GUARANTEE

Law of Guarantee under Indian Contract Act

1872 (Section 126 – 147)
• Definition of guarantee, • Continuing guarantee and revocation of
continuing guarantee,
• Guarantee v.s. Indemnity,
• Discharge of surety,
• Essentials for a contract of guarantee,
• Position of surety in the eyes of law,
• Surety, principal debtor and creditor,
• Guarantee obtained by misrepresentation
• consideration for guarantee, and concealment,
• rights and liabilities of a surety • Implied promise to indemnify surety,
liability of co-sureties
 Law of Guarantee under Indian Contract Act
1872 – Landmark Case Laws
• Amrit Lal v. State Bank of Travancore, AIR 1968 SC 1432
• Anirudhan v. Thomco’s Bank, AIR 1963 SC 746
• Bank of Bihar v. Damodar Prasad, (1969) 1 SCR 620
• Hindustan Steel Work Corp. v. Tarapore & Co., (1996) 5 SCC 34
• Subramania Chettiar v. Narayanswami, AIR 1951 Mad 48
• U.P. Co-op v. Singh Consultants, (1988) 1 SCC 174
 DEFINITION OF GUARANTEE
• It is a promise to answer for the payment of some debt or performance of some duty in case
of a failure of another party who in the first place in liable for such payment or
performance.
……….Fell’s Treatise on Law of Mercantile Guarantees
• A guarantee is an accessory contract by which the promisor undertakes to be answerable to
the promisee for the debt, default or miscarriage of another person whose primary liability
to the promisee must exist or be contemplated.
………………Halsbury Laws of England
SURETY PRINCIPAL-DEBTOR CREDITOR
The person who gives the Person on whose default the Person to whom the guarantee is
guarantee guarantee is given given
 CONCEPT OF GUARANTEE
• It implies existence of a liability, actual or prospective.
• Nature of Undertaking / Contract / Liability of the Surety – Collateral – given by way
of additional security to the creditor by the surety at the request of the third party.
• Guarantor agrees with the creditor to discharge the liabilities of the debtor in case of
his default.
• Contract of Guarantee v. Parties who are jointly & severally liable.
• Also known as the Contract of Suretyship
 ELEMENTS OF A CONTRACT OF
GUARANTEE
• 1. Parties – Principal Debtor, Creditor & Surety – Tripartite Agreement
• 2. Liability – Existing Liability – Not Time Barred
• 3. Guarantee Amount is payable on demand.
• Limitation starts running only when actually a demand is made and it was refused by the
guarantors.
• The demand should not be time-barred against the principal-debtor.
• 4. Surety cannot be made liable for more than the amount of the debt.
• 5. Consideration – Reqd btw Debtor & Creditor – Not btw Creditor & Surety
 GUARANTEE UNDER ICA
Section 126: ‘Contract of guarantee’, ‘surety’, ‘principal debtor’ and
‘creditor’—A ‘contract of guarantee’ is a contract to perform the promise, or
discharge the liability, of a third person in case of his default. The person
who gives the guarantee is called the ‘surety’; the person in respect of whose
default the guarantee is given is called the ‘principal debtor’, and the person
to whom the guarantee is given is called the ‘creditor’. A guarantee may be
either oral or written. 
NATURE OF CONTRACTUAL GUARANTEES
• A Contract of Guarantee is not a primary transaction but it is an independent transaction obtaining
independent and reciprocal obligations.
• A Contract of Guarantee is a complete and separate contract by itself and an enforcement as per its
terms cannot be restrained by considering the terms of the underlying contract.
• Guarantee – a form of indemnity ? Or goes beyond indemnity?
• It is an undertaking to indemnify, if some other person does not fulfil the promise.
• The liability under a contract of guarantee is conditional / contingent on the default of the principal-
debtor and hence does not amount to a promise to pay.
• Creditor’s Rights – Assignable
NATURE OF CONTRACTUAL GUARANTEES

