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CMA Foundation · Fundamentals of Business Laws and Business Communication · Discharge of Contracts

Meera stands surety to Kaveri Mills for Anil's honest conduct as a cashier on a fixed monthly salary. Without informing Meera, Kaveri Mills and Anil agree to raise Anil's salary and make him liable for part of any cash shortages. Anil later causes a loss. What is Meera's position?

Meera is discharged for transactions after the change. A variance in the terms of the contract between the principal debtor and the creditor, made without the surety's consent, discharges the surety as to later transactions, so the loss caused afterwards cannot be recovered from her.

  1. AShe is discharged as to transactions after the variance, because the terms were changed without her consentCorrect
  2. BShe remains fully liable, because the change benefits Anil
  3. CShe is liable only for the pay increase amount
  4. DShe is discharged only if the loss exceeds the increased salary

Explanation

Section 133 says any variance in the terms of the contract between principal debtor and creditor, made without the surety's consent, discharges the surety as to subsequent transactions. The change in salary and liability is a variance made without Meera's consent, so the later loss is not recoverable from her. It does not matter that the change seems favourable to Anil.

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