55. ‘B’ signed a guarantee to the Bank. Which on the face of it, was intended to be the joint and several guarantee of co-sureties. A, B, C and D. ‘D’ did not sign and afterwards died in an accident. Decide the liability of ‘B’ as co-surety.

1. Facts of the Case

• A Bank proposed to advance a loan to a borrower and required a joint and several guarantee from four co-sureties — A, B, C, and D.
• A deed of guarantee was prepared, intended to be joint and several, meaning that each surety would be liable both collectively and individually.
• Only B signed the guarantee, while A, C, and D were expected to sign it later.
• Before D could sign, he met with an accident and died.
• The borrower later defaulted on repayment, and the Bank sought to recover the money from B based on the guarantee he signed.
• B refused liability, claiming that his intention was to be bound only if all the proposed co-sureties (A, C, and D) had also signed the guarantee.
• The question arises — Is B liable as a co-surety, even though the others did not sign?

2. Issues in the Case

1. Whether B’s liability as a surety can arise when the guarantee was intended to be joint and several but was not signed by all the co-sureties.
2. Whether the non-signing or death of one of the proposed co-sureties (D) affects the validity and enforceability of the guarantee against B.
3. Whether, under the Indian Contract Act, 1872, a partial execution of a joint guarantee makes it binding on one surety alone.
4. Whether B’s intention to be bound conditionally (upon the signatures of others) prevents the formation of a valid contract of guarantee.

3. Legal Principles Covered to Support Case Proceedings and Judgements

Relevant Provisions: Indian Contract Act, 1872

1. Section 126 – Contract of Guarantee:
   • A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default.
   • The parties to the contract are the surety, the principal debtor, and the creditor.
   • A valid guarantee requires consent of all parties — there must be an offer, acceptance, and intention to be bound.
2. Section 127 – Consideration for Guarantee:
   • Anything done, or any promise made, for the benefit of the principal debtor may be a sufficient consideration to the surety.
   • However, there must be a valid contract between the surety and creditor.
3. Section 128 – Extent of Surety’s Liability:
   • The liability of a surety is co-extensive with that of the principal debtor, unless otherwise provided by the contract.
   • But the surety is not bound unless there is a complete contract of guarantee.
4. Principle of Conditional Acceptance:
   • When a person signs a guarantee subject to the condition that it will be binding only if others also sign, no contract arises until that condition is fulfilled.
   • This principle is rooted in the law of consent — until the condition is met, the consent of the surety is incomplete.

Supporting Case Laws:

1. M.S. Anirudhan v. Thomco’s Bank Ltd. (1963) AIR 746 (SC):
   The Supreme Court held that the liability of a surety arises only when there is a concluded and enforceable contract between the surety and the creditor. If consent was conditional, and the condition is not fulfilled, no binding contract exists.
2. Offord v. Davies (1862) 12 C.B. (N.S.) 748:
   It was held that a proposal of guarantee does not bind the guarantor until it is accepted by the creditor and the condition precedent is satisfied.
3. National Provincial Bank v. Brackenbury (1906) 22 T.L.R. 777:
   When a person signed a joint guarantee intending to be bound only if others also signed, and the others did not sign, the court held that no binding contract of guarantee arose against the signing surety.

Legal Analysis:

• In this case, the intention of the parties plays a crucial role.
• The document itself shows that the guarantee was intended to be joint and several of A, B, C, and D, and therefore B’s consent was conditional upon others signing.
• Since D never signed and died before signing, the condition precedent for the completion of the contract was never fulfilled.
• Hence, there was no concluded contract of guarantee between B and the Bank.
• B’s liability cannot arise from an incomplete or inchoate agreement.
• The Bank, being aware that the document was intended to be jointly executed, cannot enforce it against only one signatory.

4. Possible Judgement

• The guarantee document was incomplete and conditional, intended to be signed by four co-sureties jointly and severally — A, B, C, and D.
• Since D did not sign, and later died, the condition precedent for the formation of the contract was not satisfied.
• Therefore, no binding contract of guarantee ever came into existence between B and the Bank.
• B cannot be held liable as a co-surety because his consent was conditional upon the participation of all others.
• The Bank cannot unilaterally enforce an incomplete guarantee.

Judgement:

• Held: ‘B’ is not liable as a co-surety.
• Reason: The guarantee was intended to be joint and several, but the non-signing of one surety (D) prevented the completion of the contract.
• Legal Basis: Sections 126, 127, and 128 of the Indian Contract Act, 1872.
• Supporting Case: National Provincial Bank v. Brackenbury (1906) 22 T.L.R. 777; M.S. Anirudhan v. Thomco’s Bank Ltd. (1963) AIR 746 (SC).

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