Introduction

When we were discussing the contract of indemnity we discussed the meaning

ofthe contract of indemnity and the essentials of the contract of indemnity,
alongwith the rights of the indemnity holder. Then we moved on to discuss the
conceptof the contract of indemnity along with the definition of the contract
given in theIndian Contract Act. Then we went on to discuss the essentials of
the contract ofguarantee. Today we are going to discuss the remaining part of
the contract ofguarantee. It includes the rights of the surety against the principal
debtor, againstprincipal creditor and against co sureties. Nature and extent of the
surety, liabilityand then under what circumstances the surety will be free from
theresponsibilities. We will end our discussion with the difference between
thecontract of indemnity and the contract of guarantee. So today I begin
mydiscussion with the concept of the nature and extent of suretys liability.

Where the parties do not specifically agree as to the extent of he liability or the
surety does not put up any limit on his ability at the time of entering into the
contract, the liability of the surety will be co-extensive with that of the principal
debtor. In other words, whatever amount of money a creditor can legally realise
from the principal debtor including interest, cost of litigation, damages etc., the
same amount he can recover from the surety.

A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill

is dishonoured by C. A will be liable not only for the amount of the bill also for
any interest and charges which have become due on it.
The liability of the surety arises immeidiately on the default of the principal
debtor but the creditor is not bound to give any notice of the default of the
principal debtor to the surety or it exhaust all the remedies open to him as
against the debtor before proceeding against the surety. Besides that, creditor is
free to release the debt when it becomes due to either from the debtor or the
surety. It is not necessary for him to proceed against the debtor first. He may
sue the surety without suing the principal debtor. It is suretys duty to see that
the principal debtor pays or performs his obligation.When we say the
coextensive of debtors liability it meanssurety liability is as much as the
debtors liability. Meaning thereby, in case thedebtor makes a default in the
making the payment to the creditor, then whateverthe creditor can recover from
the debtor, the same amount of the liability will fallon the shoulders of the
surety. Surety will also be responsible to same amount ofthe liability, because
he has given the surety and his liability is extensive to anextent of the debtors
liability. For example, if a debtor is making a default inmaking the payment to
the surety and later on the surety has to mak
 Nature of Surety

The liability of a surety is variously described as secondary, accessory or

contingent,in the sense that the surety is liable only on default of the principal
debtor. So, unlessthe principal debtor has made a default, the surety cannot be
called upon to pay. Butthe moment the principal debtor defaults in the payment
of or where the guaranteewas for conduct of a party and, there is some breach of
duty by the party causingdamage to the holder of the guarantee, then,
immediately the surety becomes liable, asif he were the principal debtor. It is
obvious that the surety has no right to ask thecreditor to exhaust his remedy
against the principal debtor, nor can he demand a notice from the creditor, that
the principal debtor has defaulted for according to law itis the suretys duty to
see that the principal debtor pays or performs his obligations.Therefore, as soon
as the time for payment has come and principal debtor does not oris unable to
pay the surety becomes liable to pay. The creditor may file a suit againstthe
surety without suing the principal debtor. A suit may also be maintained
againstthe surety for the full amount of debt where the principal debtor has been
adjudgedinsolvent or has gone into liquidation. Again where a creditor holds
securities fromthe principal debtor for his debt, the creditor need not first resort
to these securitiesbefore suing the surety.A suretysliability undoubtedly
restrictedto the unpaid amount of the principaldebit. If the full sum or part of the
sum has been paid by the principal debtor, thesurety cannot be held liable for
more than the amount remaining unpaid.Similarly, the surety will not be liable
for the cost of the fruitless actions against thedebtor, unless the creditor has
given previous notice of his intention to sue. But apartfrom agreement, the
surety will be liable for interest, he is liable for all that principaldebtor would be
liable for.
When we say the coextensive of debtors liability it means surety liability is as
much as the debtors liability. Meaning thereby, in case the debtor makes a
default in the making the payment to the creditor, then whatever the creditor can
recover from the debtor, the same amount of the liability will fall on the
shoulders of the surety. Surety will also be responsible to same amount of the
liability, because he has given the surety and his liability is extensive to an
extent of the debtors liability. For example, if a debtor is making a default in
making the payment to the surety and later on the surety has to make the

