The Surety’s Liability’s nature and extent
• Co-extensive Liability
Surety’s liability’s extent and nature is mentioned in Section 128. It is self-revealing that the
basic concept concerning a surety’s liability and principal debtor’s liability is co-extensive.
The word “co-extensive” denotes that the entire amount for which the debtor is liable the
surety is responsible for the same, and no more, depending on the amount of the principal
debt. It demonstrates that unless the contract of guarantee expressly states otherwise, the full
duration of the surety’s liability would be neither more nor less.
In situations where loan bonds are insured, the principal amount, and interest or other
payments that might become due on the bond will come under liability of surety. In Bank of
India v. Surendra Kumar Mishra, if principal debtor’s liability towards creditor is adjusted
or impacted it will also affect the surety.
•Limitation of Surety’s Liability
There are times when liability of surety is limited only to a portion of the contract. The terms
of the contract of guarantee limits the surety’s liability.
The surety may specifically restrict his guarantee to a particular sum or percentage of the
debt. In these situations, the surety’s responsibility is limited to the value of the bond
regardless of the amount owed by the principal debtor, the prescribed amount must be paid
• Condition Precedent to Surety’s Liability
A contract of guarantee can have some condition precedents that must be satisfied before the
surety’s liability begins. The principle is partly recognized in Section 144. The section
provides that:
“Where a person gives a guarantee upon a contract that the creditor shall not act upon it until
another person has joined in it as co-surety, the guarantee is not valid if that other person does
not join”1
The contract of guarantee may include other provisions about the surety’s liability , which
must be met before the liability begins, the Supreme Court pointed out in Bank of Bihar Ltd
v. Dr Damodar Prasad, where certain conditions are not stipulated in the contract, the court
cannot impose them on its own.
The creditor is free to proceed against the surety at any time if a contract does not expressly
state that the creditor must exhaust his options against the debtor before proceeding against
the surety. In the event that the court demands the creditor conceding his right against the
guarantee, the whole reason for the contract is destined to fail.
