Indian Contract Act

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K Balaji (Querist)
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24 December 2008 In a contract of guarantee, whether forbearance by the creditor to sue the principal debtor discharges the surety.

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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25 December 2008 Any variance, made without the surety's consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety from the contract of guarantee as to transactions between the creditor and principal debtor subsequent to the variance.

The surety is relieved of his liability, by any contract between the creditor and the principal debtor, by which the principal debtor is relieved of his liability, or by any act or omission of the creditor, the legal consequence of which results in the discharge of the principal debtor.

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 and relieves the surety of his contractual liability, unless the surety gives consent to such a contract.

If the creditor does any act which is inconsistent with the right of the surety, and which impairs the right of the surety available against the principal debtor, the surety is discharged.

If the creditor loses, or, without the consent of the surety, parts with any security which the principal debtor has given to the creditor, the surety is discharged to the extent of the value of the security lost or parted with.

A surety will get discharged from the contract of guarantee if the decree holder (creditor) grants instalments to the judgment debtor (principal debtor) for payment of the decretal amount without the consent of the surety.

If a contract (not being the contract of guarantee) to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged from the contract of guarantee.

Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provisions in the contract of guarantee to the contrary, discharge the surety. If there is more than one surety, a release by the creditor of one of them does not discharge the others.

A discharge (from the contract of guarantee) which the principal debtor may secure by operation of law (insolvency or liquidation) does not absolve the surety of his liability towards the creditor.

The passive inactivity or negligence of the creditor in realising the debt from the collateral security provided by the principal debtor does not absolve the surety/guarantor of his liability towards the creditor under the contract of guarantee.

A surety will not be discharged if hypothecated goods (hypothecated by the principal debtor) left in the possession of the principal debtor are sold by him (principal debtor) without the knowledge of the creditor.

The creditor's enforcement of surety bond against one of the sureties for satisfaction of debt does not discharge other sureties from the contract of guarantee.

If, after passing money decree based on a contract of guarantee, there is a settlement between decree holder (creditor) and principal debtor (judgment debtor) where some lesser amount is agreed, such settlement will not have any effect of discharging the surety from the guarantee.

Mere passive conduct on the part of the creditor in not suing the principal debtor based on the contract of guarantee will not discharge the surety from the contract.