In a contract guarantee surety comes across secondary liability. The following are situations where sureties secondary liability comes to an end.
- Discharge by revocation of guarantee.
- Discharge by activities of creditor.
- Discharge by invalidation of guarantee contract.
Discharge by revocation of guarantee: The following are Situations where revocation of guarantee takes place by terminating secondary liability of Surety.
- By Notice
- By Death
- By Renewal.
- By Notice: Surety can revoke his guarantee by giving a notice to creditor. Guarantees are of two types. Namely; Specific guarantee and Continuing guarantee. If guarantee is given to a particular debt, it is called specific guarantee. Specific guarantee cannot be revoked by notice on the other hand if guarantee extends to a group of debts, it is called continuing guarantee. Continuing guarantee can be revoked by giving notice. But here surety will be held liable to debts borrowed by principal debtor before such notice.
- By Death: Whenever surety comes across death, then his secondary liability comes to an end. But sureties legal representative will be held liable. In case where surety has given specific guarantee legal representative has to take up the secondary liability absolutely. In case where surety has given continuing guarantee, legal representative is liable to the debts granted by creditor to principal debtor till data of filing death notice by legal representative.
- By Renewal: Whenever renewal of guarantee contract takes place, old guarantee comes to an end. For example: There is a contract of guarantee among X, Y and Z who are creditor, principal debtor and surety respectively. There after Y has arranged Mr. A as surety in place of Z. As a consequence Z`s guarantee gets revoked and Z`s secondary liability goes off.
Discharge by activities of creditor: Whenever creditor renders any of the following activities, surety gets discharges from his secondary liability.
- Realizing principal debtor.
- Improper dealings with principal debtor.
- Loosing securities.
- Alterations: In case where creditor makes material alterations in guarantee contract deed, without consent of surety discharge of Surety takes place. A case on this point is Witcher Vs Hall. In this case, creditor fraudulently alters the deed and surety gets decree from the court saying that he has no secondary liability.
- Releasing principal debtor: If creditor releases principal debtor from principal liability automatically sureties secondary liability also comes to an end. A case on this point is Hewson Vs Ricketts. In this case the creditor releases principal debtor and after coming to know about it, surety gets decree from court that he (surety) is also discharged.
- Improper dealings with principal debtor: If creditor collides with principal debtor and tries to defraud Surety, then also discharge of surety takes place. A case on this point is Midlon motor show rooms Vs Newman. In this case creditor joins hands with principal debtor and thus makes effort to cheat surety. Here court decides that surety has no secondary liability.
- Loosing securities: At times the principal debts may give additional securities also in support of the death besides personnel validity. Whenever creditor looses such securities, both primary and secondary liabilities will go out of existence.
Discharge by invalidation of guarantee contract: When guarantee contract becomes invalid and surety will have no secondary liability. The following are situations where guarantee Contract becomes invalid.
- No flow of consideration
- Absence of other essentials of valid contract.
- Co-surety not joining.
- Mis-Representation: When surety is made involved in guarantee contract by means of fake representation, guarantee contract becomes invalid and Surety gets discharged.
- Concealment: When Surety is made involved in guarantee contract by concealing material facts, then also discharge of surety takes place.
- No flow of consideration: When creditor does not grant the loan as per the terms, there is no question of primary as well as secondary liabilities.
- Absence of other essentials: Besides consideration, the contract should have certain other features also, to attain validity. When guarantee contract is deficient in any one of those features, guarantee contract becomes invalid.
- Co-surety not joining: At times the surety may insist on presence of another surety. Then the guarantee contract becomes contingent contract. In case where such condition is not full filed i.e. co-surety does not join, it becomes invalid.