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DISCHARGE OF A GUARANTOR OR SURETY.

 A guarantor means the person who becomes secondarily liable for


another’s debt or performance. A surety, on the other hand, is the person
that becomes primarily responsible for the debt and the default of another
person.
 The principal debtor is often called the “obligor,” because he is the
primary debtor to the creditor and is directly liable on the underlying
obligation.
 The creditor is also referred to as the “obligee.” He is the party to whom
a debt or performance is owed as part of the underlying obligation.
 A guaranty is a collateral promise by the guarantor to act as a secondary
obligor for the principal debtor in case of default. A guaranty is made
between the creditor and a third party (surety)
DISCHARGE OF A GUARANTOR OR SURETY.
 Discharge of a guarantor means the withdrawal or
termination of a guarantor from the guarantee offered. This
may happen because of several reasons and most probably
caused by either the creditor or the debtor or both of them. It
is on rare occasions that the guarantors discharge themselves
from the guarantee.
 The following slides explain situations where and when the
guarantor can be discharged from a certain guarantee.
The guarantor shall be discharged in the
following cases.
 Fraud.
A guarantee which has been obtained by means of
misrepresentation made by the creditor or with knowledge and
assent concerning the material part of the transaction is invalid.
 Variation or alteration of terms.
If there is any variance/ alteration in the terms of the contract
between the principal debtor and the creditor, without the
consent of the surety, the surety gets discharge as regards
transactions subsequent to such a change.
The guarantor shall be discharged in the
following cases.
 Revocation.
A contract of guarantee may either be specific or continuing. A special
contract relates to one transaction and cannot be revoked e.g. where the
debtor has already obtained the loan. A continuing guarantee is one that
extends to a series of transactions and may be revoked by giving notice to
the creditor for future transactions. The notice of surety’s death to the
creditor also revokes the guarantee with respect to future transactions.
 Rights of surety.
If the creditor does any act which is against the rights of the surety or
omits to do anything which he is obliged to do for the protection of the
securities in his possession the surety is discharged.
Contd
 Concealment.
Any guarantee which the creditor has obtained by means of keeping
silence as to the material circumstances is invalid. Contract of guarantee is
not like the contract of insurance a contract of uberimae fidei in the sense
that there is an obligation on the creditor to disclose to the surety every
circumstance within his knowledge and non-disclosure of such a fact will
avoid the contract.
 Discharge of the principal debtor.
If the principal debtor is discharge from his liability by any act or
omission of the creditor then the surety is discharged as well.
 Extension of time.
If without the consent of the surety the creditor makes a binding contract
to extend the agreed time of repayment of the loan.
 Release of co-guarantor.
Where the guarantee is given by more than one guarantor and the creditor
expressly releases a co-guarantor all other guarantors are discharged.
 Limitation.
Where the creditor fails to sue the debtor or the guarantor within the
period of limitation i.e. six years, the guarantor is discharged.
Contd
 Mode of payment.
Where a creditor has allowed the debtor to make payments via
installment rather than upon maturity. If the principal debtor makes the
payment on the due date, the surety is discharged.
 Illegality.
A contract of guarantee like any other contract may be avoided if the
debt itself is avoid for illegality e.g a loan given to the infant guaranteed
by an adult cannot be forced as the original contract between the
creditor and the infant is void under the infant’s relief act.