Page 89 - DCOM103_COMMERCIAL_LAW

Commercial Law

Notes conditioned for D’s duly accounting to E. E makes default to the extent of ` 30,000. A, B and C are
each liable to pay ` 10,000.
(ii) In the above example, if D makes default to the extent of ` 40,000, A is liable to pay ` 20,000
and B and C ` 15,000 each.

8.4.4 Liability of Surety

Unless the contract provides otherwise, the liability of the surety is co-extensive with that of the
principal debtor (S. 128). In other words, the surety is liable for all those amounts the principal
debtor is liable for.

Example: A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill
is dishonored by C. A is liable not only for the amount of the bill but also for any interest and
charges which may have become due on it.
The liability of a surety is called as secondary or contingent, as his liability arises only on default
by the principal debtor. But as soon as the principal debtor defaults, the liability of the surety
begins and runs co-extensive with the liability of the principal debtor, in the sense that the surety

will be liable for all those sums for which the principal debtor is liable. The creditor may file a suit
against the surety without suing the principal debtor. Further, where the creditor holds securities

from the principal debtor for his debt, the creditor need not first exhaust his remedies against the

securities before suing the surety, unless the contract specifically so provides.
The creditor is even not bound to give notice of the default to the surety, unless it is expressly
provided for.

Position of Surety in case of a Minor Principal Debtor

According to the decision of the Bombay High Court in Kashiba v. Shripat I.L.R. 10 Bom. 1927
the surety can be held liable, though a minor debtor is not liable. But the later decisions of the
Bombay High Court have taken a contrary view. In Manju Mahadeo v. Shivappa Manju and in
Pestonji Mody v. Meherbai it was held that as under s.128, the liability of the surety is co-extensive
with that of the principal debtor, it can be no more than that of the principal debtor and that the
surety therefore cannot be held liable on a guarantee given for default by a minor. If a minor
could not default, the liability of the guarantor being secondary liability, does not arise at all.
The same view has been endorsed by the Madras High Court in the case of Edavan Nambiar v.
Moolaki Raman (A.I.R. 1957 Mad. 164). It was held that unless the contract otherwise provides, a
guarantor for a minor cannot be held liable.

8.4.5 Discharge of Surety

The liability of surety under a contract of a guarantee comes to an end under any one of the
following circumstances:

1. By notice of revocation (s.130): A continuing guarantee may at any time be revoked by the
surety, as to future transactions, by notice to the creditor.

Example: A, in consideration of B’s discounting, at A’s request, bills of exchange
for C, guarantees to B, for twelve months, the due payment of all such bills to the extent
of ` 5,000. B discounts bill for C to the extent of ` 2,000. Afterwards, at the end of the three
months, A revokes the guarantee. The revocation discharges A from liability to B for any
subsequent discount. But A is liable to B for ` 2,000 on default of C.

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