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: Jul 13, 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.
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The Correct Option is C

Approach Solution - 1

Step 1: Identify the parties and their roles. X is the principal debtor who borrowed 10,00,000 from Bank A, the creditor, and Y is the surety who guaranteed repayment on the original terms of that loan.

Step 2: Identify what changed. After the guarantee was given, Bank A and X agreed between themselves to reduce the interest rate and extend the repayment period by six months, and Y was never informed of, or asked to consent to, either change.

Step 3: Apply the rule governing variance of contract terms. A surety's promise is tied to the specific terms of the debt as they stood when he agreed to guarantee it. When the creditor and the principal debtor later vary those terms between themselves without the surety's consent, the surety is discharged as to the altered arrangement, since he never agreed to underwrite the new, changed risk.

Step 4: Reach the conclusion. Since the interest rate cut and the extended repayment period were made without Y's knowledge or consent, and such a change increases the surety's exposure and duration of risk, Y is discharged from liability to the extent of that unauthorised variance, that is, he is partially discharged rather than fully liable or fully free.
\[ \boxed{\text{Y is partially discharged from liability because Bank A's modification increased the risk to Y without his consent}} \]
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Approach Solution -2

Another way to work through this fact pattern is to ask why the law bothers to protect a surety from changes made by the creditor and principal debtor at all, and then see which option actually serves that underlying protective purpose.

  1. Y is liable only if the bank sues the principal debtor first: The protection the law gives a surety has nothing to do with the order in which the creditor chooses to sue; a creditor can normally proceed against the surety directly without first suing the principal debtor. This option answers a question the facts are not actually asking, so it does not fit.
  2. Y is not liable at all because the principal debtor defaulted after the contract modification: If a mere subsequent default wiped out all liability regardless of the surety's own bargain, the protection would swing too far the other way, letting a surety escape obligations he took on before any variance occurred. The law's purpose is to shield the surety from the effect of an unconsented change, not to erase his liability altogether.
  3. Y is partially discharged from liability because Bank A's modification increased the risk to Y without his consent: The whole reason the law lets a surety off the hook when terms change without his consent is to stop the creditor and principal debtor from quietly making the surety's burden heavier or longer than what he originally signed up for. Extending the repayment period by six months and cutting the interest rate is exactly this kind of unilateral change in risk. Discharging Y only in proportion to that change serves the protective purpose without unfairly rewarding him beyond what fairness requires.
  4. Y is fully liable for the entire loan because a surety is always liable once the principal debtor defaults: Treating a surety as bound no matter what changes the creditor and debtor make between themselves would defeat the very protection the law is meant to give; it would let a creditor rewrite the deal at will and still hold the surety to the original bargain plus whatever new terms it likes.

The protective purpose behind the law on variance of contract terms is served precisely by relieving Y of liability to the extent that Bank A's changes increased his risk without his consent, neither more nor less.

So the correct answer is Y is partially discharged from liability because Bank A's modification increased the risk to Y without his consent.

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