RIGHTS OF SURETY

by • 09/06/2013 • GeneralComments (0)434

Q.11    Discuss the rights of a surety:

Ans:    RIGHTS OF SURETY

After discharged the liability of the principal debtor, the surety gets various right given below:

 

1.         RIGHTS AGAINST THE PRINCIPAL DEBTOR

 (a)       RIGHT TO SUBROGATION [SECTION 140]

On payment of the guarantee debt or performance of the guarantee of the guaranteed duty; the surety acquires all the right, which the creditor had against the principal debtor. Thus the surety steps into the shown of creditor.

 

b)         RIGHT TO INDEMNITY [SECTION 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.

EXAMPLE

B is indebted to C 2nd A is surety for the debt. C demands payment from A and on his refusal sues him for the amount. A defends the suit, having reasonable ground for doing so but he is compelled to pay the amount the debt with costs. He can recover from B the amount paid by him for costs, as well as the principal debt.

 

II.        RIGHT AGAINST THE CREDITOR

(a)        RIGHT TO SECURITY [SECTION 141]

A surety is entitled to the benefit of every security which the creditor against the principal debtor at the time when the contract surety ship is entered into, whether the surety knows of the existence of such security or not, and if the creditor loses or with out the consent of the surety parts, with such security, the surety is discharged to the extent of the value of the security.

 

EXAMPLE

C advances to B his tenant Rs 2,000/= on the guarantee of A. C has also a further security for Rs 2,000/= by a mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent and C sues A on his guarantee. A is discharged for liability to the amount of the value of the furniture.

 

(b)        RIGHT TO CLAIM SET OFF

The surety has the right to claim set off or counter claim, if anyone which the principal debtor had against the creditor, in case the creditor sues him for payment of liability of principal debtor.

 

III.       RIGHT OF CONTRIBUTION AGAINST CO-SURETIES

a)         MEANING OF CO-SURETIES

When two or more persons guarantee the same debt of duty, such person is called as *co-ordinates*.

 

b)         RIGHT TO CLAIM CONTRIBUTION

If a co-surety pays more than his proportional share of liability, he has right to claim contribution from the other co-surety or co-sureties.

 

(c)        RIGHT TO SHARE THE SECURITY

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

 

(d)        LIABILITY OF CO SURETIES

The liability of co-sureties is summarized as under.

Where there is no contract to the country

 

Where the country have agreed to guarantee different sum

The so-surety are liable to contribute equally to the extent of default of principal debtor [section 146] The co-surery is liable to contribute equally subject to the maximum amount guaranteed by each one. [Section 147]. There are not liable in proportion to the amount guarantee by them.

 

 

MATTER IMMATERIAL FOR THE AFORESAID PRINCIPAL

The aforesaid principal regarding the liability of co-surety is applicable.

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

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

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

 

EXAMPLE

A, B and C sureties to D for a sum of Rs 3,000/= lend to E, E makes default in payment A> B, and C are liable, as between themselves to pay Rs. 1,000/= each.

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