Section 565: When surety is in discharge from obligation

1) Except as otherwise provided for in the contract, the surety shall be in discharge of his or her obligation to the following extent, in any of the following circumstances:

(a) If the principal debtor so alters the terms and conditions of the contract without the surety’s consent as to have a substantial impact on the contract, in respect of the transactions subsequent to the alteration,

(b) If a contract is concluded to discharge the principal debtor from the obligation for which the guarantee was given,

(c) If the principal debtor is discharged from the obligation by an act or action of the creditor or the loan is written off,

(d) If the creditor agrees to discharge the debtor from the liability by recovering a sum less than that due or to give additional time for repaying the loan, or not to institute a lawsuit,

(e) If any act or action by the creditor causes an adverse impact on the surety’s right to legal remedy against the principal debtor,

(f) If the creditor loses, damages any security obtained by him or her from the principal debtor, or returns it to the principal debtor, to the extent of the value of such security,

(g) To the extent to which the principal debtor has repaid the loan or discharged the obligation to the creditor according to the contract.

2) Notwithstanding anything contained in sub-section (1), the surety shall not be deemed to be in discharge of obligation, except as otherwise provided in the contract, merely because the creditor fails to institute legal action against the surety or attempt to recover the amount to be recovered by him or her in time.

3) If there are two or more sureties and the creditor discharges one co-surety from the obligation, the other co-sureties shall not be discharged from their respective part of the obligation.

4) Notwithstanding anything contained in sub-section (3), if the part of the co-sureties’ obligation cannot be separated, no co-surety shall be deemed to be in discharge of his or her obligation even though the creditor has discharged him or her from the obligation.

5) Except as otherwise provided for in the contract, the surety shall not be in discharge of obligation under the contract of guarantee merely because there arises a dispute between the parties in relation to the contract creating the obligation for the discharge of which the contract of guarantee is made.