Asked by Devyn Smallwood on Jul 05, 2024
Verified
Which of the following statements about collateral contracts is true?
A) The guarantor promises to pay only if the principal debtor fails to do so.
B) A collateral contract involves three parties and one promise to perform.
C) The guarantor's debt is primary.
D) The principal debtor's debt is secondary.
Collateral Contracts
Collateral contracts are supplementary agreements made in addition to a primary contract, which impose additional obligations or conditions related to the primary contract's terms.
Guarantor
An individual or entity that agrees to be responsible for another's debt or contractual obligations if the original party fails to meet their terms.
Principal Debtor
The main party obligated to repay a loan or debt.
- Determine and differentiate the characteristics of primary versus collateral contracts.
Verified Answer
RJ
Rachel JonesJul 09, 2024
Final Answer :
A
Explanation :
A collateral contract involves at least three parties and at least two promises to perform (a promise by the principal debtor to pay the obligee and a promise by the guarantor to pay the obligee).In a collateral contract,the guarantor promises to pay only if the principal debtor fails to do so.The essence of the collateral contract is that the debt or obligation is owed primarily by the principal debtor and the guarantor's debt is secondary.
Learning Objectives
- Determine and differentiate the characteristics of primary versus collateral contracts.