ExpertHard1 markMultiple Choice
CPA · Question 47 · Area II: Business Law
Which of the following defenses would effectively release a surety from liability to a creditor?
Which of the following defenses would effectively release a surety from liability to a creditor?
Answer options:
A.
The debtor filed for bankruptcy.
B.
The creditor released the collateral held for the debt without the surety's consent.
C.
The debtor defrauded the surety to induce the suretyship, and the creditor was unaware.
D.
The surety became insolvent.
How to approach this question
Surety Defenses: Material alteration of contract, Release of collateral, Extension of time (for non-compensated surety). Bankruptcy of debtor is NOT a defense.
Full Answer
B.The creditor released the collateral held for the debt without the surety's consent.✓ Correct
B
If a creditor releases collateral that secures the debt, the surety is discharged to the extent of the value of the collateral released, because the surety's right of subrogation has been impaired.
Common mistakes
Thinking debtor bankruptcy releases the surety.
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