Page 98 - DMGT102_MERCANTILE_LAWS_I

Mercantile Laws-I

Notes
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
of the value of the security, unless the surety consented to the release of such security
(s.141).

Example: C advances to B, his tenant ` 2,000 on the guarantee of A. C has also a further
security for the ` 2,000 by a mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent
and C sues A on his guarantee. A is discharged from liability to the amount of value of the
furniture.

Notes
Format of a Surety Bond
The deed is executed on the ….. day of …… 2003 ……… between S/o Shri ……….
R/o …….. (hereinafter called the Employee of the first part and …… S/o Shri ……. R/o

…….. New Delhi (hereinafter called the Surety) of the second part and The East India
Hotels Ltd., 4 Mangoe Lane, Kolkata 700 001 (hereinafter called the Management) of the
third part.
Whereas the Employee has applied to the Management for an advance of
` …….../- (Rupees …….../- only) for the construction of a house.
And whereas the Surety has agreed to give security for the repayment of such loan in the
manner hereinafter in equal monthly instalments.
Now This Deed Witness As Follows.
1. In pursuance of the said agreement and in consideration of a sum of
` …/- (Rupees only) advanced by the Management to the Employee (receipt of which
is hereby acknowledged), the Employee and the Surety hereby jointly and severally
convenant with the management as under.
2. The Employees shall pay the Management the sum of ` ……/- (Rupees only) in equal
monthly instalments of ` …… (Rupees …… only) with interest.
3. If there is any default on the part of the Employee to pay the monthly instalment for
any reason, whatsoever, the Surety will pay the arrears for that particular month to
the management.
Contd....

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