What Does Surety's Right to Exoneration Mean?
The surety’s right to exoneration refers to the common law right that the surety has against the principal debtor. When a debtor is unable to fulfill the obligations expected by the creditor, according to the terms of the contract, the surety becomes liable for paying the debt to the creditor. In such a case, the surety has the legal right to compel the principal debtor to fulfill their debt and thereby "exonerate" the surety from the debt.
Insuranceopedia Explains Surety's Right to Exoneration
A surety bond denotes a contract signed by at least three parties: the creditor, the principal, and the surety. By signing a surety bond, the surety promises to uphold the contractual promises or obligations made (or owed) by the principal in the event that the principal is not able to uphold the promises made to the obligee. Therefore, the surety signs the surety bond for the benefit of the obligee, thereby encouraging the obligee to contract with the principal.
In the event that the debtor cannot repay the debt to the creditor, the surety needs to fulfill the obligations made by the debtor. In case the surety pays the debt, they receive all rights the creditor originally held to sue or file a claim against the principal for the owed amount.