What are the rights and liabilities of the surety under the contract of guarantee?

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Q.5 What are the rights and liabilities of the surety under the contract of guarantee?

Ans:1. RIGHTS AGAINST PRINCIPAL DEBTOR

 

A surety has the following two rights against the principal debtor.

 

a)         RIGHT OF CREDITOR

According to Section 140, when on the default of the principal debtor, the surety has made payment of the amount for which he is liable, is invested with all the rights, which the creditor had against the principal debtors. When the surety seeks to enforce his remedy he shall be in the same position as if he was the original creditor still unpaid.

 

(b)       RIGHT TO BE INDEMNIFIED

In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surely and the surely is entitled to recover from the principal debtor whatever sun he has rightfully paid under the guarantee but no sums which he has paid wrong fully. Sec 145.

 

2.         RIGHT AGAINST CREDITOR

If the principal debtor gives any security to the creditor at the time of the contract whether it is in the knowledge of the surety or not, the surety is entitled to the benefits of every such security. If the creditor loses any such security without the consent of the surety, the discharged from liability to the extent of the value of the security.

 

EXAMPLE

A has given loan of Rs. 5000/= on the guarantee of £Tto C and also receives a fixed deposit receipt of Rs. 1000/= from C on due date C fails to repay the loan and there fore B has to pay for it. Now B has right to enjoy the security of fixed deposit receipt of Rs. 1000/=.

 

3.         RIGHTS AGAINST CO-SURETIES

When the debt is guarantee by two more person they are said to be co-sureties and tare equally liable for the amount of debt in the absence of nay contract to the contrary. If one of them has paid all the debt, he can recover from the others the amount paid in excess of is share. Where co-sureties have given guarantee for different sums, they are bound to contribute equally up to the maximum of their obligation.

 

EXAMPLE

A and B has given guarantee in equal proportion to C for the loan of Rs. 5000/= which C has given D. D becomes defaulter and A pays in full Rs. 5000/= to C. Now A has a right to recover Rs. 2500/= from his co-surety B.

 

The liability of the surety is co-extensive with that of the principal debtor unless it is other wise provided by the contract. Sec 128. The surety is only liable when the debtor will not make payment to the creditor, the surety will have to make payment. But according to Section 147, co-sureties who are bound in different sums are liable to pay equally as the limits of their respective obligations permit. And that repentance has no http://pro-homework-help.com/ more effect in averting or altering the

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