Q&As

Does it affect subrogation rights if the guarantor is a voluntary guarantor (ie the borrower did not procure, or even know about, the existence of the guarantee)?

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Published on LexisPSL on 21/04/2017

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • Does it affect subrogation rights if the guarantor is a voluntary guarantor (ie the borrower did not procure, or even know about, the existence of the guarantee)?
  • Subrogation
  • A guarantor's right to subrogation of the lender's rights

Does it affect subrogation rights if the guarantor is a voluntary guarantor (ie the borrower did not procure, or even know about, the existence of the guarantee)?

Subrogation

The expression 'subrogation' is a convenient way of describing a transfer of rights from one person to another, without assignment or assent of the person from whom the rights are transferred and which takes place by operation of law in a whole variety of widely different circumstances. For more information, see: Doctrine of subrogation: Halsbury's Laws of England (47) 207.

A guarantor's right to subrogation of the lender's rights

As a general rule, once a guarantor has paid the debt which has been guaranteed in full, it is entitled to be subrogated to all of the guaranteed party's rights against the principal in respect of the debt which has been guaranteed. The authority for this is the section 5 of Mercantile Law Amendment Act 1856 (MLAA 1856), which provides that:

“Every person who, being surety for the debt or duty of another, or being liable with another for any debt or duty, shall pay such debt or perform such duty, shall be entitled to have assigned to him, or to a trustee for him, every judgment, specialty, or other security which shall be held by the creditor in respect of

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