James was the guarantor for a loan Edward had at the bank. Edward had also pledged a coin collection as security for the loan. The loan came in default, so James made the remaining payments. Who gets the coin collection?

Question

Quizplus · Accepted Answer

As the guarantor, James has the right of subrogation, which means he has the right to claim the coin collection as his own in order to recover the payments he made on Edward's behalf. The fact that James made the payments indicates that the loan was not fully paid up by Edward, so he does not get the coin collection. The bank also does not have a claim to the coin collection, as it was pledged only as security for the loan and not as collateral that would transfer ownership to the bank in the event of default. The right of set-off would apply if James owed money to Edward and could use the coin collection to offset that debt, but that is not the case here. The coin collection was not provided as consideration for the guarantee - the guarantee was likely provided based on a pre-existing relationship between James and Edward, and the coin collection was simply security for the loan.

James Was the Guarantor for a Loan Edward Had at the Bank