LIABILITY OF SURETY

1. Introduction
The liability of the surety is co-extensive with that of principal-debtor, unless it is otherwise
provided by the contract. A surety’s liability to pay the debt is not removed by reason of the
creditor’s omission to sue the principle – debtor; nor is the creditor bound to exhaust his remedy
against the principle before suing the surety1.

A creditor cannot be restrained from action against the surety, on the ground that the principle
is solvent, or that the creditor may have relief against the principle in some other proceedings.
It is the choice of the creditor to recover the amount either from the principal- debtor after his
default, or from the surety. The liability though co-extensive, is separate and not alternative,
and may not arise simultaneously.

1
Avtar Singh, Contract and Specific Relief, 12 th Ed, (2020)

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 2. NATURE OF SURETY’S LIABILITY

The first and the foremost point in the surety’s liability is that it is coextensive of the debtor’s
liability. When we say the coextensive of debtor’s liability it means surety liability is as much
as the debtor’s liability. Meaning thereby, in case the debtor makes a default in the making the
payment to the creditor, then whatever the creditor can recover from the debtor, the same
amount of the liability will fall on the shoulders of the surety. Surety will also be responsible
to same amount of the liability, because he has given the surety and his liability is extensive to
an extent of the debtor’s liability.

As per Section 1282, the liability of a surety is co-extensive with that of the principal debtor,
unless it is otherwise provided in the contract.

Illustration: A guarantees the payment of a bill by B to C. The bill becomes due and B fails to
pay. A is liable to C not only for the amount of the bill but also for the interest.

This basically means that although the liability of the surety is co-extensive with that of the
principal debtor, he may place a limit on it in the contract. Co-extensive implies the maximum
extent possible. He is liable for the whole of the amount of the debt or the promises.

For example, if a debtor is making a default in making the payment to the surety and later on
the surety has to make the Payment of the amount along with the few costs and the interest
also, then surety can recover that principal amount along with the cost or interest from the
debtor. So, his liability will be the coextensive of the debtor’s liability. The second point is
surety’s liability may be limited. A’s surety at the time of giving the surety can limits his
liability in whole of the debt. For example, if A is granted a loan by the B, of rupees 10,000/-
but C who is a surety can limit his liability by saying that he will be responsible only for 7,000/-
rupees. So, in the loan of 10,000/-, the surety has limited his liability by giving the guarantee
of rupees 7,000/- only, this is another nature and extent of surety’s liability. The third point is
the surety’s liability will arise on the default of the principal debtor. We know that whenever a
default is made by the principal debtor in the contract of guarantee then surety comes into the
picture. If on the due date when a debt is to be return by the debtor to the creditor, if the debtor
returns the money to the creditor, surety does not come in the picture, he comes in picture only
when debtor has made a default. So, his liability arises on making a default by the debtor. On
a due date the creditor cannot directly come to the surety for the repayment of the loan. He has

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to go to the debtor and in case he makes a default, then surety will come into the picture. And
the last point in the extent into the surety’s liability is; the surety will be liable if there is a
contract between principal debtor and that contract is void. So, in case the main contract
between the principal debtor and the creditor is void, the surety’s liability will be the primary
liability. For example, A who is a minor has taken the loan from the B and B has given the loan
to the A of rupees 10,000/-but the contract between both of them is void. In this case the
primary liability will be the liability of the fee who has given the guarantee in the contract. So,
if there is a void contract between the debtor and the creditor the liability of the surety will be
the prime liability. These are the points which are included in the nature and extent of liability
of surety.

Coextensive

‘Coextensive’ is an attribute to the word extent and refers to the amount or the quantum of the
principal debt. It means that on a default having been made by the principal debtor, the creditor
can recover from the surety all what he could have recovered from the principal debtor. For
instance, the principal debtor makes a default in the payment of a debt of Rs. 10,000/-. The
creditor may recover from the surety the sum of. Rs. l0,000/- plus interest becoming due
thereon as well as the amount spent by him in recovering that amount.

