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58697
Cautionary Obligations
Description
Second Year Law Mind Map on Cautionary Obligations, created by katy_mcbride12 on 27/04/2013.
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second year law
second year law
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katy_mcbride12
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katy_mcbride12
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Resource summary
Cautionary Obligations
Constitution and form
Doesn't need to be in writing unless gratuitous unilateral obligation RoW(S)A s1(2)(a)(ii)
All co-cautioners or none are bound (Scottish Provincial Insurance v Pringle)
Misrepresentation
By the Creditor - contractual rules apply. Void/voidable
Creditor does not need to disclose material facts but if they choose to, must disclose fully (Young v Clydesdale Bank)
Have to disclose if aware cautioner is under a misrepresentation (RBS v Greenfields)
By the Debtor - introduced idea of good faith to cautionary obligs. If the creditor is not in good faith, cannot enforce it. Smith v Bank of Scot
Duty of good faith is met if independent legal advice is sought (Forsyth v Bank of Scotland)
Rights of Co-Cautioners
Can get relief from each other excluding insolvents (Buchanan v Main)
Rank on bankrupt estate - if creditor sought payment but not if he's ranking on the estate as well.
Veitch v National Bank of Scotland
If cautioner has guaranteed specific funds then he can pay the creditor and both can rank on the estate for the different debts.
Proper cautioner - pro rato share
Improper cautionary - joint and several liable.
Termination of the obligation
By the cautioner
Only if guarantee continuing with no time limit then can say no to future advances
Must give reasonable time
May have to pay the principal debt
By operation of law
Cautioner's death does not release them
British Linen Co v Monteith - guarentee called on 14 years after cautioner's death
Change in constitution of a partnership under s18
Prescription - 5 years after cautioner was asked to pay
By action of the creditor
Giving time - to pay without cautioner's consent.
Not pressing for immediate payment is not giving time (Hamilton's Exrs v Bank of Scotland)
Creditor can expressly retain right to give time
Alteration of principal debt without consent
If fixed limit, cautioner is not released if debtor is given more money (Huewind v Clydesdale)
If discharge one co-cautioner then all discharged if joint and severally liable.
Creditor who voluntarily gives up security discharges the cautioner to the extent of the security
By extinction of principal debt
Two exceptions to principal debt subsisting (Aitken's Trs v BoS) - bankruptcy and pactum de non petendo (Muir v Cranford)
Pactum - keep right to sue cautioner but not debtor and don't need to notify cautioner
Rule in Clayton's case - money going in is set off against the first debt
Compnsation so set off owed debts
Novation - old debt extinguished and new one. new one is not covered by obligation.
Prescription - 5 years
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