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Mercantile Laws-I

Notes 7.4.3 Rights against Co-sureties

Where a debt has been guaranteed by more than one person, they are called co-sureties. S.146
provides for a right of contribution between them. When a surety has paid more than his share or
a decree has been passed against him for more than his share, he has a right of contribution from
the other sureties who are equally bound to pay with him.

Example: A, B and C are sureties to D for the sum of ` 3,000 lent to E. E defaults in making
payment. A, B and C are liable, as between themselves to pay ` 1,000 each and if any one of them
has to pay more than his share, i.e., ` 1,000 he can claim contribution from the others, for the
amount paid in excess of ` 1,000.
If one of the sureties becomes insolvent, the solvent co-sureties shall have to contribute the whole
amount equally.

Where, the co-sureties have guaranteed different sums, they are bound under s. 147 to contribute

equally, subject to the limit fixed by their guarantee and not proportionately to the liability
undertaken.

Examples: (i) A, B and C as sureties for D, enter into three several bonds, each in a
different penalty, namely, A in the penalty of ` 10,000, B in that of ` 20,000, C in that of ` 40,000,
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.

7.4.4 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

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