ExpertHard1 markMultiple Choice
CPA · Question 59 · Area II: Business Law
Which of the following defenses is available to a surety to avoid liability on a debt?
Which of the following defenses is available to a surety to avoid liability on a debt?
Answer options:
A.
The debtor's bankruptcy.
B.
A material modification of the contract between debtor and creditor without the surety's consent.
C.
The debtor's infancy (minor status).
D.
The debtor's fraud upon the surety (unknown to creditor).
How to approach this question
Identify the defense that alters the risk. Material modification changes the deal, releasing the surety.
Full Answer
B.A material modification of the contract between debtor and creditor without the surety's consent.✓ Correct
A material modification of the underlying contract (e.g., extension of time, change in amount) without the surety's consent discharges the surety (completely if gratuitous, or to the extent of loss if compensated). Debtor's bankruptcy or incapacity are the very risks the surety insures against, so they are not defenses.
Common mistakes
Thinking bankruptcy of the debtor releases the surety (it's the opposite).
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