M.S. Anirudhan vs The Thomco’s Bank ltd. || 1963 AIR 746 || Case Summary || Discharge of Surety

M.S. Anirudhan vs The Thomco’s Bank ltd.

1963 AIR 746

Case Summary

[Discharge of Surety]

Facts

M.S. Anirudhan (The appellant) agreed to act as surety for the principal debtor for an overdraft extended by Thomco’s Bank (the defendant). The surety and principal debtor filled a blank guarantee form stating their maximum liability to be Rs. 25,000. The Bank refused to accept this guarantee and required it to be limited to Rs. 20,000.

The principal debtor altered the letter by reducing the maximum liability to Rs. 20,000 without the surety’s explicit consent and submitted the altered document to the bank. The Bank initiated a suit against both principal debtor and surety. The surety contended that since the document was altered without his consent, hr should be discharged from liability.

Issue

Whether the surety was discharged from liability due to alteration of the guarantee without his knowledge or consent?

Key Legal Provisions

Indian Contract Act, 1872:

Section 126 – [Contract of Guarantee] A contract to perform the promise or discharge the liability of a third person in case of his default.

Section 128 – [Extent of Surety’s Liability] Liability of the surety is co-extensive with that of the principal debtor unless otherwise provided by the contract.

Section 133- [Discharge of Surety by Variance in terms of Contract] Variance made without the surety’s consent in the terms of the contract between the principal debtor and the creditor discharges the surety from liability.

Judgement

The surety was not held to be discharged from his liability. This was because the principal debtor was acting as an agent when delivering the guarantee document. The surety entrusted the guarantee to the principal debtor creating an implied agency between them.

The principle of estoppel was to apply, since the surety allowed the debtor to act on his behalf, he could not claim lack of authority. Furthermore, the alteration did not materially change the nature of the guarantee but merely reduce the amount, which was in the surety’s favour.