Rights of the Surety
After making the payment and discharging the liability of the principal debtor, the surety gets various rights. Such rights are of three types as follows:
(i) rights against the principal debtor,
(ii) rights against the creditor, and
(iii) rights against the co-sureties.
1. Rights Against the Principal Debtor
The surety has the following rights against the principal debtors:
1. Right of subrogation- ‘Subrogation’ means sub-
stitution of one party for another as creditor so that the new creditor succeeds to the former’s rights. Section 140 of the Contract Act lays down that when the principal debtor has defaulted in making the payment or in performing the guaranteed duty, and the surety has paid the debt or performed the duty, then the surety is invested with all the rights which the creditor had against the principal debtor. This right of surety is called ‘the rule of subrogation’. It means that the surety steps into the shoes of the creditor inneba
2. Right of indemnity- Section 145 of the Contract
Act lays down that in every contract of guarantee there is an implied promise by the principal debtor to indemnify (to pay back) the surety, and the surety is entitled to recover from the principal debtor whatever amount he has rightfully paid under the guarantee, but no amount which he has paid wrongfully.
II. Rights Against the Creditor
The surety has following rights against the creditor:
1. Right to securities- According to Section 141 of
the Contract Act, a surety, after paying the liability of the principal debtor, is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not.
2. Right to claim set-off- ‘Set-off” means a counterclaim or deduction from the amount of loan. When the creditor sues the surety for payment of principal debtor’s liabilities, the surety is entitled to claim set-off, if any, which the principal debtor had against the creditor.
III. Rights Against the Co-sureties
Where a debt is guaranteed by two or more persons, they are called co-surties. The co-stueties are liable to contribute towards the payment of guaranteed debt as per their mutual agreement. Section 138 of the Contract Act lays down that where there are co-sureties and one of them is released by the creditor, it does not discharge the others, and moreover it does not free the surety who has been so released, from his responsibility towards the other sureties.
Thus where there are several co-sureties and one of them has been compelled to pay the entire debt of the principal debtor, such a co-surety will be entitled to the following rights against the other co-sureties.
1. Equal contribution- Section 146 of the Contract
Act provides that where there are two or more co-sureties for the same debt or duty with or without the knowledge of each other, then in the absence of any contract to the contrary the co-sureties are liable to contribute equally to the extent of default by the principal debtor.
2. Liability of co-sureties bound in different sums-
According to Section 147 of the Contract Act where the cosureties have agreed to guarantee different sums, they are liable to contribute equally subject to the maximum of the amount guaranteed by each one. In other words, they are liable to pay equally as far as the limits of their respective obligations permit.
3. Right to share benefits of securities- Where at the time of gurantee one of the co-sureties receives a security from the principal debtor, or on payment of debt he receives security from the creditor, other co-sureties are entitled to share equally the benefits of such securities.
Thus, the co-sureties are liable to contribute equally and are entitled to share any benefit equally.