Exam (elaborations)
CPA REG 8 Detailed Questions and Expert Answers
- Course
- CPA
- Institution
- Boston University
CPA REG 8 Detailed Questions and Expert Answers
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CPA REG 8 Detailed Questions and Expert AnswersSurety vs Guarantor - ANS Surety is directly liable whether or not debtor pays.
Guarantor only liable if debtor doesn't pay.
Gratuitous Surety - ANS Typically a parent cosigner. Any variation of surety's risk
releases surety. There must be consideration given (typically only consideration by
creditor making loan to the principal)...therefore not bound unless surety promises
before loan is made.
Compensated Surety - ANS Material change increasing surety's risk releases surety.
Compensation is consideration, and so surety is bound to perform regardless of
timing.
- Release - Release of security by creditor discharges surety in amount of release
- Inaction - If security is lost due to creditor's inaction, then surety is discharged to
extent of loss
- Release of co-surety - the remaining surety is released to extent that he could
have recovered from the released co-surety.
Surety's rights against creditor - ANS 1. No right of notice...creditor doesn't need to
notify surety of default
2. No right to compel collection
3. No right to compel creditor to apply security held (take collateral)
, Surety's rights against debtor - ANS 1. Exoneration - sue principal so that he pays
creditor
2. Subrogation - After surety pays...he can enforce any rights the creditor had
against principal
3. Reimbursement - Surety pays, and then is entitled to be reimbursed
Surety's rights against Co-sureties - ANS Two or more sureties of the same
obligation
1. Exoneration - sue co-sureties so they pay their portion
2. Contribution - After surety pays, he is entitled to contributions from other co-
sureties....calculation is pro-rata... example on pg 5.
Defenses of surety - ANS CPRS -
1. CREDITOR bad faith (defraud, duress, illegal obligation)
2. PAYMENT and tender of payment by principal or third party.
3. RELEASE of principal debtor - creditor releases debtor from debt
4. SURETY'S Incapacity or Bankruptcy
No defenses if:
- fraud by debtor unless creditor knew about it
- Contractual incapacity of surety (i.e. principal claims no contract because he's a
minor...surety can't claim)
- Bankruptcy of principal - surety can't claim
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