Page 39 - 01. Indian Contract Act, 1872

(i) The principal debtor is primary liable.
(ii) Debt must be legally enforceable
(iii) Debt must not be a time barred debt.
(iv) Liability of surety is secondary and conditional
(v) The creditor should disclose all the facts which are likely to affect the surety's
liability.
(vi) Contract may be either oral or written.

Nature and extent of Surety's Liability (Sec. 128)
(i) Liability of surety is same as that of principal debtor.
(ii) Where a debtor cannot be held liable on account of any defect in the
document, the liability of the surety also ceases.
(iii) Surety liability continues even if the principal debtor has not been sued or
omitted to be sued. Thus, surety's liability is separate on the guarantee.

Kinds of Guarantee-
Kinds of guarantee

Specific Continuing

(i) Specific Guarantee
 It is given for a single debt
 It comes to an end when the debt guarantee has been paid.

(ii) Continuing Guarantee (Sec. 129)
 It extends to a series of transactions.
 Surety's liability extends to all the transactions contemplated until the
guarantee's is revoked.

Rights of Surety
Against the principal debtor
(a) Right of indemnity (Sec.145): Surety is entitled to recover from
principal debtor all payment properly made.
(b) Right of Subrogation (Sec. 140): It means substitution of one person for another.
On payment of a debt, surety shall be entitled to all the rights which the creditor
can claim against the principal debtor.

Against the creditor
(a) Right to claim securities (Sec. 141): Surety is entitled to benefit of every
security, which creditor has against the principal debtor, whether surety knows of it

39