15 March 2021
In one of the paragraphs in the textbook, it is said that when the variance in the terms of the contract is not substantial or material or is beneficial to the surety, then the surety is not discharged of the liability. However in the exercise questions, where there was a change in the rate of interest on a loan from 10% to 6%, without the consent of the surety, it said that the surety is discharged. Since this change in the contract was beneficial to the surety, shouldn’t he not be discharged from his liability?
06 July 2024
In contract law, the discharge of a surety's liability due to changes in the terms of the underlying contract can be complex and depends on various factors. Here's a breakdown of the general principles involved:
1. **Materiality of the Variance**: Whether a change in the contract terms is material or substantial is crucial. A change that is minor or not material to the surety's obligations typically does not discharge the surety from liability.
2. **Benefit to the Surety**: Generally, a change that is beneficial to the surety might suggest that they should remain liable because the change does not prejudice them. However, this is not a universal rule and depends on the specifics of the situation and the laws applicable.
3. **Consent of the Surety**: In many jurisdictions, changes to a contract that increase the risk or obligations of the surety, even if they seem beneficial initially, may require the surety's consent. Failure to obtain consent can lead to discharge of the surety's liability.
In the scenario you described, where the interest rate on a loan was reduced from 10% to 6% without the consent of the surety, the legal interpretation may vary. Here are some possible considerations:
- **Legal Requirements**: Some jurisdictions require that any changes affecting the surety's obligations must have their consent, regardless of whether the change is beneficial or not.
- **Contractual Terms**: The terms of the surety agreement and the underlying contract are critical. If the agreement stipulates that any changes require the surety's consent, then a unilateral change by the creditor (in this case, reducing the interest rate) could discharge the surety.
- **Court Interpretation**: Courts often consider the intent of the parties and the practical implications of changes. They may evaluate whether the change alters the risk exposure of the surety, even if it seems beneficial on the surface.
Therefore, while a change in terms like a reduced interest rate might appear beneficial to the surety initially, if the change was made without the surety's consent and it alters the risk or obligations under the contract, it could potentially discharge the surety from liability. It's advisable to consult specific legal guidelines and case law in your jurisdiction to understand the precise implications of such contract variations on surety obligations.
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