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Ans. Definition: According to Section 126 of Indian Contract Act, 1872, “Surety” is the person
who gives the guarantee to perform the promise or discharge the liability of the “principal
debtor” in case of his default.
Illustrations
(a) C, advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further
security for the 2,000 rupees by a mortgage of B’s furniture. C, cancels the mortgage. B
becomes insolvent and C sues A on his guarantee. A is discharged from liability to the
amount of the value of the furniture.
(b) C, a creditor, whose advance to B is secured by a decree, receives also a guarantee for
that advance from A. C afterwards takes B’s goods in execution under the decree, and
then, without the knowledge of A, withdraws the execution. A is discharged.
2. 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.
3. Right to insist on Termination of Services: In case where guarantee is with regard to
conduct of an employee, surety can insist on termination of services of employee. Here
employees status is equal to that of creditor and employee’s status is equal to that of
principal debtor.
Rights against Principal Debtor
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:
Illustrations
(a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E makes default in
payment. A, B and C are liable, as between themselves, to pay 1,000 rupees each.
(b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E, and there is a
contract between A, B and C that A is to be responsible to the extent of one-quarter, B to
the extent of one-quarter, and C to the extent of one-half. E makes default in payment. As
between the sureties, A is liable to pay 250 rupees, B 250 rupees, and C 500 rupees.
2. 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 D’s 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.