is to be noticed here that if the contract for giving time was made by the creditor not with the principal debtor, but with the third person, then surety will not get discharged (section 136 of Indian Contract Act).

Although the promise for not to sue by the creditor to principal debtor, discharges the surety, but mere forbearance by the creditor to sue the principal debtor does not amount to discharge of the surety. Section 137 of Indian Contract Act, clears this stance. Moreover forbearance to sure until the period of limitation also did not discharged the surety as surety himself can still enforce the law against the principal debtor. In English law this position was cleared in Carter v. White. Similar vier was even expressed by majority of High Courts in India and was also upheld by the privy council in Mahanth Singh v. U Ba Yi.

Section139 (acts or omissions of creditor impairing surety's eventual remedy).

According to section 139 of Indian Contract Act, if the creditor does the act or omission which results in impairing surety's remedy against the principal debtor, the surety is discharged. 

In State of M.P. v. Kaluram, the court held the surety discharged of his liabilities due to the omission by state in preventing the removal of felled trees by the principal debtor in case of non payment. 

Similarly when the bank lost the security deposit by the principal debtor due to its negligence, the surety stands discharged. (M.R. Chakrapani v. Canara Bank; Union Bank of India, Bombay v. S.B. Mehta)

However it is to be noticed that when the security is lost without the fault of the creditor, the surety does not get discharged ( R. Lilavati v. Bank of Baroda). 

Section141 (by loss of the security by the creditor).

According to section 141, the surety is entitled to all the securities which the creditor has against the principal debtor at the time when the contract of suretyship is entered into. 

It is to be noted that discharge of principal debtor without creditor's fault does not discharge the surety. For instance in I.F.C.I Ltd. v. Cannanore Spg. and Weaving Mills Ltd., it was held by the court that when the performance of the contract becomes impossible, whithout the fault of creditor (as by statute in this case), although the principal debtor is discharged but the surety does not stands discharged.