Forbearance to Sue in Banking Contracts of Guarantee

Forbearance to sue is an agreement by the creditor not to sue the principal debtor for their debts. This can be a way to discharge the surety from their liability.

In a banking contract of guarantee, the forbearance to sue may be express or implied. An express forbearance to sue is an agreement that is explicitly stated in the guarantee agreement. An implied forbearance to sue is an agreement that is inferred from the circumstances.

Forbearance to sue can be a way to discharge the surety from their liability because it can be considered as a waiver of the creditor’s right to sue the principal debtor. If the creditor waives their right to sue the principal debtor, the surety is no longer liable to the creditor for the principal debtor’s debts.

MCQs on Forbearance to Sue in Banking Contracts of Guarantee

  1. Which of the following is not a way forbearance to sue can be discharged?
    • The creditor can sue the principal debtor.
    • The surety can sue the principal debtor.
    • The guarantee agreement can be terminated.
    • The principal debtor can pay off their debt.
    • Answer: The surety can sue the creditor. The surety cannot sue the creditor because the surety is not a party to the contract between the creditor and the principal debtor.
  2. An express forbearance to sue is an agreement that is explicitly stated in the guarantee agreement. Is this always true?
    • No, this is not always true. An express forbearance to sue can also be contained in a separate document.
  3. An implied forbearance to sue is an agreement that is inferred from the circumstances. What are some examples of circumstances that can imply a forbearance to sue?
    • The creditor has not sued the principal debtor for a long time.
    • The creditor has agreed to reschedule the principal debtor’s payments.
    • The creditor has accepted partial payments from the principal debtor.
    • The creditor has told the surety that they will not sue the principal debtor.
  4. Forbearance to sue can be a way to discharge the surety from their liability. Is this always true?
    • No, this is not always true. Forbearance to sue can only discharge the surety from their liability if it is reasonable and equitable to do so.
  5. The surety can sue the creditor if the creditor breaches the forbearance to sue agreement. Is this always true?
    • No, this is not always true. The surety may only be able to sue the creditor if they have suffered damages as a result of the breach.