Liability of surety and its nature and extent.

LIABILITY OF SURETY

According to section 128 of the Indian Contract Act, the liability of the surety is coextensive with that of the principal debtor, unless otherwise provided by the contract. This means that on the default of the principal debtor, the creditor could recover from the surety, all what he could recover from the principal debtor.

If the liability of the principal debtor be reduced or extinguished, by any reason, the same would apply towards the liability of the surety. In Narayan Singh v. Chattisgarh, the court held that if the liability of the principal debtor is scaled down by the amended decree or otherwise extinguished in whole or in part, the liability of the surety would also pro tanto be reduced or extinguished. 

If the principal debtor's liability is affected by the illegality, so is also that of the surety. 

RIGHT OF CREDITOR TO SUE SURETY BEFORE EXHAUSTING ALL HIS REMEDIES AGAINST THE PRINCIPAL DEBTOR

It has already been noted that section 128 of Indian Contract Act, clearly states that liability of the surety is coextensive with that of the principal debtor. Moreover in Suresh Narain v. Akhauri, the court mentions that liability of the surety is joint and several with the principal debtor. 

Supreme Court in Bank of Bihar v. Damodar Prasad, cleared the stance that the surety, in absence of some special equity, can not dictate the terms to the creditor asking him to exhaust all his remedies against the principal debtor first and then proceed against surety. In State Bank of India v. Indexport Registered, similar decision was given by thr supreme Court. 

PRIOR ACTION AGAINST PLEDGED GOODS NOT NECESSARY

It has been held in state Bank of India v. Gautami Devi Gupta, that it is not necessary that the creditor first proceed against the hypothecated goods and then against the surety. 

However, it is important to note that when the creditor sue both principal debtor and surety, and the suit against principal debtor gets dismissed, it does not automatically terminate the suit against surety and the surety dies not stand discharged (Orissa agro industries v. Sarbeswar guru). 

In Union Bank of India v. Manku Narayan, it has been held by the supreme court that when there is a decree against principal debtor, guarantor and mortgaged property, the decree holder or creditor should first proceed against mortgage property before proceeding against guarantor.

LIMIT ON SURETY's LIABILITY BY CONTRACT

Liability of the surety can be limited upto a particular amount and may not be to the full extent by the terms in the contract. In Aditya Narayan Chauresia v. Bank of India, the court held that the guarantors can bind themselves upto a certain maximum limit, beyond which they will not be liable.

CONDITION FOR CO-SURETY

Section 144 of the Indian Contract Act, states that when a person gives the guarantee on the condition that there shal be a co-surety before the creditor acts upon it, the guarantee stand invalid if the co-surety does bot join. 

LIABILITY OF THE CO-SURETY

Liabilities of the sureties is coextensive with that of the principal debtor. Moreover the co-sureties are jointly and severally liable. In State Bank of India v. G.J. Herman, the court ruled that when there is a composite decree against the principal debtor and sureties, it is upon the discretion of the creditor against whom he want to proceed first. 



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