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Section 132 of Indian Contract Act

LLB Varun

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.

Illustration

A and B make a joint and several promissory note to C. A makes it, in fact, as surety for B, and C knows this at the time when the note is made. The fact that A, to the knowledge of C, made the note as surety for B, is no answer to a suit by C against A upon the note.

Liability of Two People: One Being Surety Doesn’t Affect the Third Person’s Rights

If two people make a promise to a third person to take responsibility for something, and they privately agree between themselves that one of them will only pay if the other fails, this private agreement does not affect the third person. Even if the third person knows about this private agreement, both are still fully responsible to the third person.

Example 1

A and B sign a promissory note (a written promise to pay money) to C. Actually, A is acting as a surety for B, meaning A will pay only if B fails. C knows that A is the surety.

Even though C knows this, A can still be sued by C to pay the note. A cannot use the private agreement with B as a reason to avoid paying C.

Example 2

  • X and Y borrow â‚č50,000 from Z.
  • X privately tells Y: “I will only pay if you don’t pay.”
  • Z knows about this.

Even so, Z can ask X to pay the full â‚č50,000, because the private agreement between X and Y does not matter to Z.

Example 3

  • M and N agree to deliver goods to P. Both sign a contract saying they are responsible.
  • M privately agrees with N that N will deliver the goods and M will pay only if N fails.
  • P knows about this private deal.

Even so, if N does not deliver, P can demand delivery or compensation from M, because both are liable to P.

Example 4

  • R and S sign a lease agreement with T to pay monthly rent.
  • R tells S: “I will pay only if you don’t pay your share.”
  • T is aware of this.

If S doesn’t pay, T can still ask R to pay the rent, because R is liable to T, regardless of the private arrangement with S.