Contrast a surety arrangement with a guaranty arrangement.
What will be an ideal response?
In a strict surety arrangement, a third person-known as the surety or co-debtor-promises to be liable for the payment of another person's debt. A person who acts as a surety is commonly called an accommodation party or co-signer. Along with the principal debtor, the surety is primarily liable for paying the principal debtor's debt when it is due. The principal debtor does not have to be in default on the debt, and the creditor does not have to have exhausted all its remedies against the principal debtor before seeking payment from the surety.
In a guaranty arrangement, a third person, the guarantor, agrees to pay the debt of the principal debtor if the debtor defaults and does not pay the debt when it is due. In this type of arrangement, the guarantor is secondarily liable on the debt. In other words, the guarantor is obligated to pay the debt if the principal debtor defaults on the debt and the creditor has unsuccessfully been able to collect the debt from the debtor.
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