Rights of Surety against Creditor
Surety has the following rights against his 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 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.
3. 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.
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. 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.