CASE STUDY: BONAR V.

MACDONALD

Name of the case Bonar v. Macdonald

Citation 3 H. L. C. 226
Year of the case 1850
Appellant Bonar
Respondent William Macdonald
Act involved in India context Indian contract act, 1872
Relevant sections Section 133

Background of the case

The case was an appeal related with the contract of guarantee in which securities liability is in
question as to parties to the contract made the variance in terms of the contract, without
informing the securities who were respondent in this case.

Facts of the Case

In the month of January, David Baird had obtained the appointment of teller in the bank, and
a bond was executed. The bond constitutes David Baird as principal, William Macdonald,
Archibald Torrance, and William Ballantyne as sureties for Baird. And hereby declaration
was made that “I David Baird as principal and we, the  said sureties and full debtors, bind and
oblige ourselves, to make good, refund, and pay to the said Edinburgh and Leith Bank, or the
manager for sustaining or incurring a said loss, damage, or expenses, with a fifth part more of
penalty over and above the payment, and  the legal interest of all such loss, damage, or
expenses incur by or through the principal i.e. David Baird.” The sureties also declared that
“we, the said cautioners, are and shall only be liable, by virtue of this present bond of
cautionary.”
After some time, Baird was appointed as a manager of a branch bank at Dalkeith. A
memorandum effected with the necessary changes in the original bond. The change thus
made was duly communicated to the sureties.
In April 1840 another change took place in Baird’s situation; his salary was raised, and
liabilities were increased, and he agreed to undertake the liability of one-fourth of the losses
on the discount at the bank, on receiving a proportionate increase of pay. This change was not
communicated to his sureties.
During the year 1840 and 1850, Baird allowed a customer of the bank to overdraw his
account, being the amount of his deposits, and the customer had given a bond to cover such
advances, Baird well knew that the bond, which was in his possession, though executed by

Submitted By: - Madhav Singh Dhakad. Submitted to: - Prof. Prakash

Kanive
the customer, but was not executed by any surety on his behalf. After some time, the
customer incurred a debt of one thousand pounds.
To recover the debt appellant as the trustee of the bank brought an action against the
respondent, who was Baird’s sureties.
Issue Raised
Whether the surety is bound to pay the amount of debt as variation in the bond takes place
without the knowledge or consent of sureties or is it material variation?
Arguments on behalf of Appellant
In the case of a bill, the materiality of the alteration is considered in relation to the acts and
liabilities of other parties, – a fact which shows that the rule against alterations is one which
is not inflexible, but which does admit of exceptions. The same observations may be applied
to bonds.
It was contended that there was no substantive alteration made in the situation of Baird,
which will release the sureties from their liability, for they assented to his performing his
duties as a bank agent, as they guaranteed the bank against loss from his conduct in the
branch bank.

In Mactaggart v. Watson, the house held that the negligence of the person to whom the bond
was given, by which negligence the principal obligor enabled the debt regarding which his
surety was sued, it does not lead to discharge his surety.

It was further contended that the loss does not arise from a defect of judgment in erroneously
discounting, but due to improperly allowing a customer to overdraw his account. This is a
matter of conduct for which the sureties should be answerable.

In Hamilton v. Watson, it was held that employment of funds raised on security different
from that which the surety expected, will not relieve him from the effect of his bond. As the
former agreement remains in force, the sureties are liable for the conduct of the principal.

Arguments on behalf of Respondent

It was contended that an alteration in a bond does vitiate the bond and it is clearly established,
and cases which are cited on the other side do not affect this fact.

In Rees v. Berrington, the doctrine was laid down which has been never impeached, that
there the obligee in a bond with the surety, and changes in the bond without communication
with the surety, discharged the liability of the surety.

In Nisbet v. Smith, where the creditor sued the principal, but, without the knowledge of the
surety, a warrant of attorney took from him, and gave him time, and therefore held that surety
has discharged from the liability.

The contention was made that this case is stronger, as the alteration has been made in the
deed itself. The alteration is a substantive one, it constituted the principal obligor as an agent
to the banking house, the nature of the contract was changed and it would not incur any
liability on the part of the sureties.
Submitted By: - Madhav Singh Dhakad. Submitted to: - Prof. Prakash
Kanive
Related Provision under Indian Contract Act, 1872

Section 133, Indian Contract Act, Discharge of surety by variance in terms of the contract

Any variance made without the surety’s consent, in terms of the contract between the
principal debtor and the creditor, discharges the surety as to transactions subsequent to the
variance.

Judgement

It was held that sureties entered as a party in the bond for the faithful discharge of the duties
of the principal as a bank agent, these were the terms of the surety obligation. Thereafter bank
entered into an agreement with the Baird, whereby he became liable for one-fourth of the
losses arising from the discount, and his salary was increased, but the sureties were not
informed regarding this agreement. Baird also objected to apply to his cautioners, and they
remain in ignorance, and certainly not a party to, this alteration in the contract which took
place between the Baird and his employers.

The Court ruled that in Evans v. Whyle,  Archer v. Hale, Whitcher v. Hall, from which the
rule extracted that, any variance in the terms of the agreement to which surety has subscribed,
which is made without the surety’s knowledge, which amount to the substitution of a new
agreement for a formal one, even though the original agreement may, notwithstanding such
variance, he substantially performed, will discharge the surety.

The court held that in respect of alteration made by the bank in Baird’s position, the sureties
were not liable for the losses caused by the misconduct of the agent, as the variation in the
terms of the contract which is obviously material variation was made without considering
surety.
Lastly, the appeal was dismissed, with costs.
Concept Highlighted
From this case, it can be inferred that any material changes in the terms of the agreement to
which surety has subscribed, without communicating the surety can discharge the duty of the
surety.

Submitted By: - Madhav Singh Dhakad. Submitted to: - Prof. Prakash

Kanive