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INTRO coextensive, immediate, limit his liability, independent contract

1coextensive Where the parties do not specifically agree as to the extent of the liability or the surety does not
put up any limit on his ability at the time of entering into the contract, the liability of the surety will be co-
extensive with that of the principal debtor. In other words, whatever amount of money a creditor can legally
realise from the principal debtor including interest, cost of litigation, damages etc., the same amount he can
recover from the surety.

The liability of the surety arises immediately on the default of the principal debtor but the creditor is not bound
to give any notice of the default of the principal debtor to the surety or it exhaust all the remedies open to him as
against the debtor before proceeding against the surety. Besides that, creditor is free to release the debt when it
becomes due to either from the debtor or the surety. It is not necessary for him to proceed against the debtor
first. He may sue the surety without suing the principal debtor. It is suretys duty to see that the principal debtor
pays or performs his obligation.

But until default the creditor cannot call upon the surety to pay. In this sense, the nature of the suretys liability
is secondary.

Limit : Although the liability of the surety is co-extensive with that of the principal debtor, he may limit his
liability.He may expressly declare his guarantee to be limited to a fixed amount. In other words, the liability of a
surety can be made less by a special contract but his liability cannot be made greater than that of the principal
debtor.

The contract between the surety and the creditor is an independent contract. Thus, where the original contract
between the creditor and the principal debtor is void the surety will be liable as if he is the principal debtor.
Similarly, where the contract between the creditor and the principal debtor is voidable, the surety may not be
discharged from liability.

Co - extensiveness of liability is one of the essential characteristics of a guarantee that distinguishes it


from contract of indemnity. Where, therefore, the liability of a promisor under an agreement exceeds that
of the primary debtor, in that, for example, he may be liable, when the primary debtor is not, or for an
amount for which he is not, then the agreement is not a guarantee, and the promisor undertakes primary
liability himself. In such circumstances, the contract in question can be viewed as an indemnity. Bank of
Bihar Ltd v Damodar Prasad and Another If the Principal debtor is not liable on the Principal debt, the
surety is also not liable.
If the Principal debt is illegal then the Principal debtor and the surety are not liable.
If the Principal debtors liability is reduced, the liability of the surety is also reduced to that extent.
If the Principal debtor is discharged by the creditors breach of contract, the surety too, is discharged from
such obligation.
From the above proposition of law and judging by the legal position of the surety it may be concluded that
the surety is a favored debtor.
When principal insolvent Usually if the principal is known to be insolvent, the creditor will bring his action
against the surety instead. He may prove in the bankruptcy or liquidation of the principal. However the question
may arise as to the creditors right to claim against the surety if a payment made by the principal to the creditor
is set aside as wrongful preference, and he has to repay the money to the liquidator or trustee in bankruptcy.
The position appears to be that if the creditor was not a party to the preference, he probably can recover the
money from the surety, on the grounds that there was no valid payment to him and he has not done anything to
discharge the surety on equitable grounds
Estate of surety : If the liability of the surety has not accrued by the time he dies, the general rule is that his
personal representatives cannot be forced to set aside a sum out of his estate to meet the potential future liability
on the guarantee.

Bankers Negligence and Suretys Liability Section 139 of the Indian Contract Act, 1872 provides that if the
creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to
the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is
thereby impaired, the surety is discharged. Under this section, the negligence of the banker in handling the
security will discharge the suretys liability to the extent of the impairment of such security. Any negligent or
improper handling by banker of the securities belonging to the debtor which reduces their value will diminish
the liability of the guarantor to the extent to which the securities depreciate, unless there is a clause in the
contract of guarantee allowing the banker to deal with the securities as he may think fit. Similarly, if the banker
holds some securities belonging to the principal debtor, he should not return them wholly or partially to the
principal debtor, as thereby he will prejudice the interests of the surety.

Minors contractIf the principal debtor is not obliged, neither is the surety, as there can be no accessory without
a principal obligation according to the rule of law. The guiding principle applicable to contracts of guarantee is
that the liability of the surety is co - extensive with that of the principal debtor. However the fact that the
principal obligation is void or unenforceable will not necessarily release the surety from his liability under the
guarantee. The surety may find himself liable to the creditor where the principal debtor is not, or under a
liability to the creditor different from that of the principal debtor. In accordance with the principle of co -
extensiveness, the fact that the principal obligation is void will mean that as a general rule the surety will not be
liable under his guarantee of the principals obligations there under, for example where the principal obligation
is void for minority of the debtor. However, there are a number of different situations in which the general rule
does not apply, and the surety will be liable notwithstanding the voidness of the principal obligation.

CONCLUSION Under section 128 of ICA, the liability of surety is co-extensive that of the principal debtor
that means the surety is liable to the same extent as the principal debtor. For example if the principal debtor is
not liable for debt for some reason, then surety is also not liable for the same. Also, the principal debtor is
discharged from his debt by the creditor for some reason then surety will be discharged too. This section
depends on the contract as well. Therefore, the suretys liability depends on the terms of the contract and is not
liable to pay more than the principal debtor has taken.

The liability of the surety is joint and connected with the principal debtor. It is the choice of the creditor to
recover the amount either from the principal debtor after his default or from surety. He may file a suit against
both the principal debtor and the surety or may file a suit against the surety only or the principal debtor only.

In Bank of Bihar v Damodar Prasad , it was held that the creditor do not have to exhaust all the remedies against
principal debtor before suing the surety. It is the duty of the surety to pay the debt if principal debtor does not
pay. The purpose of contract of guarantee is defeated if the creditor is asked to postpone his remedies against the
surety. The liability of surety is immediate.