Suretys rights in Indian contract act

 SURETY’S Rights by Kalyani

Surety’s rights are explained under section 140, 141, 145-147. A surety has certain rights under the Act, against the following three parties:

1. Against the principal debtor (Ss. 140-145)

Surety has certain rights against principal debtor:

A)  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.

B)  In a contract of guarantee, when the principal debtor makes a default, the surety has to make payment to the creditor. This payment is made 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.

      2.   Against creditor (Ss. 141)

Right to securities with the creditor

 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.