Posted February 1, 2014 by advocateguru in Learning Centre

Rights of Surety

A surety has certain rights against the creditor, the principal debtor and the co-securities that are:

  • Surety’s rights against the creditor: A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into whether the surety knows of the existence of such security or not; and, if the creditor losses or, without the consent of the surety parts with such security, the surety is discharged to the extent of the value of the security.
  • Rights against the principal debtor: After discharging the debt, the surety steps into the shoes of the creditor or is subrogated to all the rights of the creditor against the principal debtor. He can then sue the principal debtor for the amount paid by him to the creditor on the debtor’s default; he becomes a creditor of the principal debtor for what he has paid.

In some circumstances, the surety may get certain rights even before payment. The surety has remedies against the principal debtor before payment and after payment. In Mamta Ghose v. United Industrial Bank (AIR 1987 Cal. 180) where the principal debtor, after finding that the debt became due, started disposing of his properties to prevent seizure by surety, the Court granted an injunction to the surety restraining the principal debtor from doing so. The surety can compel the debtor, after debt has become due to exonerate it from his liability by paying the debt.

  • Surety’s rights gains co-sureties: When a surety has paid more than his share of debt to the creditor, he has a right of contribution from the co-securities who are equally bound to pay with him. A, B and C are sureties to D for the sum of Rs. 3,000 lent to E who makes default in payment. A, B and Care liable, as between themselves to pay Rs. 1,000 each. If anyone of them has to pay more than Rs. 1,000 he can claim contribution from the other two to reduce his payment to only Rs. 1,000. If one of them becomes insolvent, the other two shall have to contribute the unpaid amount equally.

Discharge of Surety

A surety may be discharged from liability under the following circumstances:

(a) By notice of revocation in case of a continuing guarantee as regards future transaction

(b) By the death of the surety as regards future transactions, in a continuing guarantee in the absence of a contract to the contrary.

(c) Any variation in the terms of the contract between the creditor and                 the principal debtor, without the consent of the surety, discharges the           surety as regards             all transactions taking place after the variation

(d) A surety will be discharged if the creditor releases the principal debtor, or acts or makes on omission which results’ in the discharge of the principal debtor. But where the creditor fails to sue the principal debtor within the limitation period, the surety is not discharged.

(e) Where the creditor, without the consent of the surety, makes an arrangement with the principal debtor for composition, or promises it give him time or not to sue him, the surety will be discharged.

(f) If the creditor does any act which is against the rights of the surety, or omits to do an act which his duty to surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is hereby impaired,the surety is discharged.

(g) If the creditor loses or parts with any security which at the time of the contract the debtor had given in favour of the creditor, the surety is discharged to the extent of the value of the security, unless the surety consented to the release of such security by creditor in favour of the debtor. It is immaterial whether the surety was or is aware of such security or not.