If the principal debtor’s liability is reduced, e.g., after the creditor has recovered a part of the
sum due from him out of his property, the liability of the surety is also reduced accordingly.

Case: Narayan Singh v. Chattarsingh3

Facts: In this case, the liability of an agriculturist, who was the principal debtor, was scaled
down under the Rajasthan Relief of Agricultural indebtedness Act, 1957. It was held that the
effect of scaling down the principal debtor’s liability was that the surety’s liability had also
been reduced accordingly. The surety’s liability was reduced. for another reason also, and that
was that. if the surety is made liable for the full amount, he in his turn will become entitled to
recover the same from the principal debtor, and this will eventually negative the benefit
conferred upon the agriculturist principal debtor under the statute.

3
AIR 1973 Raj 347
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Held: The Court held that if the principal debtor’s liability is scaled down in an amended decree
or otherwise extinguished in whole or in part by a statute, the liability of the surety would also
pro tanto be reduced or extinguished.

This section only explains the ambit of the extent of surety’s obligation when no limit has been
stipulated against the validity of the principal debtor’s obligation. The Section further explains
how the surety may, however, in the agreement impose certain limits to the extent of his
liability entering into a special contract. They can make a declaration and impose a certain limit
or restriction to their liability. 4

Unless it is expressly mentioned in the terms of the contract, neither can the surety be held
liable by the creditor nor can he sue him, till the principal debtor makes a default. Therefore,
the surety’s liability is secondary or peripheral in nature.

Condition Precedent to the Surety’s Liability

Where there is a condition precedent to the surety's liability, he will not be liable unless that
condition is first fulfilled. For example, when an individual gives a guarantee to undertake a
task unless another individual joins as a co-surety, the guarantee will be invalid if another co-
surety does not join the contract. A partial recognition of this principle is to be found in Section
144 which says:

Where a person gives a guarantee upon a contract that 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.

Case: National Provincial Bank of England v. Brackenbury5

Facts: A guarantee was signed by the defendant. The defendant signed the contract on the
condition that three more individuals would also sign the contract, as part of a joint and several
guarantee. However, one of the three individuals did not sign the contract of guarantee.

Held: The Court held that no agreement took place since there was a condition to the contract
that was not fulfilled. Hence, the defendant was held not liable.

4
Pollock and Mulla, The Indian Contract Act,1872, 15th Ed,
5
1906 22 TLR 797
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 3. EXTENT OF SURETY’S LIABILITY

It is still a critical issue to measure the maximum extent of surety’s liability and to what extent
it is being invoked presently. Herein the question is at what time the surety’s liability comes
under scrutiny- when the debtor has not fulfilled their part of the promise of all the remedies
that have been availed by the creditor against the debtor.

Creditor can sue the surety without exhausting remedies against the principal debtor

The liability of the surety is joint and several with the principal debtor. It has already been
noted that according to Section 128, “the liability of the surety is coextensive with that of the
principal debtor, unless it is otherwise provided by the contract.” It means that the principal
debtor makes a default i.e., he fails to perform his obligation, the creditor can sue either the
principal debtor, or the surety or both. The creditor can sue the surety even though he has not
exhausted his remedies against the principal debtor. Unless the parties, expressly or impliedly
so agree, the contract should not be construed as “imposing any condition precedent upon the
decree-holder to exhaust all his remedies against the principal debtor ‘before proceeding
against the surety for realizing the decretal amount’.

