EXTENT Of SURETY’S LIABILITY

by • 09/06/2013 • GeneralComments (0)609

Q-8:     Define extent of surety’s liability in brief.

Ans:    EXTENT Of SURETY’S LIABILITY

In the absence of a contract to the contrary, the liability of a surety is co-extensive with that of the principal debtor. It means that the liability of a surety is equal to that of the principal debtor unless otherwise agreed.

 

EXAMPLE

A guarantee to JB the payment of a bill -of exchange by C, the acceptor. C dishonours the bill. A is liable not only for the amount of the bill, but also for any interest and charged which may have become due on it. However, the following points are worth noting in this regard.

(a)        The liability of the surety may be made less than that of the principal debtor by an express contract to that effect.

EXAMPLE

X lends Rs 10,000 to Y and Z gives guarantee for Rs 4,000 only, If makes a default, Z shall be liable only for Rs 4,000.

(b)        The liability of the surety arises immediately when the principal debtor makes a default. The creditor can sue the surety without suing the principal debtor.

(c)        If there were a condition precedent for surety’s liability, the surety would be liable only when such condition is fulfilled. According to section 144, where a person gives a guarantee upon a contract that a creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that person does not join.

EXAMPLE

X requires a loan of Rs 1,00,000 and requests Y and Z to give guarantee. Y and Z agree to do so. Y sign but Z does not sign the necessary documents. Y is not liable because a condition precedent to Vs guarantee that repayment of loan shall be guarantee by Y and Z has not been fulfilled. Attending her arts buyessayonline.ninja of arguing session, I marveled at her

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