What can be a consideration to the surety for giving the guarantee ? Is the ability of the surety co-extensive with that of the principal debtor ? Illustrate. Or The liability of a surety is co-extensive with that of the principal debtor. Elucidate the statement and briefly state the exceptions, if any, to this rule.
Ans. Consideration for guarantee.—Anything done, or any promise made for the benefit of the principal debtor.may be sufficient consideration to the surety for giving the guarantee. Section 127 Indian Contract Act. It is not necessary that surety should receive any advantage himself. (Prasanjit Melitha v. The United Commercial Bank Ltd., AIR 1979 Pat 151).
(a) B requests to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of B’s promise to deliver the goods. This is sufficient consideration for C’s promise.
(b) A sells and deliver goods to B, C, afterward requests A to forbear to sue B for the debt for a year and promises that if he does so, C will pay for them in default for payment by B. A. agrees to forbear as requested. This is sufficient consideration for C s promise.
(c) A sells and delivers goods to B. C afterwards without consideration, agrees to pay for them in default of B. The agreement is void.
Surety’s liability.—The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided, by the contract”, (Section 128 Indian Contract Act). A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured 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. It has been held in Andhra Bank Soryapeet v. Anantnath Gael, A. I. R. 1991 A. P. 275, that where there were joint promisors and consideration was paid by only one of them, the other piomisors were equally liable to pay amount. The liability of son was co-extensive with his father principal debtor in view of Sec. 127 and Sec. 128 of Indian Contract Act. A bare perusal of Section 128 of the Contract Act would make it clear that the liability of a surety is co-extensive with that of the principal debtor. The word “co-extensive” denotes that extent and can relate only to the quantum of the principal debt. A contract of guarantee is a separate contract between the creditor and the guarantor; (Gopalji J. Nichani v. M/s. Trace Industrie and Components Ltd., A. I. R. 1978 Mad. 134). If the latter’s liability is scaled down in an amended degree or otherwise extinguished in whole or in part by a statute, the liability of the surety would also pro (ant() be reduced or extinguished. However the liability of the surety is not extinguished merely because of discharge of the principal debtor from liability (Industrial Financial Corporation of India v. Kannur Spinning & Weaving Mills Ltd. (AIR 2002 S.C. 1841) This question may be viewed from another angle also and it is that the surety, who has a right to be reimbursed by the principal debtor for the amount paid by him on his behalf if allowed to realise the entire decretal amount from the agriculturist principal debtor after the decree-holder is permitted to get the entire decretal amount from the surety; then it would mean that whatever benefit the agriculturist debtor is entitled to get under the provisions of the Act shall be denied to him if the decree is allowed to be executed against the surety judgment debtor- because after its satisfaction the principal judgment debtor shall be required under the Contract Act to reimburse the surety. This process, if allowed, would ultimately deny the benefits of the Act to the principal debtor who is otherwise entitled to get his debt scaled down. The decree even if passed would not change the position of a surety except that if the decretal amount is realised from the surety judgment debtor then it would confer a right on him to realise that amount from the principal debtor against whom the decree also stands. When the decree against the principal debtor is depended in the Debt Relief Court then that sanctity which is normally attached to a decree is washed away vis-a-vis the agriculturist principal debtor. To that extent it can safely be said that the surety judgment debtor can also take advantage of the modification of a decree, if any, made by the Debt Relief Court and on the basis of the sanctity attached to a decree, the decree-holder cannot be permitted to realise the entire amount of decretal amount from the surety judgment-debtor. (Narayan Singh v. Chhatar Singh and another, A. I. R. 1973 Raj. 347).