A, B, and C act as co-sureties for a loan of 4,00,000/- taken by R from XYZ Bank. There are three bonds specifying different liability limits for…

CA Foundation · Business Laws · PYQS · September 2025
A, B, and C act as co-sureties for a loan of 4,00,000/- taken by R from XYZ Bank. There are three bonds specifying different liability limits for each surety such as A's liability is limited to 1,00,000/-, B's liability is limited to 2,00,000/- and C's liability is limited to 4,00,000/-. Due to financial difficulties, R defaults on the loan, and the bank seeks to recover the amount from the sureties. As per the provisions of the Indian Contract Act, 1872, (i) Analyse and determine the amount each co-surety (A, B, and C) is liable to pay, and (ii) What will be your answer if the loan amount is 6,00,000/- instead of 4,00,000/-?

Suggested Answer and Working Notes:

Co-sureties liable to contribute equally (Section 146 of the Indian Contract Act,1872): Unless otherwise agreed, each surety is liable to contribute equally for discharge of whole debt or part of the debt remains unpaid by debtor. Liability of co-sureties bound in different sums (Section 147): The principle of equal contribution is, however, subject to the maximum limit fixed by a surety to his liability. Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit. In the instant case, (i) A, B and C act as co-sureties for a loan of 4,00,000 taken by R from XYZ bank. As per specific bonds by each of them, A’s liability is limited to 1,00,000, B’s liability is limited to 2,00,000 and C’s Liability is limited to 4,00,000. R makes the default of 4,00,000. Based on the above provisions, A, B and C were liable for contribution subject to maximum limit fixed as per their specific bonds. Therefore, A is liable to pay - 1,00,000 rupees, and B and C - 1,50,000 rupees each. (ii) If the loan amounts to 6,00,000, A is liable to pay - 1,00,000 rupees, B is liable to pay - 2,00,000 and C is liable to pay - 3,00,000.

Topics: The Indian Contract Act, 1872

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