Any variance or change in the contract between the debtor and the creditor surety’s consent will discharge the surety. It applies to a contract which is continuing one involving a series of transactions. This is based on the principle that there is also, a contract between surety and creditor and surety and debtor. The new contract without his consent may altogether substitute the original contract or the new contract may prejudice him. Even if the original contract is substantially performed, surety will be discharged. Variance should either cause prejudice to the surety or variation in the contract must be substantial to discharge him from liability. Therefore, where variation is not substantial or materials, or is beneficial to the surety, he will not be discharged.
In case where the guarantee is for performance of several and distinct contracts, and there is variance in one of those contracts, surety is discharged only in respect of the contract, where there is variance. His liability as to the rest remains unaffected.
By release or discharge of principal debtor: (Sec 134) The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.
1. A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B and afterwards B becomes embarrassed and contracts with his creditors (including C) to assign them his property in consideration of their releasing him from their demands. Here B is released from his debt by the contract with C and A is discharged from his surety ship.
2. A contracts with B to grow a crop of indigo on A’s land, and to deliver it to B at a fixed rate, and C guarantees A’s performance of this contract. B diverts a stream, of water which is necessary for irrigation of A’s land, and thereby prevents him from raising the indigo. C is no longer liable on his guarantee.
3. A contracts with B for a fixed price to build a house for B within a stipulated time, B supplying the necessary timber. C guarantees A’s performance of the contract. B omits to supply the timber. C is discharged from his surety ship.
In case where the creditor acts in such a way whereby the right of the surety to recover the debt from the debtor is impaired or destroyed, the surety is discharged. However, if the creditor expressly reserves his remedies against the surety with the assent of the surety, the surety is not discharged.
In case where principal debtor is discharged by novation, surety is discharged. No arrangement different from that contained in his contract is to be forced on the surety. In Nathabhai v Ranchhodlal where a suit was filed by the creditor against the principal debtor and the surety but the principal debtor could not be traced, it was held that the creditor was entitled to the degree against the surety. Striking off the name of the principal debtor does not discharge the surety.
It must be noted that creditor’s omission to sue principal, debtor within limitation period does not discharge the surety’s contract with the creditor is altogether a separate contract and as such the limitation period applicable to surety would run from the date when the contract between the surety and the creditor was entered into.
A lends Rs 1000 to B on 1-10-1973. C stands surety for the said sum on behalf of B on 1-12-1973. The limitation period as against B expires on 30-9-1976 while that against C, the surety, expires on 30-11-1976. A can therefore sue C for the amount lent to B any time before 30-11-1976.
The suit against surety is also maintainable by the creditor even if he has failed to sue the principal debtor within the limitation period since the surety can himself set the law in operation against the debtor.