86. 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 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.

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. 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 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.

A gives to C a continuing guarantee to the extent of $3,000 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.

C contracts to lend B $5,000 on 1st March. A guarantees repayment. C pays the $5,000 to B on 1st January. A is discharged from his liability, as the contract has been varied, in as much as C might sue B for the money before 1st March.