Contract of guarantee:- The Indian Contract Act 1872 Notes

1. Rights against principal debtor
2. Right of indemnity
   There is an implied promise by the principal debtor to indemnity the surety.The surety is entitled to claim from the principal debtor all the sums which he has rightfully paid.The surety cannot recover such sums, which the he has paid wrongfully.
3. Right of subrogation
   On payment of a debt, the surety shall be entitled to all the rights which the creditor could claim against the principal debtor.

• Right of subrogation
  The surety can claim all the securities which the creditor had at the time of giving of guaranteeIt is immaterial as to whether the surety had knowledge of such securities or not.If the securities are returned by the creditor to the principal debtor the surety is discharged to the extent of value of the securities so returned.
• Right of set off
  • Any amount recoverable by the principal debtor may be claimed as deduction.
  • Any amount recoverable by the surety may be claimed as deduct
  • Rights to contribution General Rule
    All the co-sureties shall contribute equally

  Exceptions

  • Under the contract of guarantee, the co-sureties may fix limits on their respective liabilities. Even in such a case, the co-sureties shall contribute equally, subject to maximum limit fixed by the co-sureties.
  • The contract of guarantee may provide that the co-sureties shall contribute in some other proportion.
  • Right to share benefit of securities
    If one co-surety receives any security, all the other co-sureties are entitled to share the benefit of such security.

  DISTINCTION BETWEEN INDEMNITY AND GUARANTEE