• Existence of Primary Liability: The liability of the guarantor presupposes the existence of separate
liability of the principal – debtor and the surety’s liability is thus secondary which comes into existence
only in default of the principal-debtor.
• Nonetheless, the liability of the guarantor is co-extensive with that of the principal – debtor.
• A Contract of Guarantee postulates either an existing or future principal obligation.
• Liability – Liability enforceable at Law.
• A surety is therefore not liable on a guarantee for the payment of a debt which is barred by the Law of
Limitation.
 NATURE OF CONTRACTUAL
GUARANTEES
• Guarantees are usually taken to provide a second pocket to pay if the first
should be empty.
• The real value of any guarantee depends entirely on the financial ability or
solvency of the guarantor to meet the liability with reasonable
promptitude when called upon to do so.
• The undoubted standing of the guarantor must apply not only when the
contract is signed, but throughout the subsistence of the contract of
guarantee
 SCOPE OF GUARANTEES
In determining the scope of guarantee, two important points arise :
Is the guarantee a specific one, that is, one intended to apply to a particular debt, or a continuing
one which extends to a series of transactions between the banker and his debtor?
SPECIFIC GUARANTEE CONTINUING GUARANTEE

guarantor’s liability will cease as soon as the the guarantor will be liable for the balance
particular advance is repaid. The guarantor will irrespective of the payments made by the principal
not be liable if the debtor pays back the amount debtor, as they would go towards the repayment of
borrowed and takes a fresh loan from the bank. earlier advances.
For this reason, bankers always prefer to have a continuing guarantee so that the guarantor’s
liability will not be limited to the original advance but should also extend to all subsequent debts.
 ROLE OF SURETY
• Surety – in the role of a fiduciary capacity ?
• includes imparting of a confidence on the basis of which a person acts as a guarantor
while giving an undertaking
• It is within the knowledge of the guarantor that the money is being advanced on the
strength of the confidence reposed in the guarantor and in such cases, the position of
the guarantor is very near to that of a trustee.
• Anything done, or any aid provided by the creditor, for the benefit of the principal
debtor, may be a sufficient consideration to the surety for giving the guarantee to the
creditor.
• In a contract of guarantee, a guarantor is also a debtor. The liability of a guarantor
towards the creditor cannot exceed the terms specified in the contract of guarantee.
 V. Velayudhan v State Bank of India [AIR 1989 Ker 38]
FACTS
• the bank had obtained a decree for recovery of a loan on the basis of a guarantee and
since the principal debtor died, the bank took execution proceedings against the
guarantor.
• The guarantor pleaded that he had no means to pay the debt which was not accepted by
the court
HELD
• Surety who guaranteed repayment had an obligation to account in fiduciary capacity.
• A person having duty, created by his undertaking to act primarily for another's benefit in
matters connected with such undertaking has fiduciary obligation.
• The expression fiduciary capacity is not restricted to technical or express trusts, but
includes also such offices or relations involving the imparting of a confidence on the
strength of which one person has acted.
• The money is advanced on the strength of the confidence reposed in the guarantor of the
performance promised or undertaken. In that view, the position of a guarantor is very
much near to that of a trustee
 GUARANTEE UNDER ICA
Section 127: Consideration for guarantee.—Anything done, or any promise made, for
the benefit of the principal debtor, may be a sufficient consideration to the surety for
giving the guarantee.
• Where a loan is given or goods sold on credit on the basis of guarantee, that is a sufficient
consideration.
• ‘Anything done for the benefit of the principal debtor’ – Guarantee for past debt???
• M. Gulam Husain Khan v. M. Faiyaz Ali Khan [AIR 1940 Oudh]
• A Lessee agreed to pay the sum due under a lease by certain instalments and after a few days a person
executed a surety bond binding himself to pay a certain amount in default of the payment of consideration.
• Court held that the bond was not without consideration. The words ‘anything done’ includes things done
before the guarantee was given.
• A guarantee for past as well as future debt is enforceable provided some further debt is incurred after the
guarantee. But there should be a clear undertaking to be liable for a past debt.
 GUARANTEE UNDER ICA
• Benefit of Principal Debtor – Enough Consideration
• If the Principal Debtor gets the benefit, that suffices to sustain the guarantee.
• It will be of no consequence to say that the principal debtor had never requested for
guarantee or that it was given without his knowledge or consent.
 EXTENT OF SURETY’S LIABILITY
Section 128 - Surety’s liability.—The liability of the surety is co-extensive with that
of the principal debtor, unless it is otherwise provided by the contract.

