Section 133 of Indian Contract Act, 1872: Discharge of Surety by Variance in Terms of Contract

Section 133 protects a surety where the creditor and principal debtor change the terms of their underlying contract without the surety's consent. The statutory consequence is discharge of the surety in respect of transactions taking place after that variance.

In brief: A surety agrees to answer for a particular obligation. If the creditor and principal debtor alter the terms of that obligation without the surety's consent, Section 133 limits the surety's future liability in accordance with the statutory rule.

What is a contract of guarantee?

Under Section 126 of the Indian Contract Act, 1872, a contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of that person's default. The person giving the guarantee is the surety, the person whose default is covered is the principal debtor, and the person to whom the guarantee is given is the creditor. A guarantee may be oral or written.

Text and effect of Section 133

Section 133 - 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.

The provision therefore focuses on three elements: a change in the terms of the contract between the creditor and principal debtor, absence of the surety's consent to that change, and liability relating to transactions occurring after the change.

Meaning of "variance" under Section 133

A variance is a change in the terms of the underlying arrangement for which the guarantee was given. The section is important because the surety's undertaking is connected with the contract as agreed. The creditor and principal debtor cannot, without the surety's consent, alter that contractual basis and automatically continue to hold the surety to future transactions under the changed arrangement.

When does Section 133 discharge the surety?

There must be a contract of guarantee involving a creditor, principal debtor and surety.
The creditor and principal debtor must vary the terms of their contract.
The variance must be made without the surety's consent.
The statutory discharge applies to transactions subsequent to the variance.

Important distinction: Section 133 does not say that every later event connected with a guaranteed transaction automatically discharges the surety. The question is whether the terms of the contract between the creditor and principal debtor were varied without the surety's consent and whether the claimed liability concerns transactions subsequent to that variance.

Illustrations to Section 133

The statutory illustrations explain how the rule operates in different settings.

Illustration (a): Change in manager's employment terms

A becomes surety to C for B's conduct as manager in C's bank. B and C later change B's remuneration and make B liable for part of the losses on overdrafts, without A's consent. A is discharged from liability for a later loss covered by the changed arrangement.

Illustration (b): Material alteration of duties by legislation

A guarantees C against B's misconduct in an office whose duties are defined by legislation. A later enactment materially alters the nature of the office. A is discharged from future liability under the guarantee, even where later misconduct concerns a duty not itself affected by the later enactment.

Illustration (c): Salary changed to commission

C appoints B as a clerk on a yearly salary and A guarantees B's proper accounting. C and B later replace the fixed salary with commission without A's knowledge or consent. A is not liable for B's subsequent misconduct.

Illustration (d): New arrangement for future supplies

A gives C a continuing guarantee up to Rs. 3,000 for oil supplied by C to B on credit. B and C later agree, without A's knowledge, that future oil will be supplied for ready money and that payments will be applied to existing debts. A is not liable under the guarantee for goods supplied after the new arrangement.

Illustration (e): Loan advanced earlier than agreed

C agrees to lend B Rs. 5,000 on 1 March and A guarantees repayment. C instead advances the money on 1 January. The agreed contract has been varied and A is discharged from liability under the illustration.

Section 133 and related provisions on discharge of surety

Section 133 forms part of the statutory scheme governing guarantees. It should be read with the nearby provisions dealing with discharge and preservation of surety liability, including Section 134, Section 135, Section 137 and Section 139.

Practical application

In a dispute involving Section 133, the guarantee and the underlying contract should be compared with any later agreement or modification. Relevant issues include the exact contractual term changed, whether the surety consented to the change, when the variance took effect, and whether the transaction for which liability is claimed occurred before or after the variance.

Official text of the Indian Contract Act, 1872

The current Central Act text can be checked on the official India Code portal maintained by the Government of India. Readers dealing with an actual guarantee should also verify applicable amendments, contractual terms and relevant judicial decisions.

This article is a general legal information resource and is not a substitute for advice on the facts and documents of a particular case.