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In the law of guarantees, what does subrogation mean for a surety who pays everything they owe under…

Subrogation is substitution into another person’s legal position for the relevant rights. Under section 140 of the Indian Contract Act, 1872, the surety who pays all that is…

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In the law of guarantees, what does subrogation mean for a surety who pays everything they owe under the guarantee after the guaranteed debt becomes due?

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Answer and explanation

Correct answer A

Subrogation is substitution into another person’s legal position for the relevant rights.

Under section 140 of the Indian Contract Act, 1872, the surety who pays all that is due from them under the guarantee after the debt matures acquires the creditor’s rights against the principal debtor.

Option feedback

Option A

Section 140 vests the paying surety with the creditor’s rights against the principal debtor.

Option B

The surety succeeds to the creditor’s rights against the debtor. The original borrower remains the debtor.

Option C

Section 140 confers creditor rights against the principal debtor and does not provide an insolvency remedy against the creditor.

Option D

The rights flow from the creditor’s position to the paying surety.

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