The Concepts Of Joint Promisors and Co-Suretyship

INTRODUCTION

Promisor as defined in Section 2 of the Indian Contract Act of 1872 refers to the person who makes the proposal or the offer to the promise.[1] Once they enter into an agreement, the promisor can be made to discharge his part of the performance by the promisee.

Joint promises are those promises wherein two or more persons are liable for the performance of the same obligations. Parties can be joint promisors in 3 ways- joint liability, several liability and joint and several liability. Joint liability occurs when the multiple people are supposed to perform the same obligation together or jointly. If one party discharges his liability, the duty of the other parties also gets automatically discharged. Several liability occurs when two or more people are made liable to perform the whole obligation in its entirety single-handedly. Thus, joint and several liability is a combination of the two. Here, each person makes a separate promise to discharge the entire obligation and also makes a collective promise to fulfil the obligations along with the other joint promisors. Each party that is joint and severally liable can be made. The rights and duties of joint promisors is defined under the following sections of the Indian Contract Act, 1872- S. 42, S. 43, S. 44, S. 45.

Further, contracts of Guarantee are those contracts which have a tripartite agreement between the creditor, principal debtor and surety.[2] It is an arrangement wherein the surety or guarantor assures the creditor that he would fulfil the liability to make good the loss in case the principal debtor defaults in making his payment. Basically, the surety takes it upon himself to be accountable for a debt or default of the Principal Debtor.

‘Creditor’ refers to the party to whom the debt is owed.[3] ‘Principal debtor’ is the party that owes a duty to the creditor usually for repayment of the borrowed money.[4] Surety is the party that becomes liable to the creditor in case of default by the debtor.[5]

When two or more people are made liable to be answerable in case of default by the debtor, each of the persons is known as a co-surety. The rights and obligations of co-sureties are spelt out primarily under S. 138, S. 144, S. 146 and S. 147 of ICA, 1872.

The dynamics between the joint promisors and the modalities of their arrangement may see variations in different types of contracts.

JOINT PROMISORS

The rights and liabilities of joint promisors is elaborated under S. 42, S. 43, S. 44 and S. 45. These provisions together dictate the functioning and dynamics that exists between the joint promisors. We shall be focusing on the joint promises which are jointly and severally liable.[6]  S. 42 states that how the joint liability of a promise is devolved amongst the joint promisors. Each of the promisors has to jointly fulfil his promise during the joint lives of the promisors. When one of the promisors dies, his legal heirs become jointly liable to perform the promise along with the rest of the joint promisors. In case all the original promisors pass away, the representatives of all of them will become jointly liable to discharge the performance towards the promisee.[7]

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Here, there is a departure from English rule. In it, if, say, there are 3 joint promisors and one of them dies, the entire liability for the promise will fall on the other two joint promisors and none of it into the representatives of the deceased promisor.[8] When all three joint promisors die, the liability of the joint promise is shouldered by the representatives of the last survivor.[9] Looking at both the rules, the Indian rule on the subject seems to more fair and just.

S.43 discusses who can be compelled to, first, perform the obligation and then claim contribution from the co-promisors for the performance.[10] The first paragraph states that the promisee may compel any one or more of the promisors to discharge the promise on behalf of all the joint promisers. Later, the creditor cannot sue any other joint promisor for performance in English law.[11] This is not applicable in Indian law.[12]Once the particular joint promisor discharges the performance that was owed by all the promisors together, the second paragraph comes into play. It states the right of contribution of that promisor. The promisor who had been compelled to perform can claim equal amount as contribution from the other promisors[13], unless there has been an agreement that states the opposite. The last paragraph of this section states that if any of the joint promisors is unable to make the contribution, the remaining promisors can be compelled to discharge the performance in the entirety by the promisee. The remaining promisors are required to bear the burden equally. S. 44 states that if the promisee decides to release one of the joint promisors under the contract, the other joint promisors are not affected by this act and are still expected to discharge their performance.[14] This is also at variance from the English law on point, as per which if the creditor releases one joint-promises, its effect is that all the joint promisors are released.[15] Further, S. 45 elaborates the devolution of joint rights in case of joint promises.[16]

CO-SURETIES

Suretyship contracts benefit the creditor as it reduces the risk of loss due to non-payment by the principal. The presence of co-sureties devolves this liability of the surety onto multiple persons each of whom can be made liable to pay it off separately or collectively.[17] This concept of co-suretyship is governed by S. 138, S. 144, S. 146 and S. 147 of ICA, 1872.

S. 138 states that if the creditor chooses to release one of his co-sureties, there would be no effect on the other co-sureties. The other co-sureties are not released and they can still seek contribution from the released co-surety if the principle defaults.[18] S. 144 merely states that if there had been an agreement between the creditor and surety beforehand that the creditor will not act on the contract of guarantee until there is a co-surety[19] as it is invalid without a co-surety.[20] S. 146 mandates equal contribution from all co-sureties in the event of default by the principal unless there has been an agreement stating the contrary.[21] A co-surety can claim contribution only if he pays more than he was supposed to.[22] The co-sureties can be liable jointly or severally. This principle of contribution is grounded in equity.[23] The Court clarified in the case of Steel v. Dixon that the co-sureties need not have prior knowledge about the other co-sureties and the securities and benefits that they have obtained from the principal debtor but are entitled to all of them.[24] For example, if C, the creditor enters into a suretyship contract with co-sureties X, Y and Z for Rs. 1800 lent to P, principle debtor. And due to the absence of X and Y, only Z is compelled to make the entire payment of Rs. 1800. Since each of them was liable to pay only Rs. 900, Z can later claim 900 from X and Y both.

