Rights of Surety.(Contract of Guarantee)

 RIGHTS OF A SURETY

    

 

1. Rights against the Principal Debtor

 

(a) Right to subrogation(sec 140):-On payment of the guaranteed debt or performance of the guaranteed duty,the surety acquires all the rights which the creditor had against the principal debtor.Thus the surety steps into the shoes of creditor.

 

 

 

(b) Right to Indemnity(sec 145):-In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety,and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee,but not those sums which he had paid wrongfully.

 

 

 

 

 

2. Rights against the Creditor

 

(a) Right to securities held by creditor (sec 141):-A surety is entitled to the benefit of every security which the creditor has against the Principal Debtor at the time when contract of surety ship is entered into,whether the surety knows of the existence of such security or not;and if the creditor loses,or,without the consent of the surety,parts,with such security,the surety is discharged to the extent of the value of the security.

 

 

(b) Right to claim set off in respect of amount recoverable by the Principal debtor:-The surety has the right to claim set off or counter claim,if any ,which the principal debtor had against the creditors in case the creditors sues him for the payment of liability of principal debtor

 

(c) Right to share reduction in case of insolvency of principal debtor:--The surety has the right to claim proportionate reduction in his liability if the principal debtor becomes insolvent.

 

 

3. Rights against co-sureties

(a) Meaning of Co-sureties:-When the the same debt or duty is guaranteed by two or more persons,such persons are called as ‘co-sureties’.

 

(b) Right to claim contribution:-If a co-surety pays more than his proportionate share of liability,he has a right to claim contribution from the other co-surety or co-sureties.

(c) Right to share security:-If a co-surety obtains any security of principal debtor,the other co-surety (or co-sureties)has (or have)a right to share such security.

(d) Liability of co-sureties:-The liability of co-sureties is summarised as under

(e) Matters Immaterial for the aforesaid Principal:-The aforesaid principal regarding the liability of co-sureties is applicable-

(a) whether the sureties are liable jointly or severally.

(b) Whether the sureties re liable under the same or different contracts.

(c) Whether the sureties are liable with or without the knowledge of each other.

 

(f)Effect of release of one co-surety (sec138):-Where there are co-sureties,a release by the creditor of one of them does not discharge the others ;neither does it free the surety so the released from his responsibility tp the other sureties.How ever under the English Law the release of one co-surety shall release all the other co-sureties since the liability of co -sureties under English Law is only joint and several .