Question 2 OR (a)

Rights of a surety against the creditor, the principal debtor and co-sureties

12 marks

Time to write
About 24 minutes
Topic
Indemnity and guarantee
Notes
Crux notes

Question

Question 2 OR (a) · 12 marks

Against the creditor, the principal debtor and the co-sureties, what rights does the surety have?

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

24 minfor 12 marks

Write it in this order

  1. Read; underline the asks; jot your points 2 min
  2. 1 Against the principal debtor: subrogation, indemnity 4 marks 7 min
  3. 2 Against the creditor: securities, set-off 4 marks 7 min
  4. 3 Against co-sureties: contribution 4 marks 6 min
  5. Check: every ask answered, key terms underlined 2 min

Short on time? Trim steps 1–3 evenly rather than skip one: each is capped at its own marks.

Try it first. About 24 minutes for 12 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Against the principal debtor.

  1. Right of subrogation (s. 140). Where a guaranteed debt has become due, or the principal debtor has defaulted, the surety, on “payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor”. He steps into the creditor's shoes.
  2. Right to indemnity (s. 145). Every contract of guarantee carries an implied promise by the principal debtor to indemnify the surety, who can therefore recover from him any sum he has rightfully paid under the guarantee, though not sums he paid wrongfully. If he defends a suit on reasonable grounds and is compelled to pay, he recovers the costs as well.
Picture itRights of a surety against the creditor, the principal debtor and co-sureties

1Hariram pays the lender what the borrower owed—and steps into the lender's shoes.

Right of subrogationHe steps into the creditor's shoes.

2Receipt in hand, he knocks on the borrower's door to recover every rupee he paid.

Right to indemnityRecover from him any sum he has rightfully paid under the guarantee.

3Two sureties, one debt: across the table they split the burden equally.

Right to contributionThey are liable, in the absence of a contract to the contrary, to contribute equally to the whole debt or the unpaid part of it.

Against the creditor.

  1. Benefit of securities (s. 141). The surety is entitled to the benefit of every security the creditor had against the principal debtor at the time the contract of suretyship was entered into, whether or not the surety knew of it. If the creditor loses or, without the surety's consent, “parts with such security, the surety is discharged to the extent of the value of the security”.
  2. Right to set-off. When sued by the creditor, the surety may set off any claim the principal debtor has against the creditor.

Against co-sureties.

  1. Right to contribution (s. 146). “Where two or more persons are co-sureties for the same debt”, jointly or severally, and whether under the same or different contracts, they are liable, in the absence of a contract to the contrary, to contribute equally to the whole debt or the unpaid part of it.
  2. Sureties in different sums. Co-sureties bound in different sums contribute equally so far as the limits of their respective obligations permit.
  3. Benefit of securities held by a co-surety, which must be shared.

Where the 12 marks sit

#ComponentMarks
1Against the principal debtor: subrogation, indemnity4
2Against the creditor: securities, set-off4
3Against co-sureties: contribution4
Total12
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