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Debtor-Creditor Relationships - College Paper

Debtor-Creditor Relationships

Chapter 32 Debtor-Creditor Relationships

. Definitions

o One type of agreement to answer for the debt or default of another is called a suretyship. The obligor or third party who makes good on a debtor's obligation is called a surety. The other kind of agreement is called a guaranty, and the obligor is called the guarantor. In both cases, the person who owes the money or is under the original obligation to pay or perform is called the principal, principal debtor, or debtor. The person to whom the debt or obligation is owed is the obligee or creditor.

o Suretyship and guaranty undertakings have the common feature of a promise to answer for the debt or default ...

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absolute guaranty, which creates the same obligation as a suretyship. A guaranty of payment creates an absolute guaranty and requires the guarantor to pay upon default by the principal debtor.

. Indemnity Contract Distinguished

o Both suretyship and guaranty differ from an indemnity contract. An indemnity contract is an undertaking by one person, for a consideration, to pay another person a sum of money in the event that the other person sustains a specified loss. For example, a fire insurance policy is an indemnity contract. The insurance you obtain when you use a rental car is also an example of an indemnity contract.

. Creation of a Relationship

o Suretyship, guaranty, and indemnity relationships are based on contract. The principles relating to capacity, formation, validity, and interpretation of contracts are applicable. Generally, the ordinary rules of offer and acceptance apply. Notice of acceptance usually must be given by the obligee ...

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to take action against the debtor to provide a literal and figurative roadblock to the debtor's planned departure.

. If the creditor could proceed against the debtor who is about to leave and thereby protect the repayment and fails to do so, the surety is released or exonerated from the liability to the extent that the surety has been harmed by such failure.

o Subrogation: When a surety pays a claim that it is obligated to pay, it automatically acquires the claim and the rights of the creditor. This stepping into the shoes or position of another is known as subrogation. That is, once the creditor is paid in full, the surety stands in the same position ...

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PAPER DETAILS

Added: 12/7/2013 12:00:39 PM
Submitted By: leeisl33t
Category: Economics
Type: Premium Paper
Words: 8289
Pages: 31

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