Contract of Guarantee: a compromise with the principal debtor without surety consent discharges the surety from liability.

Whether a deed described as a jaminpattram amounts to a contract of guarantee is answered by its operative character: the instrument functioned as a security/surety bond creating secondary liability for the principal debtor rather than an independent primary obligation by the promisor. As a tripartite guarantee, the surety's rights and liabilities are governed by the rule that a compromise or composition between creditor and principal debtor, entered into without the surety's consent, operates to discharge the surety. The operative effect: the compromise with the principal debtor discharged the surety from further liability.

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Issues: Whether the deed styled as a jaminpattram executed by Srinivasa is a contract of guarantee/suretyship within the meaning of Section 126 of the Indian Contract Act and, if so, whether the composition/compromise entered into by the Official Liquidator with the principal debtor without Srinivasa's consent operated to discharge Srinivasa under Section 135 of the Indian Contract Act.

Analysis: The deed is expressed to be a security for the indebtedness of Munia Servai, describes Munia Servai as the primary debtor and furnishes property as security up to a specified limit. The instrument is styled and operates as a surety/security bond, with no advancement of funds to Srinivasa, no joint unconditional promise to pay by Srinivasa and no novation or substitution of the principal debt. The surrounding factual matrix and the terms of the bond imply secondary liability arising on the default of Munia Servai rather than an original independent obligation by Srinivasa. As a contract of guarantee (tripartite in character) within Section 126, the surety's rights and liabilities fall to be governed by the rule in Section 135. The composition effected by the Official Liquidator and the bank with the principal debtor without the surety's consent amounted to a compromise which, in the circumstances of this case, attracted Section 135 and discharged the surety's liability.

Conclusion: The deed is a contract of guarantee and Srinivasa was discharged from liability by the composition entered into by the bank/Official Liquidator with the principal debtor; decision is in favour of the Respondent.

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