Indian Contract Act Section 141 — Surety’s right to benefit of creditor’s securities

CHAPTER VIII OF INDEMNITY AND GUARANTEE

Commercial / Corporate

Summary

A surety is entitled to the benefit of every security that the creditor holds against the principal debtor at the time the suretyship contract is made, even if the surety does not know that such security exists. This means the surety can rely on any collateral or guarantee the creditor already has from the debtor to reduce the surety’s own exposure.

If the creditor loses that security, or gives it up without the surety’s consent, the surety is discharged from liability to the extent of the value of that security. In other words, the surety’s obligation is reduced by the amount the security was worth, because the creditor’s own actions in losing or surrendering it cannot harm the surety.

Official Text

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. Illustrations