This ppt has an example which clearly explains the rights and objectives of surety and co surety, contract of guarantee.

1. BUSINESS LAW
CONCEPT OF SURITY AND CO-
SURITY IN A CONTRACT OF
GUARANTEE
BY
HARIKA
ANKITA
SINTHYA

2. WHAT IS CONTRACT OF GUARANTEE ?
It is a contract to DISCHARGE the liability
of third person in case of his default.
IN OTHER WORDS

3. GUARANTEE
For example
• SupposeVijay Mallya once wanted to take loan for a
business from SBI Bank.
• Bank ask for security to issue loan.
• Mukesh Ambani comes into picture and gives surety
to the bank that, if mallya fails to repay the loan,
ambani will pay for it.

4. PARTIES IN A CONTRACT OF GUARANTEE:
There are 3 parties
Principal debtor- Vijay Mallya
Creditor- SBI bank
Surety- Mukesh Ambani

5. RIGHTS OF SURETY:
1. Rights of subrogation (sec 140):
Surety can sue the principal debtor for the
amount Surety has paid to the creditor.
2. Right to the benefit of creditor’s
securities:
Surety is entitled to the benefit of every
security
Which creditor has against principal debtor.

6. For example:
Mukesh has paid
the loan amount
to the bank, on
the default of
mallya.
•Now, Bank gives off mallya’s
property papers to Mukesh
and ask him to use them to
recover the amount which he
had paid to the bank.
•His rights extends to the
securities which Mukesh was
not aware (secret securities).

7. 3. Right to indemnity:
• In every contract of guarantee, there is an implied promise
by the principal debtor to indemnify the surety.

8. CO-SURETIES:
• 2 or more sureties for a single contract of
guarantee are called co-sureties.
• The co-sureties are liable as between
themselves, to pay each an equal share of the
unpaid debt (when there is no agreement).
example: A,B,C are sureties to D for the sum of
Rs. 1000 lent to E.
A, B,C agreed to be responsible to the extent of
one-quarter, one-quarter and one-half
respectively. E makes default in payment. Now A
is liable to pay Rs.250, B-Rs. 250, C-Rs. 500.

9. CO-SURETIES:
• Release of one co-surety by the creditor
does not discharge the other co-sureties.
• The released co-surety will remain liable to
others for contribution in the event of
default.

10. SURETY’s LIABILITIES:
•The liability of the surety is co-extensive with
that of the principal debtor : It means the
surety has the same liability of the principal
debtor.
•Reduction of liability :The surety may limit
his liability at the time of entering into the
contract of guarantee to a fixed sum.

11. SURETY’s LIABILITIES:
• Exclusive liability: Only when principal debtor is
minor, the surety is alone liable to the creditor.
• Void contract:Where the original contract between
the principal debtor and the creditor is void or
voidable, the surety is not discharged.
• Legal proceedings:A surety can be sued without
even suing the principal debtor.

12. THANK YOU