Page 46 - DMGT407Corporate and Business Laws

Unit 2: Consent, Indemnity and Guarantee Acts

liability of the surety is co-extensive with that of the principal debtor, it can be no more Notes
than that of the principal debtor and that the surety therefore cannot be held liable on a
guarantee given for default by a minor. If a minor could not default, the liability of the
guarantor being secondary liability does not arise at all. The same view has been endorsed
by the Madras High Court in the case of Edavan Nambiar v. Moolaki Raman (A.I.R. 1957
Mad. 164). It was held that unless the contract otherwise provides, a guarantor for a minor
cannot be held liable.
3. Discharge of Surety: The liability of surety under a contract of a guarantee comes to an end
under any one of the following circumstances:

(a) By notice of revocation (s.130): A continuing guarantee may at any time be revoked by
the surety, as to future transactions, by notice to the creditor.

Example: A, in consideration of B’s discounting, at A’s request, bills of exchange for C,
guarantees to B, for twelve months, the due payment of all such bills to the extent of ` 5,000. B
discounts bill for C to the extent of ` 2,000. Afterwards, at the end of the three months, A revokes
the guarantee. The revocation discharges A from liability to B for any subsequent discount. But
A is liable to B for ` 2,000 on default of C.
(b) By the death of surety (s.131): The death of the surety operates, in the absence of any
contract to the contrary, as a revocation of a continuing guarantee, so far as regards
future transactions.

(c) 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 suretyship by the variance made without his consent
and is not liable to make good this loss.
(d) 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 suretyship.
(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 suretyship.
(e) By compounding with, or giving time to, or agreeing not to sue the 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

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