Discharge of surety by variance in terms of contract.— Any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.
Illustrations
(a) A becomes surety to C for B’s conduct as a manager in C’s bank. Afterwards, B and C contract, without A’s consent, that B’s salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to overdraw, and the bank loses a sum of money. A is discharged from his suretyship by the variance made without his consent, and is not liable to make good this loss.
(b) A guarantees C against the misconduct of B in an office to which B is appointed by C, and of which the duties are defined by an Act of the Legislature. By a subsequent Act, the nature of the office is materially altered. Afterwards, B misconducts himself. A is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect of a duty not affected by the later Act.
(c) C agrees to appoint B as his clerk to sell goods at a yearly salary, upon A’s becoming surety to C for B’s duly accounting for moneys received by him as such clerk. Afterwards, without A’s knowledge or consent, C and B agree that B should be paid by a commission on the goods sold by him and not by a fixed salary. A is not liable for subsequent misconduct of B.
(d) A gives to C a continuing guarantee to the extent of 3,000 rupees for any oil supplied by C to B on credit. Afterwards B becomes embarrassed, and, without the knowledge of A, B and C contract that C shall continue to supply B with oil for ready money, and that the payments shall be applied to the then, existing debts between B and C. A is not liable on his guarantee for any goods supplied after: this new arrangement.
(e) C contracts to lend B 5,000 rupees on the 1st March. A guarantees repayment. C pays the 5,000 rupees to B on the 1st January. A is discharged from his liability, as the contract has been varied, inasmuch as C might sue B for the money before the 1st of March.
Discharge of Surety When Contract Terms Are Changed
If the main debtor and the creditor change the terms of the contract without the surety’s consent, the surety is no longer responsible for anything that happens after the change.
Examples:
(a) A becomes a surety for B, who works as a manager in C’s bank. Later, B and C agree to change B’s salary and his liability for losses without telling A. Then, B allows a customer to overdraw and the bank loses money. A is not responsible for this loss because the contract was changed without his consent.
(b) A guarantees C that B will behave properly in a certain office, which has rules defined by law. Later, the law changes the nature of the office. Afterwards, B misbehaves. A is not responsible for B’s misbehavior after the office was changed, even if it involves duties not affected by the new law.
(c) C hires B as a clerk with a fixed salary, and A becomes a surety that B will account properly. Later, B and C agree that B will get commission instead of salary, without telling A. A is not liable for anything B does after this change.
(d) A guarantees C for 3,000 rupees if C supplies oil to B on credit (Pay later). Later, B becomes short of money, and C agrees with B to supply oil only for cash and apply it to existing debts, without telling A. A is not liable for any oil supplied under this new arrangement.
(e) C agrees to lend B 5,000 rupees on March 1, and A guarantees repayment. But C gives the money to B on January 1 instead. A is not responsible, because the contract was changed and C could have sued B earlier than March 1.
(f) A guarantees that B will repay C’s loan of 50,000 rupees in 12 months. Later, C and B agree to extend the repayment period to 24 months without telling A. A is no longer responsible for the loan after the new repayment date.
(g) A is surety for B, who runs a shop for C. Originally, B is supposed to sell only C’s products. Later, B and C agree that B can also sell other products without informing A. Then, B causes losses by selling faulty products. A is not liable for the losses because the terms were changed without consent.
(h) A guarantees that B will deliver 100 bags of rice to C every month. Later, B and C agree that B will deliver 150 bags instead, without telling A. B fails to deliver the extra bags. A is not responsible for the failure to deliver, because the contract changed.
(i) A guarantees B’s payment for electricity supplied by C. Later, C and B agree that B can pay in two installments instead of one, without A’s knowledge. B fails to pay the second installment. A is not liable for the unpaid installment.
(j) A guarantees that B will behave properly as a driver for C. Later, C allows B to drive a bigger vehicle without telling A, and B causes an accident. A is not responsible because the job’s terms changed without consent.