California Civil Code Section 2819 - Surety Liabilities

"A surety or guarantor is one who promises to answer for the debt, default, or miscarriage of another . . . ." ( 2787.) A surety assumes liability to the promisee for the payment or performance that is due to the promisee from a third party (the principal). The surety becomes liable to the promisee immediately upon the principal's default. ( 2807.) Certain acts by the promisee exonerate, or release, the surety. Section 2819 states that the surety is exonerated if the promisee alters the principal obligation in any respect or impairs or suspends the promisee's rights or remedies against the principal, unless the surety consents or is indemnified by the principal. Section 2819 applies only where there is a material alteration of the principal obligation in a manner not originally contemplated by the surety (ITT Diversified Credit Corp. v. Highlands Ins. Co. (1987) 191 Cal. App. 3d 301, 308 236 Cal. Rptr. 433; Verdugo Highlands, Inc. v. Security Ins. Co. (1966) 240 Cal. App. 2d 527, 530-532 49 Cal. Rptr. 736), irrespective of whether the alteration is prejudicial to the surety (First Cong. Church of Christ v. Lowrey (1917) 175 Cal. 124, 126 165 P. 440; Verdugo, at p. 530). The promisee's release of the principal extinguishes the principal obligation and impairs the promisee's rights and remedies against the principal within the meaning of section 2819. (Bennett v. Leatherby (1992) 3 Cal. App. 4th 449, 452-453 4 Cal. Rptr. 2d 340.) The surety therefore is exonerated by operation of law under section 2819. (Bennett, at pp. 452-453.) In addition, section 2810 states that the surety is not liable if the principal's liability ceases on grounds other than the principal's "mere personal disability," unless the surety assumed liability with knowledge of the existence of the defense. Personal disabilities that ordinarily would not exonerate the surety include the principal's bankruptcy or death. (See Conners, Cal. Surety & Fidelity Bond Practice (Cont.Ed.Bar 1969) 3.9, p. 22.) Section 2825 provides further that the discharge of the principal by operation of law does not exonerate the surety absent some action or omission by the promisee. The promisee's release of the principal without the surety's prior knowledge is an action by the promisee that causes the principal's liability to cease within the meaning of sections 2810 and 2825, resulting in the exoneration of the surety. (See Regents of University of California v. Hartford Acc. & Indem. Co. (1978) 21 Cal. 3d 624, 634 147 Cal. Rptr. 486, 581 P.2d 197 discussing the interrelation of 2810 and 2825.)