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.

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.

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.

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).

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