• The Liability of the Surety is co-extensive with that of the Principal – Debtor
• Co-EXTENSIVE? – indicates the maximum extent of Surety’s Liability. – He is liable for the whole
of the amount for which the principal debtor is liable and he is liable for no more.
• CONDITION PRECEDENT
• Where there is a condition precedent to the surety’s liability, he will not be liable unless that condition
is first fulfilled.

National Provincial Bank of England v. Brackenbury [(1906) 22 TLR 797]

FACTS:
• The defendant signed a guarantee which on the face of it was intended to be a joint and several guarantee of three
other persons with him. One of them did not sign.
• There being no agreement between the bank and the co-guarantors to dispense with his signature, the defendant
was held not liable.
 EXTENT OF SURETY’S LIABILITY
• PROCEEDING AGAINST SURETY WITHOUT EXHAUSTING REMEDIES AGAINST THE
DEBTOR:
• Where the liability is otherwise unconditional, the court cannot of its own introduce a condition into it.
Bank of Bihar v. Damodar Prasad, (1969) 1 SCR 620
FACTS:
• The defendant guaranteed a bank loan. A default having taken place, the defendant was sued.
• The Trial Court decreed that the bank shall enforce the guarantee in question only after having exhausted its
remedies against the principal – debtor.
• Patna HC Confirmed the decree. SC overruled it.
• A Condition of this kind would defeat the parties’ intention
• The very object of guarantee is defeated if the creditor is asked to postpone his remedies against the surety.
• Is it the creditor to ask for imprisonment of the Principal? Is he bound to discover at his peril all the properties of
the principal and sell them.? If he cannot do this, does he lose all this rights against the principal – debtor
• Solvency of the Principal is not a ground for restraining execution of the decree against the surety. It is the duty of
the surety to pay the decretal amount. On Such payment he will be subrogated to the rights of the creditors.
• Before Payment, surety has no right to dictate the terms to the creditor and ask him to pursue his remedies against
the principal in the first instance.
 EXTENT OF SURETY’S LIABILITY
• ACTION AGAINST THE PRINCIPAL DEBTOR ALONE:
• The creditor can proceed against the principal debtor alone. His suit cannot be rejected on the ground
that he has not joined the guarantor as a defendant to the suit.
• Dismissal of the suit against the principal debtor doesn’t itself absolve the surety of his liability under
the contract of guarantee.
• SUITS AGAINST SURETY ALONE?
• A Suit against the surety without impleading the principal debtor has been held to be maintenable.
• Position of Surety – Vulnerable
• The court may rescue the surety where he was prevailed upon and therefore his consent was not free.
 EXTENT OF SURETY’S LIABILITY
• SURETY’S RIGHT TO LIMIT HIS LIABILITY OR MAKE IT CONDITIONAL:
• Surety can place a limit on his liability.
• COLLATERAL SECURITY?
• Where the gurantor seeks to make his guarantee dependent on a third party giving some other valid
collateral security, the guarantor has to establish that the giving of the security by the third party
formed part of the contract under which the guarantee was given and accordingly in the absence of that
being established, the guarantor was not permitted to rely on any failure by the lender to provide
himself with a valid collateral security.
CONTINUING
GUARANTEE
 SCOPE OF GUARANTEES
In determining the scope of guarantee, two important points arise :
Is the guarantee a specific one, that is, one intended to apply to a particular debt, or a continuing
one which extends to a series of transactions between the banker and his debtor?
SPECIFIC GUARANTEE CONTINUING GUARANTEE

