Caution Flashcards
(20 cards)
Q: What is a caution in Jersey law?
A: A caution is a guarantee where a guarantor undertakes to cover the obligations of a principal debtor to a creditor
Q: What is the primary source that Jersey courts rely on when interpreting cautions?
A: The courts rely on Le Gros’ Traité, which dedicates a section to the topic.
Q: Is a caution always created by contract?
A: No. While a caution is usually a contractual arrangement, Le Gros notes that it can also arise by court order or by operation of law.
Q: In what situations is a caution extinguished (ended)?
A: A caution is extinguished when:
The principal debt is discharged (paid off, settled, etc.).
The guarantor performs the obligation.
There is a valid agreement to discharge the guarantor.
The creditor is grossly negligent or involved in fraud.
There is a material variation to the underlying contract that prejudices the guarantor, unless the guarantor consented.
Q: What key case relates to whether a variation of contract releases a guarantor from liability?
A: MAB Investments Ltd v Vibert.
Q: What did the court decide in MAB Investments Ltd v Vibert?
A:
The guarantor had consented to the extension of time.
There was no material variation—just an omission to enforce payment.
The guarantor remained liable to repay the loan.
Q: What is the droit de discussion?
A: It is the principle that a creditor must first exhaust all remedies against the principal debtor before suing the guarantor.
Q: Which authority confirms the droit de discussion in Jersey law?
A: Le Gros, who states:
“les biens du principal obligé doivent être discutés avant ceux de la caution.”
(“The principal debtor’s assets must be pursued before those of the guarantor.”)
Q: Can a guarantor waive the droit de discussion?
A: Yes—in practice, most guarantees require the guarantor to expressly waive this right.
Q: What is the droit de division?
A: It applies when multiple guarantors exist. It allows a guarantor to demand that the creditor divide liability among all co-guarantors, provided they are solvent.
Q: What does Le Gros say about the droit de division?
A: He argues that each guarantor is presumed liable for the full amount, unless they have expressly limited their liability.
Q: In what situation can a guarantor be forced to pay the full debt, even if there are co-guarantors?
A: If the guarantor’s liability was not expressly limited, the creditor can sue them for the entire sum.
Q: How is the droit de division viewed in Jersey law?
A: There is some debate about its validity and scope, but many guarantees override it by stating that guarantors are jointly and severally liable.
Q: How do Jersey courts interpret ambiguous terms in a caution?
A: Any doubts or ambiguities in the caution’s terms are generally resolved in favor of the guarantor.
Q: What was the key argument made by the guarantor in MAB Investments Ltd v Vibert?
A: The guarantor claimed that the creditor had materially varied the contract by giving the debtor more time to pay, thereby discharging the guarantor’s obligation.
Q: What is subrogation in the context of a caution?
A: If the guarantor pays the creditor, they may automatically (per Le Gros) be subrogated—meaning they take over all the creditor’s rights against the debtor or any other liable parties.
Q: Can a court hold a principal debtor and a guarantor jointly and severally liable under Jersey law?
A: No—because of the droit de discussion, the creditor must proceed against the debtor first (unless the debtor is insolvent).
Q: What are the two key defences a guarantor may use in Jersey law?
A:
Droit de discussion – requiring the creditor to go after the debtor first.
Droit de division – requiring the creditor to split the debt among co-guarantors.
Q: How are droit de discussion and droit de division typically treated in practice?
A: In modern financial transactions, guarantors are often required to waive both rights in the guarantee contract.
Q: What are the two key defences a guarantor may use in Jersey law?
A:
Droit de discussion – requiring the creditor to go after the debtor first.
Droit de division – requiring the creditor to split the debt among co-guarantors.
