Subrogation

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Subrogation
sʌb rɪˈɡeɪʃᵊn (n.)

The process whereby one person “steps in” to the legal shoes of another to exercise that other’s legal rights against a third party, by way of satisfying a legal claim between the first two. Three places you might expect to see this: when an insurer, having paid out on an insurance claim, prosecutes the insured’s rights against a third party; where a secured creditor exercises the contractual rights under a debt which has been assigned to it by way of security, or where a guarantor assumes a creditor’s rights to take action to recover a debt from a debtor.

A debtor cannot set off a subrogated claim against liabilities the guarantor has to that debtor. Would the converse situation apply? Could a debtor set off a subrogated claim by the guarantor against another liability owed to the debtor by the beneficiary of the guarantee? On one hand the set-off should have been applied before the guarantee has been called upon. On the other hand, what if the guarantee is expressed to be payable regardless of any set-off (as usually it would be).

See also

• Netting and set-off under an ISDA (premium content)
• Guarantee
• Set off