What is the extent and nature of surety’s liability?
Nature and Extent of Surety’s Liability
Co-extensive: Section 128 of Indian Contract Act deals with the nature of the liability of the surety. According to this section, “the liability of surety is coextensive with that of the principal debtor, unless it is otherwise provided by the contract.” The expression ‘co-extensive shows the maximum extent of surety’s liability. Surety is liable for the whole of the amount for which the principal debtor is liable. So, in extent, surety’s liability is at par with principal debtor’s liability. It is neither more nor less.
Surety’s right to limit his liability: Although the liability of the surety is co-extensive with that of the principal debtor, he may limit his liability. He may expressly declare his guarantee to be limited to a fixed amount. In other words, the liability of a surety can be made less by a special contract but his liability cannot be made greater than that of the principal debtor.
Surety’s liability arises immediately on default of the principal debtor: Surety’s liability is secondary and not primary. The surety’s liability arises immediately on default by the principal debtor. He cannot be called upon to pay unless the principal debtor has committed the default. But in case of default by the principal debtor the creditor is not required to give a notice of default to the surety. Creditor is not bound to proceed first against the principal debtor before suing the surety unless the contract so provides.
Surety’s liability where the original contract between creditor and principal debtor is void or voidable: The contract between the surety and the creditor is an independent contract. Thus, where the original contract between the creditor and the principal debtor is void the surety will be liable as if he is the principal debtor. Similarly, where the contract between the creditor and the principal debtor is voidable, the surety may not be discharged from liability.