Contract Act, 1872 — Ss. 126, 128, 133–137 — Suretyship — Joint and several liability — Effect of dismissal of suit against principal debtor Suretyship — Liability co-extensive with principal debtor — Scope Liability of surety is co-extensive with that of the principal debtor unless otherwise provided by contract; creditor need not exhaust remedies against principal debtor first. (Paras 11, 14–15)

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Contract Act, 1872 — Ss. 126, 128, 133–137 — Suretyship — Joint and several liability — Effect of dismissal of suit against principal debtor

1. Suretyship — Liability co-extensive with principal debtor — Scope
   Liability of surety is co-extensive with that of the principal debtor unless otherwise provided by contract; creditor need not exhaust remedies against principal debtor first.
   (Paras 11, 14–15)

2. Dismissal of suit against principal debtor — Effect on surety
   Where suit against principal debtor is dismissed for default and such dismissal attains finality, no liability survives against the principal debtor; consequently, surety’s liability also stands extinguished.
   (Paras 2, 11, 16–17)

3. Joint and several liability — Distinction between subsisting liability and extinguished liability
   Joint and several liability of sureties survives only so long as liability of principal debtor subsists; once principal debtor’s liability is extinguished, sureties cannot be proceeded against independently.
   (Paras 12, 16–17)

4. Non-joinder / absence of principal debtor — Maintainability of suit against sureties
   In the absence of principal debtor on record due to dismissal of suit against him, suit against sureties alone is not maintainable.
   (Paras 4, 16–17)

5. Forbearance to sue vs extinction of liability
   Mere forbearance or omission to sue principal debtor does not discharge surety; however, dismissal of suit against principal debtor resulting in extinction of liability stands on a different footing.
   (Paras 11, 16)

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ANALYSIS OF FACTS

• Plaintiff instituted suit for recovery of money arising out of a chit transaction against principal borrower (D1) and sureties (D2–D4) based on a promissory note with joint and several liability (Paras 1–2).

• During pendency, suit against D1 (principal borrower) was dismissed for default, and application to set aside dismissal was also dismissed; the order attained finality (Paras 2–3).

• Suit continued against sureties alone.

• Trial Court dismissed the suit holding that, in the absence of principal borrower, sureties cannot be made liable (Paras 4–5).

• First Appellate Court reversed the finding and decreed the suit against sureties.

• In Second Appeal and cross-objections, the High Court examined whether sureties could be held liable when suit against principal debtor stood dismissed finally.

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ANALYSIS OF LAW

1. Nature of Surety’s Liability

The Court reiterated the settled position under Section 128 of the Contract Act that the liability of the surety is co-extensive with that of the principal debtor, subject to contract to the contrary (Paras 11, 14–15).

2. Distinction Between Forbearance and Extinction

Relying on Sections 133–137 of the Contract Act, the Court clarified that:

• Mere forbearance, delay, or omission to sue the principal debtor does not discharge the surety (Para 11).

• However, dismissal of the suit against the principal debtor, which attains finality, results in extinction of the principal debtor’s liability (Paras 16–17).

3. Effect of Dismissal of Suit Against Principal Debtor

The Court held that once the suit against the principal borrower is dismissed for default and the dismissal becomes final:

• No enforceable liability survives against the principal debtor, and

• Consequently, the co-extensive liability of the surety automatically comes to an end (Paras 16–17).

4. Joint and Several Liability — Its Limit

Though the promissory note stipulated joint and several liability, the Court held that such liability cannot exist in vacuum and must rest on a subsisting liability of the principal debtor (Paras 12, 16–17).

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RATIO DECIDENDI

Where a suit against the principal debtor is dismissed for default and such dismissal attains finality, the liability of the principal debtor stands extinguished, and the co-extensive liability of the sureties under Sections 126 and 128 of the Contract Act cannot survive; consequently, a suit or decree against sureties alone is not maintainable.