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S. 147 explains that in case co-sureties limit their liability under the suretyship contract, they can only be made liable to that extent.[25] Even in this instance, the co-sureties are supposed to bear the equal burden of the default as far as the limits of liability of each of the co-sureties allows.[26] The division of contribution should not be made proportionately to the liability extent but equally nonetheless.[27] In contrast, the English rule makes co-sureties liable ‘rateably’.[28]

OVERLAP AND POINTS OF DIFFERENCES

Promise is a very broad concept under contract law. There may be situations where multiple people promise to do the same act.[29] Suretyship is a kind of a contract wherein there may be multiple co-sureties who may assure repayment to the creditor in case on non-payment by the debtor. Thus, there is a great overlap between these concepts which makes it important for it to be analyzed and the points of difference to be identified. Both the concepts primarily lay out that both joint promisors and co-sureties need to contribute equally unless there is an agreement to the contrary.[30] The slight difference between the two here states that the joint promisor should have been ‘compelled’ to perform by the promisee as mentioned in S. 43.

Both the provisions i.e. S. 43 and S. 146 state that one of the joint promisors or co-surety can be compelled to discharge the obligation towards the promisee or the creditor. However, he can claim contribution from the other co-sureties or joint promisors later on. Both of these are based on the principle of equity.

Similarly, both S.44 and S. 138 specify that even though the promisee or creditor may release a co-surety or joint promisors, but the others continue to remain bound by their obligations. But the joint promisor or co-surety who had been compelled to pay can make the released person liable to contribute.

The greatest difference is that the joint promisor can recover contribution only from the other joint promisors but a co-surety has the option to, first, recover the amount from the other co-sureties and ultimately he can recover the amount from the principal debtor.

Secondly, the provisions for joint promises deal majorly with agreements of joint and several liability whereas the provisions for co-sureties deals with such agreements and in addition to them also agreements which are either jointly or severally liable also.[31]

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Thirdly, it is specified in S. 146 that the co-sureties need not have knowledge about the securities or presence of other co-sureties to be entitled to the benefits that they may entail. However, there is no such specification under the provisions for joint promisors.

Finally, joint promises is a much wider concept which encompasses the concept of suretyship within it.

CONCLUSION

Suretyship is also a kind of contract which entails promises. There may be a situation where there are joint promisors in a suretyship agreement wherein two or more people collectively or separately ‘promise’ the creditor to answer for the default by the principal. Every agreement has reciprocal promises which go ahead and form a contract. Suretyship is a form of contract so it is but obvious that all the principles that apply to joint promisors would apply to co-sureties as well. There may be minor differences but overall these provisions complement each other and make for a more equitable space in the arena of contracts of guarantee. Sections like S. 138 and S. 44 seem to paraphrase each other yet they fulfill their own unique purposes. Same is the case with S. 43 and S. 146 both of which talk about the doctrine of contribution.

[1] Indian Contract Act, 9 of 1872, S. 2.

[2] Harburg India Rubber Comb Co.v Martin, (1902) 1 KB 778 CA.

[3] Black’s Law Dictionary

[4] Id.

[5] Id.

[6] Motilal Bechardass  v.Ghellabhai Hariram, (1892) 17 Bom  6.

[7] Indian Contract Act, 9 of 1872, S. 42.

[8] Anson’s LAw on COntracts J. Beatson  (29th edn., 2010).

[9] MArtin Leake, Principles of the Law of COntracts (8th edn.,1931) at p. 313.

[10] Indian Contract Act, 9 of 1872, S. 43.

[11] King v. Hoare, (1844) 13 M & W 494.

[12] Mohd Askari v Radhe Ram Singh, ILR (1900) 22 All 307.

[13] Hitchman v. Stewart, (1855) 3 Drew 271.

[14] Indian Contract Act, 9 of 1872, S. 44.

[15] Krishna Charan v. Sanat Kumar, (1917) 44 Cal 162.

[16] Indian Contract Act, 9 of 1872, S. 45.

[17] Chitty on Contracts chitty, 1586  (26th edn., 2004).

[18] Indian Contract Act, 9 of 1872, S. 138.

[19] Indian Contract Act, 9 of 1872, S. 144.

[20] Evans v. Bremridge, (1856) DMG 100.

[21] Indian Contract Act, 9 of 1872, S. 146.

[22] Ex Parte Snowdon, (1881) 17 Ch Div 44.

[23] Dering v. Earl of Winchilsea, (1787) 1 Cox 318.

[24] Steel v. Dixon, (1881) 17 Ch D 825.

[25] Indian Contract Act, 9 of 1872, S. 147.

[26] Ralph Slovenko, Effects of Suretyship, The American Journal of Comparative Law, Vol. 9, No. 1 (Winter, 1960),  48-77.

[27] SBI v. Prem Dass, AIR 1998 Del 49.

[28] Halsbury’s Law of England, ‘Guarantee and Indemnity’, ¶261 (4th edn vol 20).

[29] Treital The Law of Contracts  806  (13th  edn., 2011).

[30] Nilima Bhadbade Pollock and Mulla The indian contract and specific relief act, 808 (14th edn., 2012) .

[31] Avtar Singh, Contract and Specific Relief Act, 688 (12th edn., 2018).

Author: Sakshi Sharma,
NUJS, first year

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