amit
Rights of Surety Against Principle Debtor And Creditor
amit 28 Dec 2017

Rights of Surety Against Principle Debtor And Creditor

Introduction:

                        In the event of a decree in favour of the creditor against the principal debtor the wings of the decree can also be extended against the sureties as their liability in coextensive with the principal debtor. A surety is a person who comes forward to pay the amount in the event of the borrower failing to pay the amount .It means that on a default having been made by the principal debtor the creditors can recover from the surety all what he could have recovered from the principal debtor. For instance, the principal debtor makes a default in the payment of a debt of Rs. 10000/-.

 

Surety:

               A surety is a person who comes forward to pay the amount in the event of the borrower failing to pay the amount. In the event of a decree in favour of the creditor against the principal debtor the wings of the decree can also be extended against the sureties as their liability in coextensive with the principal debtor. But when a suit against the principal debtor was dismissed for default and the decision became final there being no liability surviving against the debtor the surety’s liability gets automatically terminated.

 

 

Surety's liability:

                         The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. The provision that the surety’s liability is coextensive with that of the principal debtor means that his liability is exactly the same as that of the principal debtor. It means that on a default having been made by the principal debtor the creditors can recover from the surety all what he could have recovered from the principal debtor. For instance, the principal debtor makes a default in the payment of a debt of Rs. 10000/-.

 

 

                                              

                             

Rights against the principal debtor

Rights of subrogation(Section 140):

                                                       When the principal debtor makes a default in the performance of his duty, and on such a default, the surety makes the necessary payment or makes performance of all what he is liable for he becomes invested with all the creditor had against the principal debtor. In other words, the surety steps in to the shoes of the creditor and by an action against the principal debtor, he can recover from him all that, which could have been recovered by the creditor. This is known as surety’s right of subrogation.

 Rights of indemnity against the principal debtor(sec.145):

                                                                                                  In a contract of guarantee, when the principal debtor makes a default, the surety has to make payment to the creditor. This payment is make by the payment to the creditor. This payment is made by him on behalf of the principal debtor. After making such payment, he can recover the same from the principal debtor. Such a claim can be made by the surety only in respect of the sums he has rightfully paid under the guarantee, but not the sums which he has paid wrongfully.

 

                                               Right against the creditor

Right to securities with the creditor (Section 141):

                                                                                      It has been noted above that after the surety has performed his duty under the contract of guarantee, he is subrogated to all the rights which are available to the creditor against the principal debtor. Section 141 makes a further provision in that regard, according to which a surety is entitled to the benefit of every security which the creditor has against the principal debtor at that time when the contract of surety ship is entered into. It is, however, not necessary that at the time of making the contract, the surety should be aware of the securities which the creditor had.

 

Loss of securities without creditor’s negligence.

                                                                                  Loss of the securities by the creditor results in the discharge of the surety. If, however, the hypothecated securities are lost without any fault of the creditor, the surety is not discharged thereby.

Securities received by the creditor after the contract of guarantee:

                                                                                                                 It has been noted above that according to section 141, a surety is entitled to the benefit of every security which the creditor has at the time when the contract of surety ship is entered into. It means that the surety has no right to those securities which the creditor obtained from the principal debtor after making the contract of guarantee. Therefore, if the creditor parts with the securities which he had obtained subsequent to the making of the contract of guarantee, the surety will not be discharges as a consequence of the loss of such securities

\Surety has no right to goods in hypothecation.

                                                                               It may be noted that according to section 141, the surety is entitled to the benefit of such good which are with the creditor. It covers situations where the goods are pledged to the creditor and he has the possession of the goods. If  he loses or parts with the goods, the surety is discharged thereby. In case there is hypothecation of the goods, the goods remain in the possession of the goods and there is no question of his losing or parting with the same. If, therefore, hypothecated goods are lost without any fault of the creditor that will not discharge the surety. In other words, since in the case of the hypothecated goods, the creditor does not have the possession of the goods, the surety cannot invoke the provision of section 141 in such case.

 

Conclusion:   After studying the whole topic we would like to conclude that a surety is a  person who comes forward to pay the amount in the event of the borrower failing to pay the amount. In the event of a decree in favour of the creditor against the principal debtor the wings of the decree can also be extended against the sureties as their liability in coextensive with the principal debtor. The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. A surety has certain rights against the principal debtor, the creditor and co-sureties.

     

 

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