Section 136 of Indian Contract Act, 1872 - Surety Not Discharged When Time Is Given Through a Third Person
Section 136 deals with a specific exception concerning discharge of a surety. If the creditor's contract to give time to the principal debtor is made with a third person, rather than with the principal debtor, the surety is not discharged.
What does Section 136 provide?
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.
The provision distinguishes an agreement directly between the creditor and principal debtor from an arrangement made by the creditor with somebody else. The identity of the person with whom the creditor contracts is therefore important when considering whether the surety is released.
Meaning of surety, principal debtor and creditor
Under Section 126, a contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of default. The person giving the guarantee is the surety, the person whose default is guaranteed is the principal debtor, and the person to whom the guarantee is given is the creditor.
How Section 136 differs from Section 135
Section 135 addresses a contract between the creditor and the principal debtor by which the creditor compounds with, promises to give time to, or agrees not to sue the principal debtor. Subject to the statutory conditions, such an arrangement may discharge the surety unless the surety assents.
Section 136 draws a different result where the contract for giving time is made between the creditor and a third person, not between the creditor and the principal debtor. In that situation, Section 136 expressly says that the surety is not discharged.
Illustration under Section 136
C holds an overdue bill of exchange drawn by A as surety for B and accepted by B. C contracts with M, a third person, to give time to B. A is not discharged.
The illustration shows the core rule: the creditor's agreement is with M, not with B, the principal debtor. Consequently, the statutory discharge contemplated for certain direct arrangements with the principal debtor does not arise under Section 136.
Key points for understanding Section 136
- There must be a contract to give time to the principal debtor.
- The contract must be between the creditor and a third person.
- It must not be a contract with the principal debtor.
- When these conditions apply, the surety is not discharged merely because time is being given to the principal debtor.
- The provision should be read with Sections 126, 128, 135 and 137 when analysing a guarantee and the possible discharge of a surety.
Section 136 and creditor's mere forbearance
Section 137 separately provides that mere forbearance by the creditor to sue the principal debtor or enforce another remedy does not, in the absence of a contrary provision in the guarantee, discharge the surety. This is distinct from a binding contract to give time.
Practical significance
When a guarantor claims discharge because the debtor received additional time, the legal inquiry is not limited to whether extra time was in fact available. It is also necessary to identify whether there was a binding contract, who the parties to that contract were, whether the surety assented where relevant, and what the guarantee itself provides.
Official text of the Indian Contract Act, 1872
For the current statutory text, amendments and Act details, refer to the official India Code - Indian Contract Act, 1872. The Act is Central Act No. 9 of 1872 and came into force on 1 September 1872.
Legal note: This article explains the statutory provision for general information. Application of Sections 135 to 137 depends on the terms of the guarantee and the facts of the transaction.