Section 132 of the Indian Contract Act, 1872: Liability of Two Persons Primarily Liable
Section 132 deals with a situation in which two persons undertake a liability to a third person but privately agree between themselves that one will be liable only if the other defaults. The private arrangement does not reduce or alter either person's liability to the third person when that third person is not a party to the arrangement.
What does Section 132 provide?
Section 132 - Liability of two persons, primarily liable, not affected by arrangement between them that one shall be surety on other's default.
Where two persons contract with a third person to undertake a certain liability, and also contract with each other that one of them shall be liable only on the default of the other, the third person not being a party to such contract, the liability of each of such two persons to the third person under the first contract is not affected by the existence of the second contract, although such third person may have been aware of its existence.
In simple terms, the first contract determines the rights of the third-party creditor. A separate agreement between the two persons about who should ultimately bear the burden operates between them, but it does not by itself change the creditor's rights under the first contract.
Essential elements of Section 132
- Two persons must have undertaken a liability to a third person.
- The same two persons must have a separate arrangement between themselves under which one is to be liable only on the other's default.
- The third person must not be a party to that separate arrangement.
- The separate arrangement does not affect the liability owed to the third person under the original contract.
- Mere knowledge by the third person of the internal arrangement does not, by itself, alter the liability created by the first contract.
Statutory illustration
A and B make a joint and several promissory note to C. As between A and B, A signs as surety for B, and C knows this when the note is made. Section 132 states that A cannot rely on that fact as an answer to C's suit on the note.
Meaning and legal effect
The provision distinguishes the external obligation owed to the creditor from the internal relationship between the persons who assumed that obligation. If both are primarily liable to the creditor under the first contract, their separate allocation of responsibility cannot be used to rewrite the creditor's contract where the creditor did not join the second agreement.
This is different from a conventional contract of guarantee under Section 126, where the statutory relationship itself involves a surety, principal debtor and creditor. Section 132 instead addresses an internal surety arrangement between persons who, vis-a-vis the third person, have undertaken the primary liability.
Related provisions on guarantee
Sections 126 to 147 of the Indian Contract Act, 1872 contain the principal statutory provisions relating to contracts of guarantee and sureties. For example, Section 128 deals with the extent of a surety's liability, while Section 133 deals with discharge of a surety by variance in the terms of the contract.
Official text and legal status
The Indian Contract Act, 1872 is Central Act No. 9 of 1872. For the authoritative consolidated statutory text, refer to the official India Code publication. The official text should be checked when the precise wording of the law is material.
Official Indian Contract Act, 1872 - India Code