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Surety is a favoured debtor1 in Law. This observation contains the substance of the liability of the
surety vis-a-vis the principal debtor in relation to the creditor. The law of the guarantee though
fairly well settled in its main principles has many unusual features and special rules have been
evolved with respect to the creation and discharge of a surety's liability. The very nature of the
contract of guarantee and the fact it involves three parties, each of whom stands in a different,
position vis--vis the others, necessarily give rise to diverse juristic interests which the law has
endeavored to adjust. The question arises what is the nature and measure of the liability of the
surety. It has to be noted that the contract of guarantee contains three contracts.2
One between the principal debtor and the creditor and the other between surety and the creditor
and the third between the principal debtor and the surety.Thus what is known in contract as a and
unless there is a contrary contract the suit against the surety without first exhausting the remedies
against composite contract of guarantee can be classified into three broad divisions as stated
above.
Under the principles of law of guarantee, the surety is liable to the creditor.Because the creditor
has entered into the contract in consideration of surety's assurance about the performance of the
contract by the principal debtor. However, his liability is a qualified one which makes him a
favoured debtor to the creditor. The following are the fundamental reasons which justify the
maxim that a surety is a favoured debtor in the jurisprudence of the law of guarantee:
(1) Under section 126 of the Indian Contract Act, a contract of guarantee is a contract
wherein the liability of the surety arises in case of the principal debtor's default. This
raises the nice legal question whether the creditor can file a suit directly and exclusively
against the surety without having first made the demand or involving the principal debtor.
(2) Under section 128 the liability of the surety is co-extensive with that of the principal
debtor the principal debt6r could be maintained. The creditor can bring a suit against the
surety alone or can recover the decretal amount by proceeding against the surety alone in
the first instance in execution proceedings
1 VEERASALINGAM V. SUBBARAYUDU, A.I.R. 1937 Mad. 229; Shanrauga Sundara v, Ratnavelu,
A.I.R 1933 Mad. 33; Rajendra Kumar v, Rajendra Math,
5 Supra note 1; Sulochan v. State , A.I.R. 1984 A.P. 173; M.S. Anirudhan v. Thomco's Bank Ltd.(1963)
The liability of the surety as laid down in section 128 is co-extensive with that of the principal
debtor, unless otherwise provided by the contract between the parties. This section only explains
the measure of surety's obligation where the terms of the contract do not specify otherwise and
has nothing to do with extinction by the operation of the statute of limitation. It only means that
surety is liable for whole of the amount for which the principal debtor is liable, that not anything
less or more than that unless otherwise provided in the contract. It does not, therefore, follow
from the wording of the section that the surety gets discharged whenever an action does not lie
against the principal debtor because the action against the principal debtor was barred by
limitation.
Under section 135, a promise not to sue the principal debtor discharges the surety, the underlying
principle of surety ship being that the rights of the surety are not interfere with behind his back to
his prejudice. However, mere forbearance or delay in suing the principal debtor or pressing him
for payment does not discharge the surety, as these words are expressly used in section 137,
Section 137 read with section 134, therefore, will lead to a serious controversy. Again according
to section 134 if the creditor is guilty of any act or omission the legal consequences of which are
the discharge of principal debtor, the surety is also discharged. Thus if section 134 is alone taken
into consideration, the surety will be treated as having been discharged. But mere forbearance to
sue does not discharge the surety within the section 137.
The above provisions have been interpreted by the courts differently. One view is that a failure
8 5 B. & S. 588
to sue the principal debtor until the debt is barred by the limitation does not operate as a
discharge of the surety. This view is supported by the Privy Council also. But there is also a
contrary view. This controversy was however at lost resolved and finally set at rest by the
Supreme Court in Bombay
Conclusion
"A surety in the eye of law is a 'favoured debtor' and the surety bonds are to be construed strictly;
a surety can only be held to be bound if the condition of liability has been fulfilled. Being a
'favoured debtor', a surety is entitled to insist upon rigid adherence to the term of his obligation
by the 'creditor' and cannot be made liable for more than he has undertaken. The nature of the
contract cannot be equated with that of an insurer or uberrima fides, it is one 'strictissimi juris'.
The terms of the surety bond must be strictly construed but, the construction must not be so
unduly strained as to result in defeating its essential purpose. Therefore, the cardinal rule is that a
guarantor or a surety must not be made liable beyond the terms of his engagement. The
exceptions are, (1) that when there is an ambiguity and all other rules of construction fail the
courts should interpret the guarantee contra proferentem (against the guarantor) or use the recital
to control the meaning of the operative part where it is so possible ; (2) that while construing a
surety bond, the court must consider the object and purpose of its execution and the construction
should not be unduly strained as to result in defeating the essential purpose of the bond."
BIBLOGRAPHY:-
http://karpuramanjari.blogspot.in/2012/09/indemnity-guarantee-what-banker-
should_21.html
https://books.google.co.in
https://indiankanoon.org/
www.ssc.com
Book Avtar singh, Rk Bangia