payment of the amount along with the some cost and the interest also, then
surety can recover that principal amount along with the cost or interest from the
debtor. So his liability will be the coextensive of the debtors liability. The
second point is suretys liability may be limited. A surety at the time of giving
the surety can limits his liability in whole of the debt. For example, if A is
granted a loan by the B, of rupees 10,000/- but C who is a surety can limit his
liability by saying that he will be responsible only for 7,000/- rupees. So in the
loan of 10,000/-, the surety has limited his liability by giving the guarantee of
rupees 7,000/- only, this is another nature and extent of suretys liability. The
third point is the suretys liability will arise on the default of the principal
debtor. We know that whenever a default is made by the principal debtor in the
contract of guarantee then surety comes into the picture. If on the due date when
a debt is to be return by the debtor to the creditor, if the debtor returns the
money to the creditor, surety does not come in the picture, he comes in picture
only when debtor has made a default. So his liability arises on making a default
by the debtor. On a due date the creditor cannot directly come to the surety for
the repayment of the loan. He has to go to the debtor and in case he makes a
default, then surety will come into the picture. And the last point in the extent
into the suretys liability is; the surety will be liable if there is a contract
between principal debtor and that contract is void. So in case the main contract
between the principal debtor and the creditor is void, the suretys liability will
be the primary liability.
 Rights of Surety against Creditor

1. Rights in Case of Fidelity Guarantee

In case of fidelity guarantee i.e., guarantee as to good behaviour, honesty, etc.,
of the principal debtor, the surety can ask the employer to dispense with the
services of the employee if the latter is proved to be dishonest.

2. Before the Payment of the Debt Guaranteed

A surety may, after the debt has become due but before he is called upon to pay,
require the creditor to sue the principal debtor to recover the debt. But, in such
cases, the surety must undertake to indemnify the creditor for any risk, delay or
expense resulting there from.

3. Right to Claim Securities

After payment of the debt to the creditor or the performance of the promise of
the principal debtor, the surety can recover all the securities which the creditor
had with him either before or after the contract of guarantee was entered into.
This right is available to the surety whether or not he knows about the existence
of such security. He is entitled to all of them.

4. Right of Equities
After paying the amount due to the creditor, the surety is entitled to all equities
of the creditor that he had against the debtor as well as any other person with
regard to the debt.

5. Right of Set-off
Sometimes, the principal debtor is entitled to certain counter claim or
deductions from the loan obtained from the creditor. In such cases, the surety is
entitled to the benefit of such counter claim or deductions, if the creditor files a
suit against the surety.

Rights of Surety against the Principal Debtor

1. Right of Subrogation
After the payment of the debt to the creditor, the surety is subrogated to the
rights of the creditor i.e., he has the same rights as those of the creditors.
Therefore, he can sue the principal debtor to exercise those rights. Thus if the
surety has performed his promise towards the creditor, all the rights of the
principal debtor against the creditor devolve upon him.
2.Right to give Notice:

When ever creditor comes to surety, for the purpose of seeking payment, surety
can give a notice to principal debtor to settle the debt.

3. Right of Indemnity
In every contract of guarantee, there is an implied promise by the principal
debtor to indemnify the surety i.e., to compensate the surety. Therefore, upon
the payment of debt of the principal debtor, the surety becomes entitled to
recover from the principal debtor, all the amount including interest plus costs
rightly paid to the creditor under the guarantee. The reason is that the surety is
entitled to full indemnification.

4. Right to be Relieved Earlier

A surety can, even before making any payment, compel the debtor to relieve
him from liability by paying off the debt. But, before doing so, the debt should
be ascertained.

5.Right to get Securities:

In case where surety makes payment to creditor, surety has right to get the
securities given by principal debtor to creditor.

