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State the rights of a surety against the Principal Debtor, the Creditor, and Co-Sureties.

State the rights of a surety against the Principal Debtor, the Creditor, and Co-Sureties.

Course: B.Com

1 Answer

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. According to Section 138, where there are co-sureties, the release by the creditor of one of them does not discharge the others, nor does it free the surety so released from his responsibility to the other sureties. Thus in other words, it can be said that when the principal debtor has defaulted in fulfilling his obligation in the case where the payment of the debt or the performance of duty is guaranteed by the co-sureties, then the creditor may compel only one or more of the co-sureties for the performance of the whole contract. In this case the co-surety sureties performing the contract. become entitled to claim contribution from the remaining co-sureties.

Section 146 of the Indian Contract Act states that, in the absence of any contract to the contrary, the co-sureties are liable to contribute equally. This clearly states that unless otherwise expressed in an agreement by all the sureties they need to contribute equally for the payment of the debt. For example: A, B, C and D are co-sureties for a debt of Rs. 2,000 lent by Z to R. R defaults in repaying the loan. A, B, C and D are thus liable to contribute Rs. 500 each.

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August 14, 2019