guarantor’s liability will cease as soon as the the guarantor will be liable for the balance
particular advance is repaid. The guarantor will irrespective of the payments made by the principal
not be liable if the debtor pays back the amount debtor, as they would go towards the repayment of
borrowed and takes a fresh loan from the bank. earlier advances.
For this reason, bankers always prefer to have a continuing guarantee so that the guarantor’s
liability will not be limited to the original advance but should also extend to all subsequent debts.
 CONTINUING GUARANTEE
Section 129: ‘Continuing guarantee’.—A guarantee which extends to a series of
transactions, is called a ‘continuing guarantee’.

• Such a guarantee intends to cover a number of transactions over a period of time.

• The Surety undertakes to be answerable to the creditor for his dealings with the debtor for a certain
period of time.
• A guarantee for a single specific time ends as soon as the liability under the transaction ends.
 BANK GUARANTEES
• Performance guarantees given by banks are in essence exceptionally stringent
contracts of indemnity.
• They are contractual undertakings normally granted by banks to pay or to repay a
specified sum in the event of any default in performance by the principal-debtor of
some other countries.
• It is an independent and distinct contract between the bank and the beneficiary and
is not qualified by the underlying transaction and primary contract between the
person at whose instance the bank guarantee is given and the beneficiary.
 LIABILITY UNDER BANK GUARANTEES

• A Bank Guarantee is a sort of an absolute undertaking to pay the amount whenever

demanded by the creditor.
• It has nothing to do with the state of the relations between the creditor and the
person on whose behalf the guarantee was given
• While ordinary guarantees are linked to and dependent upon the underlying
transaction, a bank guarantee is an arrangement where the guarantee is independent
of the underlying transaction.
 LIABILITY UNDER BANK GUARANTEES
Hindustan Steel Works Construction Limited v. Tarapore and Co [(1966) 5 SCC 34]

• Supreme Court Laid down the Law ;

• A Bank guarantee is an independent and distinct contract between the bank and the beneficiary and is
not qualified by the underlying transaction and the primary contract between the person at whose
instance the bank guarantee is given and the beneficiary.
• IN case of an Unconditional Bank Guarantee the nature of the obligation of the bank is absolute and not
dependent upon any dispute or proceeding between the party at whose instance the bank guarantee is
given and the beneficiary.
• The commitment from the bank must be honoured free from interference by the court and it is only in
exceptional cases that is to say in case of fraud or in the case where irretrievable injustice would be done
if bank guarantee is allowed to be encashed that the court would interfere.
DISCHARGE OF
SURETY FROM
LIABILITY
 DISCHARGE OF SURETY FROM LIABILITY
• A Surety is said to be discharged from liability when his liability comes to an end.
BY REVOCATION {Section 130}
• 130. Revocation of continuing guarantee.—A continuing guarantee may at
any time be revoked by the surety, as to future transactions, by notice to the
creditor.
• Revocation becomes effective for future transaction while the surety remains liable for transactions
already entered into
 DISCHARGE OF SURETY FROM LIABILITY
BY DEATH OF SURETY{Section 131}

Revocation of continuing guarantee by surety’s death.—The death of the

surety operates, in the absence of any contract to the contrary, as a
revocation of a continuing guarantee, so far as regards future transactions.

• A continuing guarantee is also terminated by the death of the surety unless there is a contract to the
contrary.
• The Surety’s Heirs can be sued for liability already incurred but only to the extent of property
inherited by them.
 DISCHARGE OF SURETY FROM LIABILITY
BY VARIANCE{Section 133}
133. Discharge of surety by variance in terms of contract.—Any variance, made without
the surety’s consent, in the terms of the contract between the principal 1[debtor] and the
creditor, discharges the surety as to transactions subsequent to the variance.

