Section 39 - Suretyship, Section 40 - Discharge of indorser's liability : Negotiable Instruments Act 1881

What is Suretyship? What is Discharge of indorser's liability? Suretyship and Discharge of indorser's liability are defined under Section 39 and 40 of Negotiable Instruments Act 1881

Section 39 of Negotiable Instruments Act 1881: "Suretyship"

When the holder of an accepted bill of exchange enters into any contract with the acceptor which, under section 134 or 135 of the Indian Contract Act, 1872 (9 of 1872), would discharge the other parties, the holder may expressly reserve his right to charge the other parties, and in such case they are not discharged.

Section 40 of Negotiable Instruments Act 1881: "Discharge of indorser's liability"

Where the holder of a negotiable instrument, without the consent of the indorser, destroys or impairs the indorser's remedy against a prior party, the indorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity.

Illustration
A is the holder of a bill of exchange made payable to the order of B, which contains the following indorsements in blank-

First indorsement, "B".

Second indorsement, "Peter Williams".

Third indorsement, "Wright & Co."

Fourth indorsement, "John Rozario".

This bill A puts in suit against John Rozario and strikes out, without John Rozario's consent, the indorsements by Peter Williams and Wright & Co. A is not entitled to recover anything from John Rozario.