Question:medium

X takes a loan of 10,00,000 from Bank A. Y signs a contract as surety... Bank A agrees to reduce the interest rate and extends the repayment period by 6 months without informing Y... Which of the following statements correctly describes Y's liability under the Indian Contract Act, 1872?

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Remember: Section 133 = Variance without Surety's Consent = Discharge of Surety. Whenever the creditor changes the original contract without informing the surety, think of Section 133 immediately.
Updated On: Jun 8, 2026
  • Y is liable only if the bank sues the principal debtor first...
  • Y is not liable at all because the principal debtor defaulted after the contract modification.
  • Y is partially discharged from liability because Bank A's modification increased the risk to Y without his consent.
  • Y is fully liable for the entire loan because a surety is always liable once the principal debtor defaults.
Show Solution

The Correct Option is C

Solution and Explanation

Step 1: Read the facts.
X takes a loan of 10,00,000 from Bank A. Y signs as surety. Later Bank A reduces the interest rate and extends the repayment period by 6 months without informing Y. We must find Y's liability under the Indian Contract Act, 1872.

Step 2: Understand a contract of guarantee.
A guarantee has three parties, the creditor, the principal debtor, and the surety. The surety agrees to be liable based on the original terms of the contract. The law protects him from changes made without his consent.

Step 3: Find the right provision.
Section 133 of the Indian Contract Act, 1872 says that any variance in the terms of the contract between the creditor and the principal debtor, made without the surety's consent, discharges the surety as to transactions after that variance.

Step 4: Apply the facts.
Bank A reduced the interest rate and extended the repayment period by six months. These changes altered the original contract. Y, the surety, was not told and did not agree.

Step 5: See the effect on Y.
Y agreed to guarantee the debt on the original terms. Once those terms were changed without his consent, the law protects him from the altered arrangement. So Y is discharged to the extent the modification increased his risk, since it was done without his consent.

Step 6: Conclude.
So Y is partially discharged from liability because Bank A's modification increased the risk to Y without his consent.
\[ \boxed{\text{Y is partially discharged from liability because Bank A's modification increased the risk to Y without his consent.}} \]
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