The liability of the surety is co-existence with that of the principal debtor. Explain.

Question: The liability of the surety is co-existence with that of the principal debtor. Explain. [MPJS 2007]

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Answer

According to Section 126 of the Indian Contract Act, a contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. Three parties involved in a contract of the guarantee are, surety, who gives the guarantee; principal debtor, the person in respect of whose default the guarantee is given, and creditor, to whom the guarantee is given.

The liability of surety with regard to the principal debtor is co-extensive. This means that the surety is liable for the exact amount for which the principal debtor is bound and nothing more than that unless otherwise provided in the contract of guarantee.

It depends upon the creditor to choose against whom he wants to proceed first. If he so wishes to move against the surety first then the fact that he did not initiate a proceeding against the principal debtor holds no consequence. The same is true for hypothecated goods and mortgaged goods. The surety can limit his liability by placing such terms in the contract itself.

Section 128 of the Indian Contract Act states that “Liability of surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract” This means that unless there is a contrary agreement in the contract, the creditor has the freedom to sue either the principal debtor or surety or both.

In Bank of Bihar v. Damodar Prasad [AIR 1969 SC 297], the Hon’ble Court held that an action against the surety cannot be prevented solely on the ground that the creditor has an alternative relief against the principal borrower. It was held that asking the creditor to exhaust his remedies against the principal debtor first and only then move against the surety would defeat the purpose of the guarantee.

The term ‘co-extensive’ under Section 128, implies that the liability of the surety is at par with the principal debtor. Liability of surety is the same as principal debtor and not more than that. In Maharaja of Benaras v. Har Narain Singh [(1906-1907) 28 All 25], it was held that if the principal debtor is liable to pay interest, the surety can also be held liable to pay the interest.

So, it is a settled principle in the law of contracts that if the principal is liable for the principal amount plus the interest and other charges, then the creditor has the option to move against either the surety or the principal debtor to recover that amount.

In case of death of the principal debtor, a suit against him becomes void-ab-initio but the surety, in this case, is not absolved from his liability.

However, if the liability of the principal debtor is scaled down, then the liability of surety also reduces accordingly or if the liability of the principal debtor is declared unenforceable on the ground that the contract is illegal, then the liability of surety also ends there or if the contract entered between the principal debtor and the surety is declared to be void on the ground that the principal debtor was a minor at the time of entering into the contract, the liability of surety also ends

Therefore, it is a settled principle in the law of contract that, the liability of the surety is joint and several with the principal debtor.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

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