CPA Regulation (REG) : Surety Agreements
Study concepts, example questions & explanations for CPA Regulation (REG)
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Example Questions
Example Question #11 : Cpa Regulation (Reg)
Brown cosigned Royal's $50,000 note to State Bank. If Royal is later adjudicated mentally incompetent, what would be Brown's liability on the note?
Not liable to pay State because Royal’s incompetency discharges Royal as a surety.
Not liable to pay State unless Brown was a compensated surety.
Liable to pay State on the due date of the note.
Liable to pay state only if State first seeks payment from Royal.
Not liable to pay State because Royal’s incompetency discharges Royal as a surety.
Any contract made by a party legally deemed incompetent is voidable, and a voided contract would release the liability of all parties involved.
Example Question #12 : Cpa Regulation (Reg)
Which of the following rights does a surety have?
I. Right to compel the creditor to collect from the principal debtor
II. Right to compel the creditor to proceed against the principal debtor’s collateral
Neither I or II
Both I and II
II only
I only
Neither I or II
As a rule, a surety generally has no rights to compel the creditor to collect from the principal debtor. Such rights are only available to a guarantor of collectability, who is liable only if the creditor has exhausted all other legal remedies.
Example Question #1 : Surety Agreements
Which of the following events will release a noncompensated surety from liability?
Insanity of the principal debtor at the time the contract was entered into with the creditor.
Modification by the principal debtor and creditor of their contract that materially increases the surety’s risk of loss.
Filing of an involuntary petition in bankruptcy against the principal debtor.
Release of the principal debtor’s obligation by the creditor but with the reservation of the creditor’s rights against the surety.
Modification by the principal debtor and creditor of their contract that materially increases the surety’s risk of loss.
A non-compensated (or gratuitous) surety is bound to the contract if he or she makes a promise to act as a surety prior to consideration changing hands from the creditor to the debtor. A gratuitous surety is released from liability only in a change of the original contract.
Example Question #13 : Cpa Regulation (Reg)
Per the Federal Fair Debt Collection Practices Act, which of the following would a collection service using improper debt collection practices be subject to?
Civil lawsuit for damages for violating the act
Abolishment of the debt
Reduction of debt
Criminal prosecution for violating the debt
Civil lawsuit for damages for violating the act
The FDCPA gives parties injured by unfair collection practices the right to sue for damages. It does not provide for any of the other answers given.
Example Question #11 : Cpa Regulation (Reg)
Of the following defenses, which would a surety be able to assert successfully to limit the surety’s liability to a creditor?
The incapacity of the surety
A personal defense the principal debtor has against the creditor
A discharge in bankruptcy of the principal debtor
The incapacity of the principal debtor
The incapacity of the surety
A surety may raise his or her own contract defenses to limit his or her liability, thus the surety’s own incapacity is a defense to the surety promise.
Example Question #4 : Surety Agreements
Of the following rights and liabilities, which does a surety have?
Liability on debt agreed to backstop
Right to compel the creditor to collect from a principal debtor
Liability on any debt decided by the creditor
Right to compel the creditor to proceed against the principal debtor’s collateral
Liability on debt agreed to backstop
A surety does not have the rights listed, as the surety acts to back up the debts of another party. Thus, the surety would have the liability on debt they agreed to backstop.
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