Rites of Charity

Jul 17, 2024

Rites of Charity

Overview

  • Rites of charity can be categorized under three groups:
    1. Rights against the creditor
    2. Rights against the principal debtor
    3. Rights against co-sureties
  • Relevant sections of the Indian Contract Act provide the legal foundation for these rights.
  • Recommends watching earlier videos on contract of indemnity and guarantee for better understanding.

Rights Against the Creditor

  • Right to securities (Section 141):
    • A surety is entitled to benefit from every security the creditor holds against the principal debtor at the time of contract.
    • Surety's knowledge of the security is irrelevant.
    • Example: If a debtor fails to pay a loan, the surety can claim the security (e.g., gold) given by the debtor to the creditor.

Rights Against the Principal Debtor

  • Right of subrogation (Section 140):
    • When the debt is due or the debtor defaults, and the surety pays, the surety acquires all the creditor's rights against the debtor.
  • Right of indemnity (Section 145):
    • There is an implied promise by the principal debtor to indemnify the surety in every contract of guarantee.
    • The surety can recover from the debtor whatever sum he has rightfully paid under the contract.

Rights Against Co-Sureties

  • Right to contribution (Sections 146 and 147):
    • Section 146: Co-sureties are liable to contribute equally:
      • Example: Three co-sureties each pay an equal share of a $3,000 loan defaulted by the debtor.
    • Section 147: Co-sureties are bound for different sums:
      • Sureties pay according to their respective obligations.
      • Example 1: If the default is $30,000 and sums guaranteed are $10,000, $20,000, and $40,000, each surety pays $10,000.
      • Example 2: If the default is $40,000, surety with $10,000 limit pays $10,000; others pay $15,000 each.
      • Example 3: For a $70,000 default, payments align with limits ($10,000, $20,000, $40,000).

Additional Resources

  • Videos on contract of indemnity and guarantee for more detailed explanation.
  • Links available in the description.

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