Rights of Surety against Co-sureties

When two or more persons give a guarantee for the same debt, they are called as
co-sureties. All of them are equally liable to the creditor for the payment of the
debt to the creditor. The rights of one co-surety against the other co-sureties are
as follows:

1. Right to Contribute Equally

If two or more persons are co-sureties for the same debt either jointly or
severally, or whether under the same or different contracts and whether with or
without the knowledge of each other, the co-sureties in the absence of any
contract to the contrary, are liable as between themselves, to pay each, an equal
shares of the whole debt, or that part of it which remains unpaid by the principal
debtor.

Sometimes, one co-surety discharges the entire obligations. In such cases, he

can obtain equal contribution from the other co-sureties.
2. Right to claim Share in Securities:

When co-Sureties make payment to creditor, they get securities from creditors
procession. Then every surety can claim his share in those securities.

3. Liability of Co-sureties bound in Different Sums

If the co-sureties are bound in different sums, they are liable to pay equally but
not more than the maximum amount guaranteed by each one of them.

Example: A, B and C are sureties for D, enter into three several bonds, each in
a different penalty, such as A in the penalty of Rs.5,000, B in that of Rs.10,000,
C in that of Rs.20,000, conditioned for Ds duly accounting to E. D failed to the
extent of Rs.15,000, A, B and C are each liable to pay Rs.5,000 each.

Liabilities of Co-sureties:

1. Co-sureties have liabilities among themselves under Sec. 132: Where two
persons contract with a third person to undertake a certain liability, and also
contract with each other that one of them shall be liable only on the default of
the other, the third party not being a party to such a contract, the liability of each
of such two persons to the third person under the first contract is not affected by
the existence of the second contract, although such third person may have been
aware of its existence.

2. Release: Where there are co-sureties, a release by the creditor of one of them
does not discharge the other neither does it free surety so released from
responsibility to other sureties (Sec.138).

3. Contribution: Co-sureties are liable to contribute equally if there is more than

one surety in respect of one debt, though contracted on different dates unless
contracted otherwise (Sec. 146).

4. Equality: Where the sureties are bound in different sum, they are bound to
pay equally as far as the limits of their respective obligations permit (Sec. 147).

Co-sureties are jointly and severally liable in India. The discharge of one co-
surety from his liability does not release the other co-sureties from their
 liability. They are liable to bear the loss equally, subject to the limit of the debt
guaranteed by him. As mentioned earlier, if one of them has paid more than his
share, he can claim contribution from others. Where the co-sureties have limited
their liabilities to different sums, they should contribute equally and not
exceeding their respective limits
It says that the liability of the surety is co-extensive with that of the
principal debtor unless it otherwise provided by the Contract.
A case of law in this regard is of Andhra Bank Soryapeet v/s Anantnath Goel-
1991: It was held by the court that where there were joint promisors and
consideration was paid by only one of them the other piomisors were equally
liable to pay amount. The liability of son was co-extensive with his father who
was principal debtor in view of section 127 and 128 of the Indian contract Act.
The gist of some the leading cases in which the liability of the surety is
co-extensive are given below to strengthening the answer of the question:-
Kellappan Nambiar v/s Kanhi Raman-1957: In this case that if the principal
debtor happens to be a minor and the agreement made by him is void, the surety
too cannot be made liable in respect of the same because the liability of the
surety is co-extensive with that of principal debtor. It has been held that the
guarantee of the loan or an overdraft to an infant is void because the loan to the
infant itself is void.
That in case of State Bank of India v/s V.N. Anantha Krishnam-2005: that in
view of the provision of section 128 of Act the Presiding officer was not correct
in giving directions to the Bank to proceed against the property because cash
credit facility and the liability of surety was co-extensive with that of principal
debtor.

 CONCLUSION:-

Keeping in view the above facts it is revealed that the suretys nature, liabilities
and rights are of such types once he stands surety for any debt he will remain
bound till the amount is repaid by the principal debtor. Although the surety has
some rights such as right of subrogation, indemnity and to taking back the
securities but even though there are more complications in this regard. So one
should stand surety for a person who have some qualities of good pay master.

On deeply going into depth of provisions laid down in the Act it is revealed that
surety liability is co-extensive with that of principal debtor means that his
liability is exactly the same as that of the principal debtor. Suppose if the default
having made by the principal debtor the creditor can recover the same from the
surety all what he could have recovered from the principal debtor
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