Surety and Principal Debtor

'The Liability of Surety as co-extensive with that of the Principal Debtor' - Discuss.

Let us examine the concept of the surety's liability being co-extensive with that of the principal debtor under Indian law.

Liability of Surety as Co-Extensive with Principal Debtor

Under Section 128 of the Indian Contract Act, 1872, the liability of the surety is defined as being co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. This means that the surety is liable for the same amount and in the same manner as the principal debtor.

Key Points:

  1. Extent of Liability: The surety's liability is equal to that of the principal debtor. If the principal debtor defaults, the surety must fulfill the obligation.

  2. Nature of Liability: The surety's liability is secondary, meaning it arises only when the principal debtor fails to perform their obligation.

  3. Discharge of Surety: The surety is discharged from liability if the principal debtor's obligation is fulfilled or if the terms of the contract are altered without the surety's consent.

Case Law:

  • Bank of Bihar v. Damodar Prasad (1969): This case established that the surety's liability is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. The court held that the surety is liable to pay the entire amount due from the principal debtor.

  • State Bank of India v. Premco Saw Mill (1983): The court reiterated that the surety's liability is co-extensive with that of the principal debtor and that the surety cannot escape liability if the principal debtor defaults.

Illustration

Suppose A lends ₹10,000 to B, and C acts as a surety for B. If B fails to repay the loan, A can demand the entire amount from C. C's liability is co-extensive with B's, meaning C is liable for the full ₹10,000.

Exceptions

There are certain exceptions where the surety's liability may not be co-extensive:

  1. Contractual Provisions: If the contract explicitly limits the surety's liability, then the surety is only liable to the extent specified in the contract.

  2. Discharge of Surety: If the creditor alters the terms of the contract without the surety's consent, the surety may be discharged from liability.

The above illustrates the fact that 'the Liability of Surety as co-extensive with that of the Principal Debtor'.

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