Describe the rights of a surety against various parties.
A surety is vested with a lawful authority either against the creditor or against the principal debtor or against co-surety only when he discharges his obligation of the principal debtor towards the creditor, and unless that happens, he enjoys no right against anyone. Thus, his authority arises only when he has performed what he was bound to perform under the contract of guarantee. He is, then, authorized to the subrogation of all the rights that the creditor had against the debtor, to the right of indemnification by the debtor, to the benefit of other sureties with the creditor and of sharing of burden by other co-sureties.
Surety’s rights against the principal debtor:
Right of subrogation [Section 140] : When the surety pays off the debt on default by the principal debtor, he is invested with all the rights which the creditor had against the principal debtor. The surety is said to step into the shoes of the creditor and can exercise the remedies which the creditor could have enforced against the principal debtor.
Right to indemnify [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 no sums which he has paid wrongfully.
Surety’s rights against the creditors:
Right to securities [Section 141] : 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 surety or not, and if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security. The right exists irrespective of the fact whether the surety knows of the existence of such security or not. The surety is entitled to the benefit of the securities only after paying the debt in full. A part payment of the debt does not give him the benefit of securities.
Right to claim set-off : The surety is also entitled to any claim of set-off which the principal might possess against the creditor in respect of the same transaction.
Surety’s right against co-sureties:
When a debt is guaranteed by two or more sureties, they are known as co -sureties. Co-sureties are liable to contribute towards the payments of the debt guaranteed as per the agreement. If they do not have agreement as to their liability for guarantee and if one of them is compelled to pay the entire debt, he has a right of contribution from the other co-sureties. The rules regarding contribution by co -sureties are laid down in Sections 146 and 147, which are as follows:
Where there are sureties for the same debt for similar amount [Section 146], the co-sureties are liable to contribute equally and are entitled to share the benefit of securities also equally. The principal is applied irrespective of the fact that the co -sureties are jointly liable or jointly and severally liable, under the contract of guarantee and also whether they know that there are co-sureties.
Where there are sureties for the same debt but for different sums [Section 147] the rule is that subject to the limit fixed by his guarantee, each surety is to contribute equally.