Discharge of surety in contract of guarantee. Contract of guarantee, surety, principal debtor 2019-02-17
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Explain when a surety is discharged or not discharged from his liability ?
By creditor's act or omission impairing surety's eventual remedy Sec. Contingency- The liability of the idemnifier arises only on the happening of a contingency. Compounding with the principal debtor. Invali d Guarantee Following are a few of those cases when the guarantee given by the surety will be invalid and cannot be enforced against him: i Guarantee obtained by misrepresentation Sec. B promises on his part that he will, at least once a month, see M make up the cash. Automatic subrogation : Once the surety has paid the guarantee amount to the creditor. C, without the knowledge of A, prepays the last two installments to B.
In this Surety that is A is discharged as A did not know about the contract between B and C. Before coming to rights of surety I am again going to give the definition of surety. The surety may, therefore, sue the principal debtor in the rights of the creditor. The following example explains the point. Therefore, he continues to be liable for the transactions which were entered before the variation took place.
Rights of Surety Under the Indian Contract Act 1872
Liability: Under such contract the primary liability is of the principal debtor and only secondary liability is of the surety. If the creditor loses any such security without the consent of the surety, the surety is discharged from liability to the extent of the value of the security. The contract connecting each other as contract between: a between the principal debtor and creditor contract of loan b between the creditor and surety contract of guarantee and c between the surety and principal debtor contract of indemnity. Example: C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with C to give time to B. The Indian Contract Act , 1872 Section 126 of Indian Contract Act defines Contract of guarantee.
The guarantee given by A was only a specific guarantee and accordingly he is not liable for the price of the four sacks. But a specific guarantee cannot be revoked if the creditor has given the loan. This revoation discharges A from all liability to B for any subsequent discount. Right to sue-- Indemnifier cannot sue a third party for the loss suffered. Principal debtor has to indemnify the surety later with the rightfully sum. Example: A becomes surety to C for B's conduct as a manager in C's Bank.
134. Discharge of surety by release or discharge of principal debtor
The bill is dishonoured by C. C also gives a guarantee, to B for the repayment of loan. Discharge of surety by revocation: a Revocation by notice Sec. He has to sue in the name of the Indemnity-holder or after obtaining the rights from him. Notice of revocation Ordinarily a guarantee cannot be revoked if the liability has already been accrued. .
It will be a contract of guarantee A Will be surety, C will be a principal debater and B will be a creditor. Every person is presumed to know the law of land. Arrangement between principal debtor and creditor Where the creditor, without the consent of the surety arrives at a settlement with the principal debtor, or promises to give him more time, or promises not to sue him by a contract between the creditor and the principal debtor, the surety is absolved from the liability, unless the surety assents to such contract. But the variation must be such materially affects the position of the surety. By a subsequent Act, the nature of the office is materially altered. A is discharged from his liability, as the contract has been varied in as much as C might sue B for the money before the first of March. Thus, where the integrity of a cashier is guaranteed, it is the duty of the employer to give information to the surety if any dishonest act is done by the employee.
Explain when a surety is discharged or not discharged from his liability ?
The Law puts him in the position of Creditor. In Bank of Bihar v Damodar Prasad it was held that the creditor do not have exhaust all the remedies against principal debtor before suing the surety. It is a guarantee from a bank against liabilities. Release or discharge of principal debtor The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. Creditor, debtor and the surety are the three parties to the contract of guarantee. For example, parties are not competent to contract or consideration is illegal or contract is impossible to perform. A is discharged from liability to the amount of the value of the furniture.
Under what circumstances is the surety discharged from liability?
Section 134 — Discharge of surety by release of Principal Debtor In this section states that if the principal debtor is release because of any contract between creditor and principal debtor or by any act or omission of the creditor, then the surety is released. Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that other person does not join. The guarantee given by A was a continuing guarantee, and he is accordingly liable to B to he extent of £ 100. Afterwards B delivers four sacks to C, which C does not pay. However if the variance is for the benefit of the surety or does not prejudice him or is of an insignificant character, it may not have the effect of discharging the surety. Notice of this intention is to be given to the creditors then only it will be effective. In this guarantee, surety is liable to pay the creditor for all the transactions.
133. Discharge of surety by variance in terms of contract
Thus if the security is lost due to an act of God or enemies of the state or unavoidable accident, the surety would not be discharged. When the liability comes to an end, a surety is said to be discharged. Loss of security If the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security. But in respect of consideration, no direct consideration in the contract between the surety and creditor. Also, it arises between a retail trader and the customer. Exceptions: In the following cases, the surety is not discharged: i Death: Death of the principal-debtor does not discharge the surety from his liability. The reason for the discharge of surety is with the principal debtor that this release of the principal debtor extinguishes the principal obligation, to begin with.
In this case, C is not discharged to the extent of the value of the security as the further security was given after the loan had already been given. Like contract of indemnity, the contract of guarantee is of special nature. A letter of credit is an instrument which is written by one person to the other about giving of credit. For instance, C advances to B, his tenant, Rs 2,000 on the guarantee of A. A promises to check up the cash of the cashier at least once a month.
