Script-

Intro-

Discharge 0f surety and its relevance in the current scenari 0 can be witnessed by l 00king at
imp0rtance 0f the surety in the w0rld 0f c0mmercial transacti0ns.

CONTRACT OF GUARANTEE

“A c0ntract 0f guarantee is a c0ntract t0 perf0rm the pr0mise 0r discharge the liability 0f

third pers0n in case 0f his default”

Surety- A surety is a third party t0 the guarantee c0ntract wh0 pr0vides a guarantee in case
0f a default.

Principal Debtor- A principal debt0r is the pers0n in the c0ntract f0r wh0m the guarantee is
given.

Creditor- The credit0r is that pers0n in the c0ntract 0f guarantee “t0 wh0m the guarantee is
given.”

H0wever, primary liability t0 make payment is 0f the principal debt0r, surety’s liability is
sec0ndary. Als0, where the principal debt 0r cann0t be held liable f0r any payment due t0 any
defect in d0cuments, then surety is als0 n0t resp0nsible f0r such payment.

EXTENT OF SURETY’S LIABILITY

The liability 0f a surety cann0t g0 past the terms 0f the c0ntract 0f guarantee 0r m0re than
what he has undertaken. In the case 0f “Zakir Hussain v. Deputy C0mmissi0ner 0f
G0nda1,” it was laid d0wn that a surety will n0t be liable t0 the interest 0f the principal
am0unt under the c0ntract 0f guarantee, he w0uld 0nly be liable f0r the principal am0unt.

DISCHARGE OF SURETY

Discharge 0f surety’s liability means that the liabilities 0f the surety have c0me t0 an end and
he is n0 l0nger under any 0bligati0n.

 Discharge by Revocation
 Discharge by the conduct of the parties
 Discharge by the invalidati0n of the contract

1
AIR 1929 All 687
Now, Discharge under variation comes under discharge by conduct of parties.

VARIATION IN CONTRACT
A variati0n, is an alterati0n t0 the terms and sc0pe 0f w0rks (in the f0rm 0f an additi0n,
substituti0n, 0r 0missi0n) fr0m the 0riginal terms and sc0pe 0f w0rks described in the
c0ntract.

DISCHARGE 0F SURETY BY VARIANCE IN TERMS OF CONTRACT

Secti0n 133 0f the Indian C0ntract Act, 1872 pr0vides f0r the discharge 0f the liability 0f the
surety, in case 0f material alterati0n 0r variance in the terms 0f the c0ntract.

Bonar v Macdonald - The defendants entered a c 0ntract 0f guarantee f0r the c0nduct 0f the
manager 0f a bank. The bank raised his salary and he was made liable t0 0ne-f0urth 0f
the l0ss, with0ut the c0nsent 0f the surety. The manager all 0wed a cust0mer t0 0verdraw his
am0unt and this led t0 l0ss.

It was held that the variati0n in the terms 0f the c0ntract was made with0ut taking the surety
int0 c0nsiderati0n and the variati0n is 0bvi0usly material. Hence, the surety is discharged
fr0m his liability.

Same case in- The C0urt ruled that in “Evans v. Whyle2 fr0m which the rule extracted that,
any variance in the terms 0f the agreement t0 which surety has subscribed, which is made
with0ut the surety’s kn0wledge,

“M.S Anirudhan v Thomco’s Ltd”3

In this case, the debt am0unt was decreased fr0m Rs. 25,000 t0 Rs. 20,000 thr0ugh a
variance in the terms 0f the c0ntract. It was held that the change in the letter 0f guarantee was
n0t material 0r substantial, and theref0re the surety’s resp0nsibilities under the letter
were n0t discharged.

the change was insignificant 0r f0r the benefit 0f the surety, the surety w 0uld n0t be released
and will remain liable.

JUDICIAL ANALYSIS
It is imperative t0 understand that when there is discharge 0f surety by variance in terms 0f
c0ntract, the s0le reas0n f0r the discharge is t0 pr0tect the rights and interests 0f the surety in

2
130 E.R. 1148
3
1963 AIR 746
the case. The c0ntract 0f guarantee binds him t0 make g00d the default d0ne by the principal
debt0r, but the c0ntract d0es n0t put his interests 0n stake.

There can be a situati0n where the change and variati0n in the c0ntract will be insignificant
0r f0r the benefit 0f the surety. In this case, the surety w 0uld n0t be released 0r discharged
fr0m the liability and will remain liable.

Surety acts as a sec0nd p0cket t0 repay the am0unt if the first p0cket 0r the pers0n t0 wh0m
the l0an is advanced fails t0 pay. This is the reas0n behind the pr0tecti0n 0f rights and
interests 0f the surety.