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Unit 8: Contract of Guarantee

2. By the death of surety (s.131): The death of the surety operates, in the absence of any Notes
contract to the contrary, as a revocation of a continuing guarantee, so far as regards future
transactions.
3. By variance in terms of the contract (s.133): 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 transactions subsequent to the variance.

Example: A becomes surety to C for B’s conduct as a manager in C’s bank.
Afterwards B and C contract, without A’s consent, that B’s salary shall be raised and that
he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to
overdraw and the bank loses a sum of money. A is discharged from his surety ship by the
variance made without his consent and is not liable to make good this loss.
4. By release or discharge of principal debtor (s.134): The surety is discharged by any contract
between the creditor and 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.

Examples: (i) A gives a guarantee to C for goods to be supplied by C to B. C
supplies goods to B and afterwards B becomes embarrassed and contracts with his
creditors (including C) to assign to them his property in consideration of their releasing
him from their demands. Here A is released from his debt by the contract with C and A
discharged from his surety ship.
(ii) A contracts with B for fixed price to build a house for A within a stipulated time, B

supplying the necessary timber. C guarantees A’s performance of the contract. B omits to
supply the timber. C is discharged from his surety ship.
5. By compounding with, or giving time to, or agreeing not to sue, principal debtor (s.135):
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
the surety. The surety shall, however, be not discharged if (a) he assents to such contract,
(b) the contract to give time to the principal debtor is made by the creditor with a third
person and not with the principal debtor.

Example: C, the holder of an overdue bill of exchange drawn by A as surety for
B and accepted by B, contracts with M to give time to B. A is not discharged.

6. By creditor’s act or omission impairing surety’s eventual remedy (s.139): If the creditor
does any act which is inconsistent with the right of the surety, or omits to do any act which
his duty to the surety requires him to do and the eventual remedy of surety himself against
the principal debtor is thereby impaired, the surety is discharged.

Examples: (i) B contracts to build a ship for C for a given sum to be paid by
instalments as the work reaches certain stages. A becomes surety of B’s due performance
of the contract. C, without the knowledge of A, repays to B the last two instalments. A is
discharged by this prepayment.
(ii) A puts M as an apprentice to B and gives a guarantee to B for M’s fidelity. B promises

on his part that he will, at least once a month, see M make up the cash. B omits to see this
done as promised and M embezzles. A is not liable to B on his guarantee.
7. Loss of security: If the creditor loses or parts with any security given to him by the principal
debtor at the time the contract of guarantee was made, the surety is discharged to the extent

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