Parts-Syllabus
Part A
EM103 Maritime Law
Surety

Surety

A surety is a person who gives a guarantee to perform the promise or discharge the liability of a third person (the principal debtor) in case of their default. Let’s explore the rights, liability, and discharge of a surety under the Indian Contract Act, 1872:

Rights of a Surety:

A surety has various rights against the principal debtor, the creditor, and co-sureties:

1. Rights Against the Principal Debtor:

  • Right of Subrogation (Section 140): After paying the creditor, the surety steps into the shoes of the creditor and is entitled to all the rights that the creditor had against the principal debtor. This includes the right to sue the principal debtor for the amount paid.
  • Right of Indemnity (Section 145): The surety has an implied right to be indemnified by the principal debtor for any sum they have rightfully paid under the guarantee.

2. Rights Against the Creditor:

  • Right to Securities (Section 141): The surety is entitled to the benefit of every security that 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. If the creditor loses or parts with any such security without the surety’s consent, the surety is discharged to the extent of the value of the security.

3. Rights Against Co-sureties:

  • Right to Contribution (Section 146): When there are co-sureties for the same debt or duty, they are liable to contribute equally to the payment of the debt, or to the performance of the duty. This right exists even if the co-sureties are liable under different contracts or for different amounts, unless the contract provides otherwise.

Liability of a Surety:

  • Co-extensive with Principal Debtor (Section 128): The liability of the surety is co-extensive with that of the principal debtor, unless the contract provides otherwise. This means the surety is liable to the same extent as the principal debtor. The creditor can sue the surety directly without first suing the principal debtor.
  • Secondary Liability: Although co-extensive, the surety’s liability is secondary. It arises only on the default of the principal debtor. The creditor cannot compel the surety to pay unless the principal debtor has failed to perform their obligation.

Discharge of a Surety:

A surety can be discharged from their liability under various circumstances:

  1. By Revocation of the Contract of Guarantee:

    • By Notice (Section 130): In the case of a continuing guarantee, the surety may revoke the guarantee as to future transactions by giving notice to the creditor.
    • By Death of Surety (Section 131): The death of the surety operates as a revocation of a continuing guarantee for future transactions.

  2. By Conduct of the Creditor:

    • Variance in Terms of Contract (Section 133): Any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.
    • Release or Discharge of Principal Debtor (Section 134): If the creditor releases the principal debtor, or any act or omission of the creditor has the legal consequence of discharging the principal debtor, the surety is also discharged.
    • Compounding by Creditor with Principal Debtor (Section 135): If the creditor makes a composition with the principal debtor, or promises to give time to, or not to sue, the principal debtor, the surety is discharged, unless the surety assents to such agreement.
    • Creditor’s Act or Omission Impairing Surety’s Eventual Remedy (Section 139): If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.

  3. By Invalidity of the Contract of Guarantee:

    • Misrepresentation or Concealment (Sections 142 and 143): If the guarantee is obtained by misrepresentation or concealment of material facts by the creditor.
    • Failure of Consideration: If there is no valid consideration for the surety’s promise.

Understanding these rights, liabilities, and grounds for discharge is essential for anyone acting as a surety in a contract of guarantee. It clarifies their position and protects their interests in such agreements.

Seafarers Articles of AgreementThe Civil Liability Convention (CLC)