Issue at Hand
When it comes to Contact of Indemnity, absence of liablity on part of Principal
Debtor is immaterial and it is the indemnifier whose obligation lies therein, of
primary nature. On the other hand, Contract of Guarantee is where the liablity
of Surety is of collateral nature and not primary. But when Principal Debtor is
a minor, he will not be liable definitely (Sec. 11 of Contract Act) but the issue
here is whether in that scenario, liablity of Surety would be that of a primary
One Important essential of Contract of Guarantee
As far as essentials are concerned, it has been the well settled position that
object behind such contracts is the securing of payment of a debt and hence
existence of a debt of enforceable nature is a valid requisite. In case of Swan
V. Bank of Scotland1, where the payment credited by creditor itself was illegal
in nature owing to being in contravention of statute and henceforth void, it was
held that in absence of any debt, no liablity lies on part of surety.
Coutts & Co. v. Brown-Lecky L.R.2 case
The English case pertaining to this aspect is Coutts case where it was held that
in absence of a debt, there cannot be a default and if there cannot be default
on part of Principal Debtor, there cannot be liablity when it comes to surety.
Above mentioned Swan case was also referred in this judgement.
Kashiba Bin Narsapa v. Sripat Narshiv case 3
The famous Indian case and earliest case regarding this aspect is Kashiba case
where at time of bond execution of a minor, her father joined in and stated that
in case of her failure to pay, he will be dealing with the matter regarding the
payment from his income. It was answered by court that her father will be liable
on account of guarantee being given by him for his minor daughter's bond.
Edavan Kavingal Kelappan v. Moolakal Kunhi Raman & Ors.4 case
Abovementioned both the cases were discussed when matter came up before Madras
High Court. Court ascertained the basis upon which the Kashiba judgement was
given. The judge referred to notes regarding Sec. 128 of Contract Act by Pollock
and Mulla5 giving reference of excerpts from Kashiba case.
It said that it is
not the case that surety cannot ever be liable in case PD is not liable and that
surety can't escape liability on account of original agreement being void owing
to incapacity of minor and it was mentioned that such a contract would then be
that of principal nature and not collateral. This position of Pollock and Mulla
solely relies upon the extracts from Kashiba case and judge in this case relies
on textbooks such as Chitty on Contracts etc. and few cases.
Both the cases
referred in Kashiba case were as per judge on the basis that credit is being
given to the surety and not the infant and therefore surety's obligation can be
purported to be that of a principal debtor and there is no substansive material
to assume that credit was given to minor and therefore were unlike the general
Court then referred to Coutts case where apart from some former cases, reliance
was made on Pothier's writings 6 where it was stated that if PD is not obligated,
then surety can also be not obliged reason being that liablity of surety is of
accessory nature and cannot be a principal obligation. It was held that in
situation where all parties knew the fact that PD is minor, the guarantors
cannot be sued and cannot be held liable for a minor's loan which is void ab
Court then established principle that until and unless circumstances of
extraordinary nature like fraudulent representation or where the terms of
contract can be constructed by judges similar to that of indemnity contract,
liablity of surety in contract of guarantee can only be that of secondary in
nature and for that contract to be valid, there is to exist a valid obligation
on part of PD in the first place.
It held that factual matrix in Kashibai case
were appearing to be that of indemnity and not guarantee and hence the decision
in it was not contrary to the principle established previously. Court futher
relied upon Subramia Chettiar v. Narayanaswami
7 case, where it was held that liablity of surety is coextensive vis-a-vis the liablity of PD and of accessory
nature and it was inferred that liablity cannot be more or less to what is on
part of PD as per Sec. 128.
Babu Rao v. Babu Manaklal
8 case was also relied upon
by court in Subramia case where it was said that in such cases the question
needs to be asked is whether PD itself is liable and if answer is negative,
surety cannot be compelled to discharge that obligation that has in fact no
existence at all.
In the book Chitty on Contracts9, which was referred by Judges in Kashiba's
, para 812 talks about principle established in Coutts case that it is the
essence of Contract of Guarantee that 'someone' shall be principally liable. In
para 813 comes the excerpts which were referred to by Judges in Kashiba's case
and in the end of this para, editors later added that in absence of
extraordinary circumstances, general principle as stated in 812 para of Coutt's
case will hold good and guarantor won't be held liable.
This is itself the
acknowledgement on part of editors of Chitty on Contracts that it is one of the
essentials of contract of guarantee that there must be a PD liable in eyes of
law. Henceforth, as per the reasons mentioned, the principle abovementioned was
established and was held that for liablity of surety, it is necessary that there
exists a liablity on part of PD or existence of special circumstance like
fraudulent representation or where terms of contract can be constructed by
judges to be that of the nature of indemnity.
- (1836) 10 Bligh NS 627.
- 1947 KB 10.
- ILR (1895) 19 Bom 697.
- Dinshah Fardunji Mulla, The Indian Contract Act 1872 446-447 (7th ed.).
- de Cloyar, Law Of Guarantees And Of Principal And Surety 210 (3rd ed.
- (1950) 2 M.L.J. 74.
- I.L.R. (1939) Nag. 175.
- Kenneth Scott et. al., Chitty On Contracts 447 (21st ed.).