NATURE AND EXTENT OF SURETY’S LIABILITY

·         CO EXTENSIVE

The nature and exten of a surety’s liability is laid down in S.128 of the Act.
The liability of surety is secondary or contigent in the sense that his liability arises only on the default of the principal debtor. In other words, a surety cannot be called upon to pay until the principal debtor has made default. So before the default of the principal debtor, if the surety becomes insolvent the creditor cannot proceed against the surety’s assignee in insolvency. But once the liability arises it is co-extensive with that of the principal debtor that is, the creditor can proceed against the surety or the principal debtor at his option. The surety is liable as if he were the principal debtor. The surety is not entitled to say that the creditor should exhaust his remedies against the principal debtor is not at all a condition precedent for proceeding against a surety, for it is the duty of the surety to see to the prompt payment of the debt. The liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. But this coextensive liability of the surety can be varied by appropriate provision in the contract of guarantee. His liability can be made less than that of the principal debtor. But it cannot be made greater by a contract.

In Florence Mapple v. State of Kerala[1] a loan was taken under guarantee for development of the culture. There was total failure of business and the debtor could not repay the loan. It was held by the court that the surety could not escape liability under the doctrine of impossibility of performance.

Since the liability of the surety is coextensive with that of the principal debtor, it can be no more than of the principal debtor and the surety therefore, cannot be held liable on the guarantee given for default by a minor. As the minor‘s contract is void AB initio, the liability of the guarantor being secondary liability does not arise at all. But where a minors debt is knowingly guaranteed, that’s what is liable as a principal debtor.

So when the debt is void the contract of the so called surety is not callateral but a principal contract. (Kashiba v. Shripat)

 

·         SURETY’S RIGHT TO LIMIT LIABILITY

It is open to the surety to place a limit upon his liability. He may expressly declared his guarantee to be limited to a fixed amount.

·         A SURTEY IS VERY OFTEN CALLED A FAVOURED DEBTOR.

In the words of Lord Selbourne “a surety is undoubtedly and not unjustly, an object of some favour, both at law and in equity”.[2] But it should not be understood that a guarantee is to be construed favourably to the surety. It is now certain that guarantees are not to be construed most likely than other contracts. It only means and the law is that the creditor must have strictly adhere to the contract of guarantee before he can hold the surety library. In the leading case Whicher v. Hall [3] a surety guaranteed the milking of thirty cows leased to the principal debtor. The evidence was that the lesser let the lessee thirty-two cows for a short time and twenty-eight for another short time. As a matter of fact this did not affect the profits. It was held that the surety was not liable because the contract was for thirty and neither for more nor less. The principal was affirmed in the case of when Venkamma v. Sannasayya[4] decided by the Madras High Court. The court held that the guarantee will only extend to a liability precisely answering the description contained in the guarantee and that it was for the creditor to satisfy the court that he was enforcing the very liability undertaken by the surety under the bond.

The principal debtor and the surety do not constitute one person in the eye of law so that the admission in the judgements by the principal debtor and acknowledgement or part payment to save limitation by the principal debtor will not bind the surety.

·         ACTION AGAINST PRINCIPAL DEBTOR

The creditor can proceed against the principal debtor alone if he so chooses. Creditor’s suit cannot be rejected on the ground that he has not joined the guarantee as a defendant to the suit. It was so held in Union Bank of India v. Noor Dairy Farms.[5]

[1] AIR 2001 Ker 19.

[2] http://kenyalaw.org/caselaw/cases/view/106156/

[3] 4 Cal 399 (1854).

[4] AIR 1938 Mad 422.

[5] (1997) Bom CR 126.

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