Section 147 of the Indian Contract Act, 1872: Liability of Co-sureties Bound in Different Sums
Section 147 deals with contribution between co-sureties where each surety has undertaken liability up to a different monetary limit. The governing rule is equality of contribution so far as the separate limits of their respective obligations permit.
What Section 147 provides
Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit.
In simple terms, co-sureties should ordinarily contribute equally toward the guaranteed liability. However, a surety cannot be required, by way of contribution under this rule, to bear more than the maximum amount for which that surety is bound. When one surety reaches that contractual ceiling, the remaining amount is shared among the other co-sureties, subject to their own limits.
Meaning of important terms
Surety: Under Section 126 of the Indian Contract Act, a surety is the person who gives a guarantee for the performance of a promise or discharge of a liability of a third person in case of default.
Co-sureties: Co-sureties are two or more sureties who guarantee the same debt or duty. Sections 146 and 147 regulate contribution among them. Section 146 states the general rule of equal contribution where co-sureties are liable for the same debt or duty, while Section 147 addresses the situation in which their maximum obligations are different.
Different sums: This refers to separate maximum limits of liability undertaken by different sureties. Section 147 preserves the principle of equal contribution, but only within those agreed limits.
How liability is calculated under Section 147
| Step | Principle |
|---|---|
| 1 | Identify the amount of the principal debtor's default covered by the guarantees. |
| 2 | Identify the maximum amount for which each co-surety is bound. |
| 3 | Apportion the liability equally among the co-sureties so far as each surety's contractual limit permits. |
| 4 | If a surety reaches that limit, allocate the remaining covered liability among the other co-sureties, again subject to their respective limits. |
Statutory illustrations to Section 147
The Act illustrates the rule using A, B and C as sureties for D, with maximum liabilities of Rs. 10,000, Rs. 20,000 and Rs. 40,000 respectively.
A, B and C are each liable to pay Rs. 10,000. The default can therefore be divided equally without exceeding any surety's limit.
A is liable for Rs. 10,000, which exhausts A's maximum obligation. B and C are liable for Rs. 15,000 each.
A, B and C each have to pay the full penalty of their respective bonds: Rs. 10,000, Rs. 20,000 and Rs. 40,000.
Section 146 and Section 147: the distinction
Section 146 establishes the general rule that co-sureties are liable to contribute equally in the absence of a contract to the contrary. Section 147 applies that equality principle where the co-sureties have undertaken obligations for different maximum sums. The contractual ceiling of each surety therefore remains important when contribution is worked out.
Official text of the Indian Contract Act, 1872
The Indian Contract Act, 1872 is Central Act No. 9 of 1872. For the official consolidated text and current legislative record, refer to India Code, maintained by the Government of India.
Official Indian Contract Act, 1872 - India Code
Related provisions
For the preceding rule on equal contribution, see Section 146 - Co-sureties liable to contribute equally. The next provision, Section 148, begins Chapter IX on bailment and defines bailment, bailor and bailee.