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.

Question

Quizplus · Accepted Answer

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.

Which of the Following Statements About Collateral Contracts Is True