Page 47 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes 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.

(f) 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 installments 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 installments. 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.
(g) 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.

Self Assessment

Fill in the blanks:
13. Rights of a surety is classified under three heads which are rights against the creditor,
rights against the principal debtor and rights against………………..
14. In a contract of guarantee there are three parties, viz., the creditor, the principal debtor and
the …………..

Caselet EOUs not Happy with New Sub-contract Norms

—By G Srinivasan
he recent decision by the Government providing broad guidelines for allowing
100 per cent Export-Oriented Units (EOUs) to undertake sub-contracting has left
Tthem “disappointed” as the restriction prescribed in the form of furnishing bank
guarantee has compounded the problem. Sources in the EOUs told Business Line here that
the safeguards brought in place for sub-contracting stipulates that if raw materials are sent
Contd...

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