B.A. LL.B. (Five Years) Sem 5 Contract II 2023 Mar Question Paper with Solutions

For full marks, cover: the rule of co-extensive liability (section 128) and its illustration on interest and charges; what "co-extensive" measures (extent, not sequence); liability arises only on default (section 126); the creditor need not sue the debtor first (section 137, Bank of Bihar); limits set by the contract (cap, particular transactions, conditions); no liability where there is no valid principal debt (Edavan Kavingal); co-promisors who privately agree one is a surety (section 132); co-sureties' shares (sections 146 and 147); the end of liability by discharge.

The rule

Section 128 of the Indian Contract Act 1872 says: "The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract."

"Co-extensive" means of the same extent. The surety owes what the debtor owes, no more and no less.

Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297, settles the point. A trial court allowed a bank to execute its decree against a surety only after it had exhausted its remedies against the borrower. The Supreme Court removed that condition. A surety's liability is immediate, and without a special equity he cannot make the creditor pursue the debtor first.

Limits set by the contract

The co-extensive rule applies "unless it is otherwise provided by the contract". A surety may therefore limit his liability.

1. A monetary cap. "My liability shall not exceed Rs 5 lakh." He is then liable only up to that sum, even if the debt is larger.
2. Particular transactions. He may guarantee one supply only, rather than a running account (see section 129 and its illustration (c)).
3. A time limit. He may guarantee only debts incurred within a stated period.
4. A condition. He may require the creditor first to realise a named security, or to give him notice before suing.

Several sureties

As against the creditor, each surety may be liable for the whole debt, within his own limit. As between themselves, co-sureties share the burden equally, unless they agreed otherwise (section 146). Where they are bound in different sums, they pay equally as far as their limits allow (section 147).

When the liability ends

The surety's liability ends when the debt is paid. It also ends when the Act discharges the surety. Examples are a variance without his consent (section 133) and a release of the debtor (section 134). A binding promise of time to the debtor also discharges him (section 135). So does an act that impairs his remedy (section 139), or the loss of a security (section 141).

Conclusion. Under section 128, the surety's liability is co-extensive with the principal debtor's, including interest and charges, unless the contract limits it. It arises on default and is then immediate, so the creditor may sue the surety first, as Bank of Bihar holds. It may be capped or confined by the contract. It cannot exceed the debtor's own liability, and fails where that liability does not exist, as Edavan Kavingal shows.