Suretyship and discharge by creditor compromise without consent: collateral liability ended when principal debtor was compounded with

A security bond given to secure another person's debt was treated as a contract of suretyship, not an original joint liability, because the document and surrounding circumstances showed only a collateral obligation by the executant. The absence of a separate express contract between the surety and the principal debtor did not change that character where the bond itself reflected the creditor-principal debtor-surety arrangement. When the creditor later compounded with the principal debtor without the surety's consent, the surety was discharged because the principal liability had been impaired or released without assent. The bond therefore could not be enforced against the surety after the compromise.

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Issues: Whether the security bond executed in favour of the bank was a contract of guarantee or an original joint liability, and whether the surety stood discharged when the creditor compounded with the principal debtor without the surety's consent.

Analysis: The bond was executed to secure the existing liability of the principal debtor and to provide additional security for further accommodation. Its terms, the surrounding circumstances, and the form of the document showed that the principal obligation remained that of the debtor, while the executant undertook only a collateral liability. The absence of a separate express contract inter se between the surety and the principal debtor did not alter the character of the transaction, because the bond itself reflected the necessary tripartite arrangement of creditor, principal debtor, and surety. Since the creditor subsequently entered into a composition with the principal debtor without reference to the surety, the surety could claim discharge under the rule governing impairment or release of the principal debtor's liability.

Conclusion: The bond was a contract of suretyship, not an original joint liability, and the surety was discharged by the composition with the principal debtor.

Final Conclusion: The appeal failed because the respondent's liability under the bond could not survive the creditor's compromise with the principal debtor made without the respondent's assent.

Ratio Decidendi: Where a bond secures another person's debt and the creditor compounds with the principal debtor without the surety's consent, the surety is discharged if the bond, read as a whole and in its surrounding context, discloses only a collateral obligation.

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