Surety is discharged as soon as the original contract between the Principal – Debtor and the Creditor
is altered without his consent.
M.S. Anirudhan v. Thomco’s Bank Limited [AIR 1963 SC 746]
Facts:
• The defendant guaranteed the repayment of a loan of Rs. 20,000/- given by the plaintiff bank to the principal
debtor.
• The guarantee paper showed the loan to be Rs. 25,000/- which the bank refused to accept.
• The amount was then reduced to Rs. 20000/- and the bank accepted.
• The Principal – Debtor failed to pay and the bank sued the surety.
• Issue: Whether the alteration had discharged the surety.?
 DISCHARGE OF SURETY FROM LIABILITY
M.S. Anirudhan v. Thomco’s Bank Limited [AIR 1963 SC 746]
HELD:
.
• It was held by majority that the surety was not discharged.
• For an alteration to discharge the surety, it should be of material nature and should otherwise not
be beneficial to the surety.
• Unsubstantial Alterations which are to the benefit of the surety do not discharge the surety from
the liability.
• If the alteration is to the disadvantage of the surety or its unsubstantial character is not self-
evident the surety can claim to be discharged.
• The court will not then inquire whether it harmed the surety or not.
• Further, alteration not only discharges the surety from his personal liability but also releases the
property if any which the surety had included in the contract.
 DISCHARGE OF SURETY FROM LIABILITY
BY RELEASE OR DISCHARGE OF THE PRINCIPAL DEBTOR {Section 134}
Section 134: Discharge of surety by release or discharge of principal debtor.—The
surety is discharged by any contract between the creditor and the principal debtor,
by which the principal debtor is released, or by any act or omission of the creditor,
the legal consequence of which is the discharge of the principal debtor.

• Release of the Principal – Debtor –

• The section provides for 2 kinds of discharge from liability.
• Firstly, where the creditor makes any contract with the principal debtor by which the latter is
released, the surety is discharged.
• Any release of principal debtor amounts to release of surety as well.
 DISCHARGE OF SURETY FROM LIABILITY
• Effect of Debt Relief Acts: Where liability of the principal-debtor is reduced under a
statute.? Whether the liability of the Surety is also proportionately diminished. ?
Different Interpretations
Balkrishna v. Atmaram [AIR 1944 Nagpur 277]
Nagpur HC : Intention of the Statute is to relieve the Principal-Debtor not the surety
Subramanium Chettiar v. MP Narayanswami Gounder [AIR 1951 Mad 48]
Madras HC applying the provisions of the Madras Agriculturists Debt Relief Act 1938 held that the surety is liable
only for the reduced amount
Ayupanni Mani v. Devassy Kochouseph [AIR 1966 Kerala 203]
Kerala HC agreed with Mad HC.
TO hold otherwise would be to altogether deny the benefit of the ameliorative provisions of the Act to the
agriculturist debtor. On any other view, it would be open to the creditor to recover the debt as scaled down from
the agriculturist debtor and the balance from the surety and the latter in his turn could seek reimbursement from the
principal debtor.
Such a construction would completely nullify the benefits of the ameliorative legislation to indebted
agriculturalists.
 DISCHARGE OF SURETY FROM LIABILITY
• Majority decisions have agreed with Kerala HC judgement.
• This is the most desirable interpretation of Section 128 which makes the liability of the surety
co-extensive with that of the principal debtor.
• Hence, in case there is a statutory reduction of the principal-debtor’s liability, it will operate
as a pro-tanto reduction of surety’s debt.
• Application Of Insolvency Laws - ??
Maharashtra SEB v. Official Liquidator [(1982) 3 SCC 358]
• A Bank Guarantee for a sum of Rs. 50000/- was submitted by a supplier of the Electricity Board.
• The Bank was liable under the guarantee to pay the amount within 48 hours of demand by the Board.
• The Board demanded payment and the bank made it.
• The Bank was now trying to realize the amount out of the securities deposited by the supplier for securing the guarantee
• The supplier company went into liquidation and the liquidator sought to restrain the bank from realizing the securities.
• The Court allowed the bank to go ahead. The bank was a secured creditor and was entitled to the benefit of securities. It had
nothing to do with the state of relations with the company & the Electricity Board.
• SC: Where a discharge of the principal debtor is made by reason of winding up or insolvency, it does not discharge the
surety of his liability.
 DISCHARGE OF SURETY FROM LIABILITY
• Act / Omission of the Creditor
• 2nd ground of discharge.
• Where the creditor does anything the legal consequence of which is the discharge of the
principal debtor.

