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CMA Intermediate · Business Laws and Ethics · Special Contracts - Indemnity and Guarantee; Bailment and Pledge; Laws of Agency

Under Section 140 of the Indian Contract Act, 1872, when the principal debtor has defaulted and the surety pays or performs all that he is liable for, the surety:

The surety is invested with all the rights the creditor had against the principal debtor. Under Section 140, once the guaranteed debt is due or default has occurred and the surety pays or performs all he is liable for, he takes the creditor's place.

  1. AHas only a personal claim for the amount paid, with no right over the creditor's remedies
  2. BIs invested with all the rights which the creditor had against the principal debtorCorrect
  3. CMust first obtain a court decree against the creditor
  4. DBecomes liable to the principal debtor for the amount paid

Explanation

Section 140 states that on payment or performance of all that he is liable for, after the debt has fallen due or default has occurred, the surety steps into all the rights the creditor had against the principal debtor.

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