Bonar V. Macdonald
(1850) 3 HL Cas 226
[revocation of Surety]
Facts
The Principal debtor got employed in a bank on the condition that a surety guarantees his functioning and the surety would pay for any loss from fraud, misconduct etc. The employment contract between the Principal debtor and the creditor was of a fixed salary. Later, a change in salary was done as the creditor not only increased the salary of the Principal debtor but increased his liability on defaults on overdrafts from that bank. The bank suffered a loss due to Principal Debtor's misconduct. When the surety was sued he took the plea of variance in contract without his assent and therefore invalidating the contract of guarantee.
Issue
Whether such a contract of change in salary and obligations between principal debtor and creditor a variance in contract?
What is Sec. 133 of the Indian Contract Act of 1872?
Sec. 133 lays that 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.
This means if the contract between the principal debtor and the creditor is altered substantially and not to the benefit of surety, the surety stands revoked of his duty as held in M.S. Anirudhan V. Thomco’s bank Ltd.
Judgement
The competent authority of Switzerland held that this constituted a variance in contract and since it is without the consent of the Surety, he stands discharged of his liabilities. The principal debtor’s liability, along with his salary, increased without obtaining due consent from the surety. This results in the surety being released from the duty of suretyship.
Comments