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Discuss the nature of Surety’s Liability. When is he discharged from his Obligation?

Discuss the nature of Surety’s Liability. When is he discharged from his Obligation?

Course: B.Com

1 Answer

Surety refers to the person who gives the guarantee. The surety is entitles to various rights once the liability of the principal debtor has been discharged and the payment has been made. The rights may be classified as:

  1. Rights against the principal debtors.
  2. Rights against the creditor.
  3. Rights against the co-sureties.

Rights against the Principal Debtor:

The surety has the following rights against the principal debtor, namely

  • Right of Subrogation: It means that on payment of the guarantee debt, or performance of the guaranteed duty, the surety becomes the creditor.
  • Right of Indemnity: The surety is entitles to recover from the principal debtor the amount of sum paid under the guarantee in case of an implied promise.

Rights against the Creditor:

These can be sub-classified as:

  • Right to securities: The surety is entitled to claim all the securities which were given by the principal debtor to the creditor.
  • Right to set off: When the creditor sues the surety for payment of the principal debtor’s liabilities, the surety can claim set off.

Rights against the Co-sureties:

Between co-sureties there is equality of the burden and the benefit. The surety is discharged from his liabilities in the following circumstances:

By revocation of the contract of guarantee: This is done in the following ways:
  • Notice by surety,
  • Death of the surety,
  • Novation.
By Conduct of the Creditor: It can be in the following ways:
  • Variance in terms of the Contract: A surety is discharged by such contract of the creditor which has the effect of materially altering the terms of the contract of guarantee.
  • Release or discharge of the Principal Debtor: if the creditor makes a contract with the principal debtor by which the principal debtor is released, then the surety is discharged.
  • Arrangement between Principal Debtor and Creditor: If the creditor makes an arrangement with the principal debtor for composition without the consent of the surety, the surety will be discharged.
  • By creditor’s act or omission impairing surety’s eventual remedy: The surety gets discharges. if the creditor does any act which is against the right of the surety.
  • Loss of security: The surety gets discharged if the creditor parts with or loses any security given to him at the time of the guarantee without the consent of the surety.

By invalidation of the contract: In the following cases:

  • Guarantee obtained by misrepresentation: If the misrepresentation is made by the creditor relating to the material fact in the contract of the guarantee, the contract becomes invalid.
  • Guarantee obtained by concealment: If the guarantee is obtained by silence regarding a material fact by the creditor the contract becomes invalid.
  • Failure of co-surety to join a surety: If the other person does not join as the co-surety and because of which the creditor is not allowed to act, the contract becomes void.

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August 14, 2019