Surety is an unprotected debtor?
Introduction
Under section 126 of the Indian Contract Act, 1872, a contract of guarantee, also known as a contract of suretyship, is specified. The person who gives the guarantee is known as "surety," the person on whose behalf the guarantee is given is known as "principle debtor," and the person to whom the guarantee is given is known as "creditor." Since the term guarantee is a legally binding contract, it must be accompanied by consideration, as specified by section 127 of the Indian Contract Act. A surety is someone who promises to pay the debt if the principal debtor does not. It ensures that if the principal debtor defaults and is unable to repay the borrowed sum, the creditors will receive all of the money they should have received from the principal debtor in the first place from the surety. If the decree favours the creditor over the principle debtor, the decree will extend the liability against the surety since the surety's liability is coextensive with the principle debtor, as specified in section 128 of the Indian contract act which says “The liability of the surety is co – extensive with that of the principle debtor, unless it is otherwise provided by the contract.” The principle of co-suretyship comes into picture when a single debt is secured by more than one person. The Indian contract act also addresses the rights and responsibilities of co-sureties.
Rights and liabilities of surety under Indian Contract Act-
The responsibility of the surety is coextensive with that of the principal debtor, as specified in section 128 of the Indian contract act. This means that the surety is exclusively liable for the whole amount owed to the creditor by the principal debtor. That is the maximum amount of responsibility for which the surety may be kept responsible in connection with his guarantee. The court in one of the judgment also stated that the surety is responsible for not only the principal sum, but also the interest on the principal amount as well as any expenses incurred in carrying out this obligation. If the debtor defaults on the payment, the surety is responsible for the entire liability of the principal debtor. One of the most important points to remember is that the surety's responsibility is determined by the contract's terms and conditions, which must be respected. The surety can place a condition precedent to his liability before entering into the contract of guarantee, providing that he will not be held liable unless and until the condition is met the partial recognition of this concept is given in section 144 of the Indian contract act, according to the section if anyone provides a guarantee on a contract, the borrower is not allowed to act on it until another person steps in as a co-surety. In the case of “National Provincial Bank of England v Brackenbury” the defendant agreed to sign a deal that would hold three more people as joint and several guarantors. The defendant was found not responsible because it was discovered that one of the persons declined to sign the contract because the bank and the co-sureties had not made an agreement to waive his signature.
A creditor is not required to exhaust his remedies against the principal debtor before suing the surety. In case of the death of the principle debtor the liability of the surety will remain intact. Surety’s responsibility may be limited himself. He has the option of limiting his guarantee to a particular number. To minimise the burden of liability, the surety can restrict the amount to which he may be held liable or require the principal debtor to provide collateral security to the creditor against the debt. The liability of surety will not be discharge even in the case of doctrine of impossibility of performance.
When the principal debtor defaults on his obligations and the surety makes the requisite payment or fulfils all of his obligations. The surety steps into the shoes of the creditor and recovers the entire amount that creditor might have gotten from the principal debtor in a lawsuit. This is called as surety's right of subrogation which is defined under section 140 of the contract act. If the surety's responsibility is coextensive with the principal debtor's, his privilege is no less coextensive with the creditor's after the creditor's debt has been fulfilled.
It is one of the rights of the surety to get indemnified by the principle debtor in case of the default in the payment by the principle debtor to the creditor; the implied promise to indemnify the surety is defined under section 145 of the Indian contract act which says that when a guarantee agreement's principal debtor defaults, the surety is obliged to pay the creditor. In this scenario, the creditor receives refund. Surety is making this payment on the principal debtor's behalf. After making such a deposit, he would be able to recover the amount from the principal debtor. The surety can only make such a claim for the sums he has legally paid under the guarantee, not for the amounts he has illegally paid.
Section 141 of the Indian contract act defines the surety's right to benefit the security possessed by the creditor. As previously mentioned, the surety is subrogated to all of the creditor's rights against the principal debtor until he has met his obligations under the guarantee contract. A surety is entitled to the value of any protection held by a creditor against the principal debtor at the time the contract of guarantee is entered into. In the case of “Craythorne vs Swinburne 1807” it was held that all of the creditor's securities against the principal debtor are available to the surety, including the protection of all security rights.
to the conclusion of the question it cannot be said that surety is an unprotected debtor as there are certain provisions favouring in the protection of the rights of surety.
For better understanding of the contract of guarantee it is always preferable to refer to the bare act of the Indian Contract Act, 1872.
Few of the sources-