cautionary obligations

Question 1

what is cautionary obligation?

Answer 1

basically a security that an obligation will be fulfilled.

Question 2

what is a garuntor?

Answer 2

someone who agrees to pay if you dont pay it

Question 3

what is the three way relationship?

Answer 3

principle debtor who should be giving the money in the first place owes a duty to the creditor who is giving the money. if this fails then the guarantor or cationer will be liable to pay the debt. the cationer is liable to the creditor not the debtor.

Question 4

what kind of security is this creating?

Answer 4

this is a personal security, not a real security. so about having an extra person or persons to sue.

Question 5

who does the creditor go after if the principle debtor can’t pay?

Answer 5

the garuntor or the cationer

Question 6

if the cationer pays the debt of the main debtor how do they obtain compensation?

Answer 6

the cationer can go after the main debtor for relief. might be less if they are default

Question 7

if cationer 1 pays all of the debt, how do they get relief?

Answer 7

cationer 1 can go after cationer 2 for the rest of the money already paid.

Question 8

how might the cationer going into the creditors shoes help the cationer?

Answer 8

the cationer may then recieve the rights of the creditor and if the creditor had a real security over the property of the creditor then the cationer may be able to take hold of this property for payment.

Question 9

what does accessory cation mean?

Answer 9

if the main obligation does not exist towards the creditor then the cationer is not bound

Question 10

there are two parties who are jointly and severally liable for something. and only one is paying for it are they a cationer?

I will pay that car for her?

If they fail to keep with the payments i will pay

Answer 10

yes they are a cationer.

no they are not

yes they are.

Question 11

whats the difference between proper and improper cation?

Answer 11

proper cation is where they say “i will pay on their behalf or i am the cationer”

improper cation is where the words jointly and severally are used. it means you can sue me for the whole amount.

Question 12

what is the benefit of division and who does it apply to?

Answer 12

This is where if there is multiple cationers who is a proper cationer (they have expressly said that they are a cationer) then they can reduce their liability to a percentage such as 50% so you can only sue me for 50% of the money.

Question 13

what are the protections/ things a cautioner needs to do before they enter into the cationary agreement?

Answer 13

they need to sign their name in conformity with the requirments of writing scotland act 1995 by signing their name.

Question 14

what case showed that if one person does not sign a cation document but has their name down for it then all the cationers are released?

Answer 14

paterson v bonar

all must sign for anyone to be bound. only applies if the document says the names of the people

Question 15

what if there is misrepresentation by the creditor? what if there is undue influence?
what happens if the principle debtor misleads the cautioner?
what is the case law which shows misrepresentation?

Answer 15

then the obligation can be set aside and the cationers are not bound. this is a voidable contract, so just like in contract law.

if the cautioner is misled by the debtor then this has no effect on the creditors rights. for misrepresentation to have effect, it needs to be done by the creditor.

young v clydesdale bank- brother (the debtor) said that the cautioners debts was capped at a certain number however this was not true however the cautioner was still liable for the debt as the creditor was innocent.

Question 16

is the cautioners contract with the principle debtor or the creditor?

Answer 16

the contract is with the creditor

Question 17

1. must the creditor tell the absolute truth?
2. what if the cautioner says something which makes it clear that he does not know what he is talking about?
3. what if the creditor misleads the cautioner?

Answer 17

yes they must be highly accurate. if not then this is a misrepresentation. e.g. only telling one of the debts the main debtor has if asked.

2. if the cautioner does not know as much as he should then the creditor is obliged to put him right.
3. misrepresentation

voidable.

Question 18

what happens if a family partner is the cautioner and the debtor misleads the cautioner? like the wife? what is the case? intimate relationship.

Answer 18

Smith v Bank of Scotland - garuntee had to be set aside. innocent creditor lost its garuntee. said that it needs to be an intimate relationship.

must be gratuitous, must be misrepresentation, duty to tell them to seek independent legal advice. basically to warn them..

Question 19

what is the difference between the benefit of division and whole and several liability?

Answer 19

benefit of division is where the cautionary can limit or cap their liability to a certain percentage like 50% if there are two cautioners.
whole and several liability means everyone is liable for 100% (the cautioners) and they can go after the other cautioners for the money they paid.

Question 20

rule and case around capped or ongoing credit facility

Answer 20

this is seen in Caledonia Banking Co v Kennedy’s Trustees where this is a continuing garuntee, granted in respect of a business, so might be a continuing garuntee.

Question 21

right of relief

Answer 21

cautioner has a right of relief of 100% against the main debtor. for a right of relief to work, there needs to be a need to pay the money, so if there is no need to pay the money for example the parents pay the landlord before he asks for the money. the debt needs to be due but you do not need to be taken to court by the creditor.

Question 22

right of pro rata relief.

Answer 22

so the debtor is insolvent.

cautioner may want to sue the other cautioners who have not paid as much

Question 23

example where the cautioner completed the building?

Answer 23

Marshall v Penman

cautioner sought relief for the work they done. court held that the cautioner was entitled to relief.

Question 24

case where debt was not due

Answer 24

Moss v Pennycook

paying cautioner was entitled to relief as although neither of them had been sued they were both at risk of being sued.

Question 25

what if the cautioners are liable for the same debt but they have not agreed to a right of relief from each other?

Answer 25

does not matter no agreement needs to be made.

Question 26

what if one of the cautioners is insolvent?

Answer 26

the rest of the cautioners pay.

Question 27

what is assignation of debt?

kind of like a right to total relief.

Answer 27

stepping into the creditors shoes.
cautioner can sell the watch if the cautioner is a proper cautioner and can get the real security and sell this real security like a watch or something.
this can only be enforced if the creditor has been paid in full for the guaranteed debt as the creditor must be paid first.

Question 28

what happens if the cautioner is only liable to £50 and the principle debtor is owed £150? garuntees the payment of £50

Answer 28

cannot be entitled to an assignation to be paid back, nor does he rank on the pecking order of getting back his money.

Question 29

what can cause a cautioner to be released from their obligations?

Answer 29

1. if the principle debtor has no more liability then the cautioner is not liable either.
2. if the debtor is liable for obligation x and this changes to y then the cautioner is no longer bound.
3. after 5 years, the cautioner will no longer be liable through prescription.
4. continuing garunte with no time limit. indefinitely bound. in this case you can pull out of this garunte whenever you want. cannot do the if there is a fixed payment date.
5. if the debtor pays the debt then the obligation is released.

Question 30

what happens if a creditor gives back a security to the debtor like a real security? what does this mean for the cautioner?

Answer 30

they have prejudiced the cautioner and so the cautioner is released from their obligations. possibility that the cautioner might want a right of relief.

Question 31

what happens if the creditor voluntarily releases one of the cautioners from their debt?

Answer 31

then all the other cautioners are released from their debts.

Question 32

giving time? is this a positive or negative thing?

Answer 32

where the creditor gives the debtor more time to pay the debt.

if the creditor does this without asking the cautioners permission then the cautioner will be released from their duty automatically. this is because it is seen as unfair if there is a cloud hanging over the cautioners head.