Indian Contract Act, 1872
139. Discharge of surety by creditor's act or omission impairing surety's eventual remedy
If the creditor does any act which is inconsistent with the right of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.
(a) B contracts to build a ship for C for a given sum, to be paid by installments as the work reaches certain stages. A becomes surety to C for B's due performance of the contract. C, without the knowledge of A, prepays to B the last two installments. A is discharged by the prepayment.
(b) C lends money to B on the security of a joint and several promissory note made in C's favor by B, and by A as surety for B, together with a bill. of sale of B's furniture, which gives power to C to sell the furniture, and apply the proceeds in discharge of the note. Subsequently, C sells the furniture, but, owning to has misconduct and willful negligence, only a small price is realized. A is discharged from liability on the note.
(c) A puts M as apprentice to B, and gives a guarantee to B for M's fidelity B promises to his part that he will at least once a month, see that M make up the cash. B omits to see this done as promised, and M embezzles. A is not liable to be on his guarantee.