The law protects the surety from having their risk increased without their consent. The Indian Contract Act provides several methods by which a surety is discharged from liability.
1. Discharge by Revocation
- Notice (Section 130): Revocation of continuing guarantee for future transactions by notice to the creditor.
- Death (Section 131): Death of the surety automatically revokes a continuing guarantee as to future transactions.
2. Discharge by Conduct of the Creditor
- Variance in Terms (Section 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.
- Release of Principal Debtor (Section 134): The surety is discharged by any contract or act/omission of the creditor, the legal consequence of which is the release of the principal debtor.
- Compounding / Giving Time (Section 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, unless the surety assents to such contract.
- Impairing Surety's Remedy (Section 139): If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty requires him to do, and the eventual remedy of the surety against the principal debtor is thereby impaired, the surety is discharged.
📜 Judicial Precedent: State Bank of Saurashtra v. Chitranjan R. Raja (1980)
The bank lost the pledged goods (groundnut oil tin packets) due to negligence. The Supreme Court held that under Section 141, because the creditor bank lost/parted with the security without the surety's consent, the surety was completely discharged of liability to the extent of the value of the lost security.