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Fundamentals of Business Laws and Business Communication · Discharge of Contracts

Discharge of Surety from Liability under the Contract Act

Updated 10 October 2026 · Fact-checked

A surety is discharged when the law says the creditor's act or the contract's changed position makes it unfair to hold the surety liable. Key cases: revocation by notice (Section 130), release or discharge of the principal debtor (Section 134), and the creditor impairing the surety's remedy (Section 139). Forbearance to sue (Section 137) and release of one co-surety (Section 138) do not discharge.

Understand Discharge of Surety from Liability

A contract of guarantee has three parties: the creditor, the principal debtor and the surety. The surety promises to pay if the debtor fails. Because the surety took the risk on fixed terms, the law protects the surety when the creditor changes those terms or harms the surety's position.

The topic splits into two groups. In the first group the surety is discharged. In the second the surety is not discharged. Exam questions test whether you can place a fact in the right group.

Discharged cases. (1) The surety revokes a continuing guarantee by notice for future transactions (Section 130). (2) The surety dies: the death of a surety operates as revocation of a continuing guarantee for future transactions, unless the contract says otherwise (Section 131). (3) The creditor makes a contract with the principal debtor without the surety's consent that varies the terms (Section 133). (4) The creditor releases the principal debtor by a contract, or does something that by law discharges the debtor (Section 134). (5) The creditor makes a composition with, gives time to, or promises not to sue the principal debtor, without the surety's consent (Section 135). (6) The creditor's act or omission impairs the surety's eventual remedy against the principal debtor (Section 139). (7) The creditor loses or parts with security given at the time of the guarantee without the surety's consent, to the extent of its value (Section 141).

Not discharged cases. (1) Mere forbearance by the creditor to sue the principal debtor or to enforce a remedy does not discharge the surety, unless there is a contract to the contrary (Section 137). (2) Release of one co-surety does not discharge the others, and it does not free the released surety from his responsibility to the other co-sureties (Section 138). (3) Where the debtor is released by the creditor's own act, the key words in Section 134 matter. Release by contract or by an act or omission of the creditor whose legal consequence is discharge of the debtor frees the surety. If the debtor is freed only by operation of law, such as insolvency, the surety is generally not freed.

Hold on to the logic: the surety is freed when the creditor's own conduct, without the surety's consent, changes the risk or damages the surety's right to recover from the debtor.

Key formulas to remember

Section 134 rule
Release or discharge of principal debtor by creditor's contract or act/omission → surety discharged
Applies when the debtor is discharged by the creditor's contract or by a creditor's act or omission that legally discharges the debtor. Release by operation of law alone does not free the surety.
Section 135 rule
Composition, giving time or promise not to sue the debtor, without surety's consent → surety discharged
Applies unless the surety consents or the contract reserves the surety's rights. Contrast with Section 137.
Section 137 rule
Mere forbearance to sue the principal debtor → surety NOT discharged
Applies to simple inaction by the creditor. It is not a promise to give time or not to sue. A contract to the contrary can change this.
Section 138 rule
Release of one co-surety → other co-sureties NOT discharged
The released co-surety also stays responsible to the others for contribution.
Section 139 rule
Creditor's act or omission impairing surety's eventual remedy against the principal debtor → surety discharged
Example: the creditor lets the debtor's security or property be lost, which the surety would later rely on.
Section 141 rule
Creditor loses or parts with security without surety's consent → surety discharged to the extent of its value
Covers security that existed when the guarantee was given.
Revocation rules
Section 130: notice revokes a continuing guarantee for future transactions. Section 131: surety's death revokes it for future transactions unless the contract says otherwise.
Past transactions remain the surety's liability.

How to solve Discharge of Surety from Liability questions

Use this method for any fact-based question on the discharge of a surety. It keeps you from guessing between look-alike options.

  1. 1Identify the three parties and what the guarantee covers. Note whether the guarantee is specific or continuing.
  2. 2Find what the creditor did: released the debtor, varied terms, gave time, merely waited, released a co-surety, or lost security.
  3. 3Check whether the surety consented. Consent usually removes the discharge.
  4. 4Match the act to its section: release of debtor (134), composition or time (135), forbearance (137), co-surety release (138), impairing remedy (139), loss of security (141).
  5. 5Decide the group: discharged or not discharged. Mere waiting and co-surety release are the not-discharged cases.
  6. 6Check the extent. Loss of security discharges only to the extent of its value.
  7. 7Choose the option that states both the result and the correct reason.

Quickest way: Active versus passive creditor test

When to use it: Use it when an MCQ lists a creditor's act and asks whether the surety is discharged.

