Surety not discharged when agreement made with third person to give time to principal debtor.— Where a contract to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged.
Illustration
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.
When surety is NOT released (discharged)?
If the lender (creditor) makes an agreement with some other person (third party) to give more time to the main borrower (principal debtor), then the surety (guarantor) is still responsible. This is because the agreement was not made directly with the borrower.
The law protects the creditor’s ability to deal flexibly with third parties without harming the creditor’s claim on the surety.
Think of it like this:
- Rajesh is like a backup player.
- Rahul is the main player.
- Sunita is the coach.
- Even if Sunita allows Manish (team manager) to give Rahul extra time to play, Rajesh still has to step in if Rahul fails.
Key Point:
- The ground for Sunita making the agreement with Manish is her freedom as a creditor to deal with third parties.
- But because Rahul didn’t directly agree, Rajesh, the surety, is not discharged.
Example 1
C holds a bill of exchange that B has accepted, and A is the surety for B. C makes a deal with M to give B more time to pay. Here, A (the surety) still has to pay if B does not.
Example 2
A borrows ₹50,000 from S. R is the surety. S tells a friend of A to give him extra 1 month to repay. Even after this, Rajesh still has to pay if A fails.
Example 3
S sells goods on credit (Pay later) to R. P is R’s surety. S makes a deal with R’s brother to extend the payment date. P is not freed from being responsible.
Example 4
A bank loan: M borrows money and R is his surety. The bank tells M’s colleague that he can have more time to repay. Even then, R has to pay if M does not.