Q: 'A' stands as a surety for the good conduct of 'B' who is employed in a Bank. 'B' misappropriates some moneys. The Bank excuses him without informing 'A' of 'B's misconduct. 'B' again misappropriates Rs.50,000. The Bank files a suit against 'A' on the strength of the Guarantee. Decide giving reasons ?

Ans: According to Sec. 139 of the Indian Contract Act, if the creditor does any act inconsistent with the right of the surety or omits to do some act which is his duty to do, thereby affecting the remedy of the Surety against the principal debtor, then the Surety is discharged.

In the instant case, the act of the bank in excusing 'B' without informing 'A' of 'B's misconduct, is omission affecting the remedy of the Surety against the principal debtor ie., an opportunity to the Surety to revoke his guarantee for 'B's good conduct. Therefore 'A' is not liable for 'B's misappropriation of Rs.50,000 again.