Rightful Payment Under S. 145 of the Indian Contract Act, 1872; Dimensions and Nuances

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INTRODUCTION

Sec. 145 of Indian Contract Act, 1872 deals with the recovery of the sum of money rightfully paid by the surety. The sum assured by the surety to the creditor being paid is divided into two categories: rightfully paid and wrongfully paid. For example, as per illustration(a) given with the section, when the surety did not pay the sum to the creditor on reasonable grounds, but paid it when the creditor sued him, it is rightful payment. But, as per illustration(b), if there was no reasonable ground for the surety not to pay, then it is considered as wrongful payment. If the payment of the sum by the surety is rightful, then the surety can recover from principal-debtor the cost as well as the principal debt but if the payment is wrongful, then he can only recover the principal debt.

IS THE USAGE OF THE PHRASE ‘RIGHTFULLY PAID’ AND ‘WRONGFULLY PAID’ JUSTIFIED?

The phrase ‘rightfully paid’ does not seem felicitous in sec.145. The literal meaning of the phrase ‘rightful’ is just and equitable and that of the phrase ‘wrongful’ is unjust and unlawful. A contract of guarantee is a contract where one person promises to discharge the liability of another in case of default to third person. Therefore, the liability for payment of the promisor arises as soon as the principal-debtor defaults in payment. In this situation, the promisor has two options- either to pay the creditor or give reasonable grounds for not being able to pay. But if creditor files the suit against the surety, he has to pay. If we have a critical approach to the payment in both situations, we find that both of the payments can be considered justified in the eyes of law. It is because the creditor should be paid by the surety at the default of the principal-debtor. When the liability of the surety arises, it is just on the part of the surety to pay the sum of money lent by the creditor. But if the surety pays after the creditor has filed the suit against him/her, then the surety has to...
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