• c
 DISCHARGE OF SURETY FROM LIABILITY
• COMPOUNDING, EXTENSION OF TIME AND PROMISE NOT TO SUE{Sec 135}
135. Discharge of surety when creditor compounds with, gives time to, or
agrees not to sue, principal debtor.—A contract between the creditor and the
principal debtor, by which the creditor makes a composition with, or promises
to give time to, or not to sue, the principal debtor, discharges the surety, unless
the surety assents to such contract.
• This section provides for 3 modes of discharge from liability:
• Composition
• Promise to Give Time
• Promise not to sue the Principal Debtor
DISCHARGE OF SURETY FROM LIABILITY
• COMPOSITION
• If the creditor makes a composition with the Principal-debtor without consulting
the surety, the latter is discharged.
• Composition invariably involves variation of the original contract.
• PROMISE TO GIVE TIME
• When the time for payment of the guaranteed debt comes, the surety has the right
to require the principal debtor to pay off the debt.
• Accordingly it is one of the duties of the creditor towards the surety not to allow
the principal debtor more time for payment without the consent of the surety.
DISCHARGE OF SURETY FROM LIABILITY
Section 136: 136. Surety not discharged when agreement made with third
person to give time to principal debtor.—Where a contract to give time to the
principal debtor is made by the creditor with a third person, and not with the
principal debtor, the surety is not discharged

• PROMISE NOT TO SUE:

• If the creditor under an agreement with the principal-debtor promises not to sue
him, the surety is discharged.
• The surety is entitled at any time to require the creditor to call upon the principal
debtor to pay off the debt when it is due and this right is positively violated when
the creditor promises not to sue the principal debtor.
DISCHARGE OF SURETY FROM LIABILITY
Section 137: Creditor’s forbearance to sue does not discharge surety.—Mere
forbearance on the part of the creditor to sue the principal debtor or to
enforce any other remedy against him does not, in the absence of any
provision in the guarantee to the contrary, discharge the surety.

