Indian Contract Act, 1872
141. Surety's right to benefit of creditor's securities
A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or without the consent of the existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.
(a) C advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also further security for the 2,000 rupees by a mortgage of B's furniture. C, cancels the mortgaged. B becomes insolvent and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.
(b) C, a creditor, whose advance to B's is secured by a decree, receives also a guarantee for that advance from A. C afterwards takes B's goods in execution under the decree, and then, without the knowledge of A, withdraws the execution. A is discharged.
(c) A, as surety for B, makes a bond jointly with B to C, to secure a loan from C to B. Afterwards, C obtains from B a further security for the same debt. Subsequently, C gives up the further security. A is not discharged.