  1. Ask: did the creditor do something active that binds the debtor, such as releasing, compounding or giving time by contract? If yes, think discharge.
  2. Ask: did the creditor merely wait or fail to sue? If yes, think Section 137, no discharge.
  3. Ask: was one co-surety released? If yes, other co-sureties stay liable.
  4. Ask: did the creditor's act hurt the surety's right to recover from the debtor? If yes, Section 139 discharge.
  5. Ask: was the surety's consent given? If yes, the surety is usually not discharged.
  6. Eliminate options that mix up the sections, such as saying the release of one co-surety frees all.

Common mistakes in Discharge of Surety from Liability

  • Saying that mere forbearance to sue discharges the surety.

    Students mix Section 135, which covers a contract to give time, with Section 137, which covers simple inaction.

    Fix: Remember: a binding promise or contract to give time discharges; plain waiting does not.

  • Thinking release of one co-surety frees all the co-sureties.

    The word release suggests the whole guarantee ends.

    Fix: Section 138: other co-sureties remain liable, and the released one still owes contribution to them.

  • Treating every release of the principal debtor as discharging the surety.

    Students remember only the headline of Section 134.

    Fix: Check how the debtor was released. Release by creditor's contract or by an act or omission with the legal effect of discharge frees the surety. Release by operation of law alone, such as insolvency, generally does not.

  • Ignoring the surety's consent.

    Students focus on the creditor's act and skip the facts about agreement.

    Fix: Read the facts for any consent by the surety. Consent usually removes the discharge.

  • Forgetting that loss of security discharges only to the extent of its value.

    Students assume any discharge is complete.

    Fix: Under Section 141, the discharge is limited to the value of the security lost.

  • Assuming death of a surety ends all liability.

    Students confuse future and past transactions.

    Fix: Death revokes a continuing guarantee only for future transactions, unless the contract says otherwise. Past liability remains with the estate.

Worked examples

Example 1

Ravi guarantees the payment of ₹5,00,000 that Meera owes to Sunrise Traders. Sunrise Traders does not sue Meera on the due date and simply waits for three months. Ravi says he is discharged. Is he right?

Show the solution
  1. The creditor is Sunrise Traders, the principal debtor is Meera and the surety is Ravi.
  2. The creditor has done nothing active. It merely waited and did not sue.
  3. There is no contract with Meera to give time and no promise not to sue.
  4. Under Section 137, mere forbearance to sue the principal debtor does not discharge the surety.
  5. So Ravi's claim fails.

Answer: Ravi is not discharged. Mere forbearance to sue does not discharge the surety under Section 137.

Example 2

A, B and C are co-sureties for a loan of ₹3,00,000 taken by D from a bank. The bank releases C from his liability. Are A and B discharged?

Show the solution
  1. There are three co-sureties and one principal debtor.
  2. The bank has released only one co-surety, C.
  3. Under Section 138, release of one co-surety does not discharge the others.
  4. A and B therefore remain liable on the guarantee.
  5. C is also not freed from his responsibility to A and B, so they can still claim contribution from him.

Answer: A and B are not discharged. Release of one co-surety does not discharge the others, and C still remains responsible to them for contribution.

Exam tips

  • Sort every fact into discharged or not discharged first, then match the section.
  • The exam favours the pairs 135 versus 137 and 138 versus 139. Learn each as a contrast.
  • Look for the words without the consent of the surety. They signal discharge.
  • If the option says the surety is discharged only to the extent of the value, think of Section 141 on security.
  • With no negative marking, always answer. Eliminate options that overstate, such as saying all co-sureties are freed.

Practice questions from Discharge of Contracts

Discharge of Surety from Liability in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Discharge of Surety from Liability: frequently asked questions

Does release of the principal debtor discharge the surety?

Yes, where the creditor releases the debtor by a contract, or by an act or omission whose legal result is the debtor's discharge, the surety is discharged under Section 134. If the debtor is freed only by operation of law, the surety is generally not discharged.

Does release of one co-surety discharge the others?

No. Under Section 138 the other co-sureties remain liable. The released co-surety is also not freed from his responsibility to them.

Does the creditor's forbearance to sue discharge the surety?

No. Under Section 137, mere forbearance to sue the principal debtor or enforce a remedy does not discharge the surety, unless the contract says otherwise.

What is the effect of the creditor impairing the surety's remedy under Section 139?

If the creditor does any act inconsistent with the surety's rights, or omits to do an act his duty requires, and the surety's eventual remedy against the principal debtor is impaired, the surety is discharged.

How is a surety discharged under the Indian Contract Act?

A surety can be discharged by revocation, by the surety's death for future transactions of a continuing guarantee, by variance of terms, by release of the debtor, by composition or giving time, by impairing the surety's remedy and by loss of security.