Who is a Surety in a Contract?
A Surety in a contract is a person who promises to answer for the debt or obligation of another in case that person (called the principal debtor) fails to perform it. The concept of suretyship is primarily governed by Sections 126 to 147 of the Indian Contract Act, 1872.
Definition of Surety
According to Section 126 of the Indian Contract Act, 1872:
“A contract of suretyship is a contract to perform the promise, or discharge the liability, of a third person in case of his default.”
Here:
The principal debtor is the person whose liability is guaranteed.
The creditor is the person to whom the obligation is owed.
The surety is the person who undertakes to fulfill the obligation if the principal debtor defaults.
Essential Features of a Surety
Three Parties Involved:
Creditor
Principal debtor
Surety
Secondary Liability:
The surety’s liability is secondary, meaning it arises only if the principal debtor defaults.
Existence of Principal Debt or Obligation:
There must be a legally enforceable debt or obligation by the principal debtor.
Intention to Guarantee:
The surety must intentionally undertake the responsibility to guarantee the debtor’s performance.
Contractual Relation:
The contract of suretyship must comply with general principles of contract law (free consent, lawful object, and consideration).
Rights of the Surety
A surety is not just liable but also has certain rights against the principal debtor:
Right of Subrogation (Section 140):
After paying the creditor, the surety steps into the shoes of the creditor and can claim from the principal debtor all the rights the creditor had.
Right to Indemnity from Principal Debtor (Section 145):
The surety can demand compensation from the principal debtor for any loss suffered due to guaranteeing the debt.
Right to Securities Held by Creditor (Section 141):
If the creditor holds any security for the debt, the surety can require the creditor to use the security before calling upon the surety.
Right to Benefit of Creditor’s Act:
Any act or omission by the creditor that increases the surety’s liability without consent may release the surety, e.g., extension of time without surety’s consent.
Liabilities of the Surety
Joint and Several Liability (Section 128):
The surety and principal debtor can be jointly or severally liable. The creditor can recover the debt from either.
Extent of Liability (Section 133):
A surety is liable for the principal debt plus costs and interest, but cannot be compelled to pay beyond what is expressly promised.
Discharge of Surety (Sections 133–147):
The surety may be discharged in various ways, e.g.,
By revocation of the contract
By release of principal debtor by creditor
By alteration of the terms of the contract without consent
Key Case Laws
Gajanan Moreshwar Parelkar v Moreshwar Madan Mantri
Facts: The defendant guaranteed a loan taken by another but was released after creditor altered the contract without the surety’s consent.
Held: The surety was discharged because any alteration of the principal contract without the surety’s consent releases the surety.
R. Leslie Ltd. v Sheill
Facts: Surety had guaranteed a debt but was unaware of a compromise between creditor and debtor.
Held: The surety’s liability is co-extensive with that of the principal debtor, and unauthorized compromise can release the surety.
Abdul Aziz v Masum Ali
Held: A surety’s liability is secondary, and they are only responsible if the principal debtor fails to fulfill the obligation.
Distinction from Other Parties
| Feature | Surety | Guarantor/Co-signer |
|---|---|---|
| Liability | Secondary, arises on default | Secondary (similar), but may differ in contractual terms |
| Right | Subrogation & indemnity | Same as surety |
| Parties Involved | Three: Creditor, Debtor, Surety | Three (same) |
✅ Conclusion:
A surety plays a critical role in risk mitigation for creditors. They promise to fulfill the debt or obligation if the principal debtor defaults. Their liability is secondary, limited, and dependent on the principal debt, but they have strong rights of recovery and subrogation once they pay. Proper consent and clarity in contract terms are essential to ensure a surety’s obligations are enforceable.
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