• FORBEARANCE TO SUE DOES NOT DISCHARGE THE SURETY

• But where the forbearance continues upto the expiry of the period of limitation
and consequently the action against the principal debtor becomes time barred, -
the surety will be discharged.
• Section 134 will come into play
 DISCHARGE OF SURETY FROM LIABILITY
• IMPAIRING SURETY’S REMEDIES {Section 139}
Discharge of surety by creditor’s act or omission impairing surety’s eventual
remedy.—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
• 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 eventual remedy of the
surety himself against the principal debtor is impaired, the surety is discharged.
• Creditor is not supposed to do anything inconsistent with the rights of the creditor.
RIGHTS OF SURETY
 RIGHTS OF SURETY
RIGHTS AGAINST RIGHTS AGAINST RIGHTS AGAINST CO-
PRINCIPAL DEBTOR CREDITOR SURETIES
Right of Subrogation Right to Securities (Section Rights on Releasing of a
(Section 140) 141) Co-Surety (Section 138)
Right to Indemnity Right to Share Reduction Right to Contribution
(Section 145) Right of Set Off (Section 146 – 147)
 AGAINST PRINCIPAL DEBTOR
RIGHT OF SUBROGATION (Section 140)
Rights of surety on payment or performance.—Where a guaranteed debt has
become due, or default of the principal debtor to perform a guaranteed duty has
taken place, the surety, upon payment or performance of all that he is liable for, is
invested with all the rights which the creditor had against the principal debtor.
• Where the surety has paid all that he is liable for he is invested with all the rights which the
creditor had against the principal debtor.
• The surety steps into the shoes of the creditor
• Surety’s Right is not less co-extensive with that of the creditor after he satisfies the creditor’s
debt.
• The surety may therefore sue the Principal-debtor in the rights of the creditor.
• This right of surety stands on the principle of natural justice
 AGAINST PRINCIPAL DEBTOR
RIGHT TO INDEMNIFY(Section 145)
Implied promise to indemnify surety.—In every contract of guarantee there is an
implied promise by the principal debtor to indemnify the surety, and the surety is
entitled to recover from the principal debtor whatever sum he has rightfully paid
under the guarantee, but no sums which he has paid wrongfully.

• In every contract of guarantee there is an implied promise by the principal debtor to indemnify
the surety.
• Surety has a right to recover from the principal debtor whatever sum he has rightfully paid
under the guarantee but not sums which he paid wrongfully.
 AGAINST CREDITORS
RIGHT TO SECURITIES(Section 141)
Surety’s right to benefit of creditor’s securities.—A surety is entitled to the benefit
of every security which 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; and if the creditor loses, or without the consent
of the surety, parts with such security, the surety is discharged to the extent of the
value of the security.
• Surety is entitled to every remedy that the creditor has against the principal debtor, including
the enforcement of principal security.
• On paying off the creditor the surety steps into his shoes and gets the right to have the
securities if any which the creditor has against the principal debtor.
• It is the duty of the creditor to keep the securities intact and not to burden with further
advances.
 AGAINST CREDITORS
RIGHT OF SET OFF
• If the creditor sues the surety, the surety may have the benefit of the set – off if any, that the
principal debtor had against the creditor.
• He is entitled to use the defences of the debtor against the creditor
• He can claim such a right not only against the creditor but also against the third parties who
have derived their title from the creditor.
 AGAINST COSURETIES
EFFECT OF RELEASING OF A SURETY(Section 138)
138. Release of one co-surety does not discharge others.—Where there are co-
sureties, a release by the creditor of one of them does not discharge the others,
neither does it free the surety so released from his responsibility to the other
sureties

• The creditor may at his will release any of the co-sureties from his liability.
• But that will not operate as a discharge of his co-sureties
• However the released co-surety will remain liable to the others for contribution in the event of
default.
 AGAINST COSURETIES
RIGHT TO CONTRIBUTION(Section 146-147)
146. Co-sureties liable to contribute equally.—Where two or more persons are co-
sureties for the same debt or duty, either jointly or severally, and 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 share of the whole debt, or of
• that
The part of it
creditor which
may at hisremains unpaid
will release any ofby
thethe principal
co-sureties debtor.
from his liability.
• But that will not operate as a discharge of his co-sureties
147. Liability of co-sureties bound in different sums.—Co-sureties who are bound
• inHowever the released co-surety will remain liable to the others for contribution in the event of
different sums are liable to pay equally as far as the limits of their respective
default.
obligations permit.
 AGAINST COSURETIES
• Where there are several sureties for the same debt and the principal debtor has committed a
default, each surety is liable to contribute equally to the extend of the default.
• If any one of them is compelled to pay more than his share, he can recover contribution from
his co-sureties so as to equalize the loss as between all of them.
• It is immaterial if the co-guarantors or co-sureties are bound jointly or severally by the same
instrument or by different instruments.
• These principles are subject to contractual terms.