Nature of Surety Liability

Nature of Surety Liability – Business Law | BBA Notes

Nature of Surety Liability | Surety | Business Law | BBA Notes

When the principal debtor fails in performing his/her obligation then only the liabilities of surety do come into execution. Once a contract of guarantee is made between three parties, the liabilities already exist to the surety. 

a. Secondary liabilities:

Surety liability is always secondary in nature in a contract of guarantee. Surety liability starts only after the default of the principal debtor. In the case of the principal debtor himself/herself fulfill promises to the creditor then the surety will be free from his/her responsibilities.

b. Co-extensive:

Surety liability is co-extensive with the principal debtor. The principal duty is the first duty to repay the loan to creditors. In case of debtors default than after surety liability for the same liabilities as bearing by’ debtors. Therefore, it is co-extensive nature.

c. Nature of liability:

Surety Liability may be either limited or unlimited. In a contract of guarantee, if surety liability is limited to a limited amount, he/she is responsible for limited liability only. Similarly, if liability is unlimited, the surety liabilities also go to unlimited liability.

d. Contingent nature:

The liability of Surety is contingent in nature. Contingent in a sense that in the event of debtors default. The default may happen or not happen, if happen then only surety liability starts. Therefore, it is contingent nature.