Special Contracts · Indemnity, Guarantee, Bailment and Agency

Discharge of Surety

Learn when a surety is discharged by variance, release, giving time, impaired remedies, lost securities or revocation of a continuing guarantee.

6 min readReviewed by Advocate Aditya Sharma
Sections 130 to 141

In one line

A surety is discharged when an unauthorized change or creditor conduct materially alters the guaranteed risk or impairs the surety's eventual remedy.

After this note, you should be able to

  • Apply the main statutory grounds of discharge.
  • Distinguish giving time from mere forbearance to sue.
  • Measure discharge where creditor securities are lost.

Main grounds of discharge

State the precise section because similar creditor conduct can produce different results.

Variance, Section 133
A non-consensual variance in the principal contract discharges the surety as to transactions after the variance.
Release, Section 134
A contractual release or discharge of the principal debtor can discharge the surety, subject to the nature and source of the debtor's release.
Composition or time, Section 135
A binding arrangement with the debtor to compound, give time or not sue can discharge a non-consenting surety.
Impaired remedy, Section 139
The surety is discharged when the creditor's act or omission impairs the surety's eventual remedy.
Lost security, Section 141
Loss or parting with creditor securities without consent discharges the surety to the value of that security.

What does not automatically discharge

Delay alone is not the same as a binding promise to give time.

Agreement with a third person
An agreement to give time made with someone other than the principal debtor does not discharge the surety under Section 136.
Forbearance to sue
Mere failure to sue the principal debtor does not discharge the surety under Section 137.
Release of co-surety
Releasing one co-surety does not discharge the others, though contribution rights remain relevant.
Continuing guarantee
Revocation operates prospectively for future transactions under Sections 130 and 131.

Work through the facts

Illustration

Facts

A bank holds pledged stock worth Rs 3 lakh for a guaranteed loan but negligently allows the debtor to remove it without the surety's consent.

Likely result

The surety may be discharged to the value of the lost security because the surety's right to its benefit after payment has been impaired.

What to learn

Measure the effect of lost security instead of assuming the entire guarantee always disappears.

Cases with a purpose

Landmark judgments

Learn the rule and where to use it. A case name without its legal function adds little to an answer.

State Bank of Saurashtra v. Chitranjan Rangnath Raja

Core case

(1980) 4 SCC 516

Principle: A creditor that loses or parts with security and impairs the surety's eventual remedy can discharge the surety to the relevant extent.

Use in an answer: Use it for Sections 139 and 141 where secured goods or collateral are lost.

Bank of Bihar Ltd. v. Damodar Prasad

Core case

AIR 1969 SC 297

Principle: Mere failure to first pursue the principal debtor does not discharge the surety, whose liability is ordinarily immediate.

Use in an answer: Use it to reject an argument based only on the creditor not suing the debtor first.

For a 10-mark answer

Answer structure

  1. Identify the creditor act said to discharge the surety.
  2. Select the exact section from 130 to 141.
  3. Check consent, timing and effect on the guaranteed risk.
  4. State whether discharge is complete, prospective or limited by value.

Common mistakes

  • Treating mere delay in suing as discharge.
  • Ignoring the surety's consent to a variation.
  • Failing to value lost securities.

Before you close the tab

Quick revision

  • Unauthorized variance affects later transactions.
  • Binding time given to the debtor differs from forbearance.
  • Impaired remedies can discharge the surety.
  • Continuing guarantees are revoked prospectively.

Test yourself

  1. Does mere forbearance to sue discharge the surety?
  2. How does Section 141 measure discharge?
  3. What is the effect of revoking a continuing guarantee?

Short answers

Frequently asked questions

Does delay in suing the borrower discharge the guarantor?

Mere forbearance to sue does not ordinarily discharge the surety under Section 137.

What happens when the creditor loses security?

The surety is generally discharged to the extent of the value of security lost or parted with without consent.

Primary sources

This is an educational study note. Read the bare provision and full judgment before relying on a proposition in research or practice.