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    Sunday, 27 December 2015

    Surety is Discharged under Contract Act

    Discharge of surety by variance in terms of contract
    Any variance, made without the surety’s consent, in the terms of the contract between the principal (debtor) and the creditor, discharges the surety as to transaction subsequent to the variance. Section 133.

    Material alteration in contract
    If there is a substantial alteration in the contract even if there is no actual prejudice to the surety which can be shown to exist, the surety will be discharged as neither the court nor the jury will go into the question whether there has been any actual prejudice or not. The surety is the sole judge as to whether he will continue to remain liable on the new contract or not.

    Alteration in contract materially affecting surety
    In determining the liability of a surety the terms of the bond must in every case be carefully studied; and if there is any change in the position of the principal debtor as regards his creditor, it must materially affect the position of the surety, before the latter can be absolved from liability.

    Alteration by act of surety
    Where a guarantor entrusts a letter of guarantee to the principal debtor and the principal debtor makes an alteration without the assent of the guarantor, then the guarantor is liable because it is due to the act of the guarantor that the letter of guarantee remains with the principal debtor. What the principal debtor did will estop the guarantor from pleading any want of authority.

    Alteration beneficial to surety
    Unsubstantial alterations in an instrument which are to the benefit of the surety do not discharge the surety from his liability. Where, however, the alteration is to the disadvantage of the surety, or its unsubstantial character is not self-evident, the surety can claim to the discharged. The court will not then inquire whether it had in fact harmed the surety.

    No variation of contract
    It is only where there is variation of contract that the surety is discharged. If the original contract on which he is liable is not varied, any other act done by the parties would not affect the contract of suertyship. A breach of contract is not a variation and hence a breach of contract between the principal and the creditor does not in any way discharge the surety although the creditor has not enforced any remedy against the principal.

    Payment in satisfaction of creditor’s claim
    Where a person offers a cheque to the decree-holder in satisfaction of his claim, he does not become a surety and if the stops payment of the cheque, section 34 does not apply becaue such person was not a surety.

    Act or omission of the creditor
    Discharge of the debtor without the consent of the surety destroys the liability of the surety though he had signed as a co-executant, where the creditor knew that he was surety.

    Omission to sue principal within limitation
    Section 134, contract Act , applies where there is either a release or a discharge of the principal debtor. The sectionintends that the act or omission of the creditor should be something in the nature of a breach of contract on his part. The failure of the creditor to bring a suit within the period of limitation against the principal debtor is not an act or omission of the nature contemplated by that section.

    Extension of time
    Where a creditor extends time for the payment of a debt, without the surety’s consent, the surety is discharged. Where a creditor grants time to the debtor and allows payment by installments without the surety’s consent, the surety is discharged from his liability.

    Extension of time with consent of surety
    Where there is a stipulation in a surety bond that the surety was not to be discharged by any dealings between the creditor and the principal debtor, the surety is not in any way relieved by the time given to the principal debtor without his knowledge of concurrence.

    Extension on part payment of debt
    A surety’s liability does not come to an end if the creditor gives time to the principal debtor in consideration of part payment of the debt by the latter.

    Extension as to payment of part of debt
    When the payment of only a portion of a guaranteed debt is allowed to be postponed, the discharge of the surety extends only to such portion and not to the rest of the liabilities with regard to which he is not prejudiced.
    Extension of time by court
    Where it is the court and not the deree-holder which grants time to judgment-debtor to pay by adjourning the case from time to time in spite of decree-holder’s opposition, the surety is not discharged. If the surety acquiesces in the orders of the Court, he cannot say that time was granted without his consent.
    Striking off balance by principal debtor
    Striking of balance by principal debtor unsigned by the surety does not discharge the surety, inasmuch as while it extended time and privileges to the creditor it did not confer any benefit on the principal debtor.
    Acknowledgment of debt by principal debtor
    An acknowledgement by the principal debtor does not save limitation against the surety unless it is shown that the latter allowed himself to be represented by the person who made the payment.
    Assent by surety

    The principle that the rights of surety are not to be interfered with without his consent, ought to the applied even to a case not governed by the contract, Act.
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    Item Reviewed: Surety is Discharged under Contract Act Rating: 5 Reviewed By: Usman Ali
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