Page 45 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes (c) Rights against Co-sureties
(i) Right of contribution: 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.
(ii) 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:
(a) 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.
(b) 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.
2. 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.

Did u know? 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

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