Legal and Regulatory

Environment of
Business Box 6.7 Surety Discharged if creditor Impairs Remedy for
Him
Notes
Example 1
B contracts to build a ship for C for a given sum to be paid in installments as the work reaches certain
stages. A becomes surety to C for B’s due performance of the contract. C, without the knowledge of
A, prepays the last two installments to B. A is discharged by the prepayment.
Example 2
C lends money to B on the security of a joint and several promissory note made in C’s favour by B,
and by A as surety for B, together with a bill of sale of B’s furniture, which gives power to C to sell
the furniture. Owing to his (C’s) misconduct and wilful negligence, only a small price is realised. A is
discharged from liability on the note [Appended to Section 139].

Loss of security
If the creditor loses, or without the consent of the surety, parts with such security, the surety
is discharged to the extent of the value of the security. It is immaterial whether the surety was
or is aware of such security or not [Section 141]. For instance, C advances to B his tenant, ` 2000
on the guarantee of A. C has also a further security for ` 2000 by a mortgage of B’s furniture. C,
however cancels the mortgage. B becomes insolvent and C sues A on his guarantee. A is discharged
from liability to the amount of the value of the furniture.

Invalidation of contract
A surety is also discharged upon invalidation of the contract (i.e., between the creditor and the surety).
A contract of guarantee is invalid in the following circumstances.
Guarantee obtained by misrepresentation Any guarantee that has been obtained by means of
misrepresentation made by the creditor, or with his knowledge or assent, concerning a material part
of the transaction is invalid [Section 142].
Guarantee obtained by concealment Any guarantee that the creditor has obtained by means of
keeping silence as to the material circumstances is invalid [Section 143].
Default on part of co-surety Where a person gives a guarantee upon a contract that the creditor
shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if
that other person does not join [Section 44].

Contracts of Bailment and Pledge: Introduction

Like contacts of indemnity and guarantee, contracts of bailment and pledge are specific types of
contracts, as the Contract Act has laid down special rules for such types of contracts. Sections
148–181, contained in Chapter IX of the Indian Contract Act of 1872, govern these types of contracts.
This chapter describes the meaning and kinds of bailment, duties, and rights of bailee as well as
of bailor, finder of lost goods—his rights and duties, termination of bailment, pledge, difference
between pledge and bailment, rights and duties of pawnor and pawnee, and pledge by persons,
other than owners.

Bailment
A bailment is a situation wherein the owner of goods entrusts their possession into the care of
another person for some purpose briefly. Section 148 defines bailment thus:
‘A bailment is the delivery of goods by one person to another for some purpose, upon a contract
that they shall, when the purpose is accomplished, be returned or otherwise disposed of according
to the directions of the person delivering them’.
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