Case: Bank of Bihar Ltd. v. Damodar Prasad6

Facts: The plaintiff bank lent money to defendant on the guarantee of defendant. The guarantee
was a collateral security. The demand for payment of the liability of the principal debtor was
the only condition of the enforcement of the bond. that condition was fulfilled. Neither the
principal debtor nor the surety discharged the admitted liability of the principal debtor in spite
of demands. the plaintiff filed a suit and obtained a decree against both containing a direction
that plaintiff should be a liberty to enforce its due against the surety only after exhausting its
remedy against principal debtor.
Ratio: Sec. 1287, save as provided in the contract, the liability of the surety is coextensive with
that of the principal debtor. The surety thus becomes to pay the entire amount. His liability is
immediate. It is not differed until the creditor exhausts his remedies against the principal
debtor. In the absence of some special equity the surety has no right to restrain an action against
him by the creditor on the ground that principal is solvent or that the creditor may have relief
against principal in some other proceedings. Like, wise where the creditor as obtained a decree

6
AIR 1969 SC 297
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Indian Contract Act, 1872
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against the surety and the principle, the surety has no right to restrain execution against him
until the creditor has exhausted his remedies against the principle.
Held: It was held that the direction for postponing the payment of the decretal amount must be
so specific and must give sufficient reasons. the direction here was of the vaguest character.
The Court observed that, “Before payment, the surety has no right to dictate terms to the
creditor and ask him to pursue his remedies against the principal in the first instance. in the
absence of some special equity, the surety has no right to restrain an action against him by the
creditor on the ground that the principal is solvent or that the creditor may have relief against
the principal in some other proceedings.
Likewise, where the creditor has obtained a decree against the surety and the principal, the
surety has no right to restrain execution against him until the creditor has exhausted his
remedies against the principal.”

Surety’s right to limit his liability or make it conditional

It has already been noted that Section 1288 declares that the liability of the surety is coextensive
with that of the principal debtor, unless it is otherwise provided by the contract. it means that
it the contract between the parties so provides, surety’s liability may not be there to the full
extent as that of the principal debtor but smaller than that. The principal debtor owes a greater
amount but it is not the responsibility of the surety to be responsible for even a single rupee
more than what was stated in the agreement.
Case: Aditya Narayan Chourasia v. Bank of India9
Facts: In the instant case, the guarantors undertook to be liable up to a maximum of Rs. 25,000
plus interest payable thereon.
Held: The Patna High Court that if the guarantors bind themselves up to a certain maximum
limit, their liability cannot go beyond that. It was held that their maximum liability could not
extend beyond that limit. They were, therefore, held liable for the part of the debt only.

8
Indian Contract Act, 1872
9
AIR 2000 Pat 222
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 4. CONCLUSION

All the rights and liabilities inferred from the project. The surety has many rights and liabilities
against principal debtor, creditor, and co-surety.
A bare perusal of section 128 of the Contract Act 10 would make it clear that the liability of a
surety is co-extensive with that of the principal debtor. The word co-extensive denotes that
extent and can relate only to quantum of the principal debt. However, the liability of the surety
does not cease merely because of discharge of the principal debtor from liability. The exact
degree and extent of the surety’s liability would be governed by the provisions mentioned in
the guarantee on the actual constructed document and the parties have the freedom to impose
certain restrictions towards the surety’s liability without deviating from the actual nature of the
contract of guarantee.
The exact and precise extent will always be under the governance of the provisions of guarantee
on how the document has been drafted and the parties enjoy the freedom to add restraints if
any to the surety’s liability.
The Supreme Court had the same stance in the Damodar Prasad11 case that the surety can be
sued before other remedies are used. The Judiciary has restated this basic principle in many
judgments and over the years have and continue to remove the pertinent ambiguities and issues
regarding the scope of the surety’s liability.
Keeping in view the above facts it is revealed that the surety’s nature, liabilities, and rights are
of such types once he stands surety for any debt, he will remain bound till the amount is repaid
by the principal debtor. Although the surety has some rights such as right of subrogation,
indemnity and to taking back the securities but even though there are more
complications in this regard.

10
Act 9 of 1872
11
AIR 1969 SC 297
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 5. BIBLIOGRAPHY

BOOKS

• Pollock and Mulla, The Indian Contract Act,1872, 15th Ed,

STATUTES

• Indian Contract Act, 1872

WEBSITES

• legalservicesindia.com
• blog.ipleaders.in
• lawpage.in

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