Guarantee of Payment vs Collection Explained

A guarantee of payment and a collection process may seem like two sides of the same coin, but they serve different purposes. A guarantee of payment is a promise from a third-party to pay for goods or services if the buyer fails to do so.

In essence, a guarantee of payment is a form of credit protection for the seller. It ensures that they will receive payment even if the buyer defaults. This can be especially useful for small businesses or entrepreneurs who may not have the resources to deal with non-paying customers.

A guarantee of payment can come in various forms, including letters of credit, bank guarantees, and performance bonds. Each type of guarantee has its own advantages and disadvantages, and the choice of which one to use will depend on the specific needs of the seller and the buyer.

For example, a letter of credit is a guarantee that the bank will pay the seller if the buyer fails to pay.

A guarantee is a form of surety governed by state law, specifically requiring a writing unless it meets the "main purpose rule" where the guarantor has a direct, immediate, pecuniary interest in the subject matter of the contract. This exception is applied in cases like Burlington Industries, Inc. v. Foil.

In North Carolina, guarantees are subject to the statute of frauds, which means they must be in writing unless they meet the main purpose rule. The main purpose rule applies when the guarantor has a direct, immediate, pecuniary interest in the contract.

There are two types of guarantees: a guarantee of payment and a guarantee of collection. A guarantee of payment is an absolute promise to pay the debt at maturity if not paid by the principal debtor, as seen in Credit Corp. v. Wilson.

A guarantee of payment is an unconditional promise, separate and independent from the principal debtor's obligation. This means the creditor can pursue the guarantor immediately upon the principal debtor's failure to pay, as stated in Investment Properties v. Norburn.

On the other hand, a guarantee of collection is a promise to pay the debt on condition that the creditor first diligently prosecutes the principal debtor without success, as mentioned in Credit Corp. v. Wilson.

The collection process is a crucial step in recovering payment from a debtor.

A notice of default is typically sent to the debtor before initiating the collection process, giving them a chance to rectify the situation.

The collection process can be initiated through a debt collection agency, which charges a fee for its services, or through in-house collection efforts, which can be more cost-effective.

In some cases, the creditor may choose to file a lawsuit to recover the debt, which can be a lengthy and costly process.

Don't rush into the collection process without knowing the basics.

The first step in the collection process is to verify the debt, which can take up to 30 days. This is a crucial step, as it ensures that the debt is legitimate and that the collector has the right to collect it.

Collectors must also provide proof of the debt, which can be a copy of the original contract or a statement from the creditor.

The Fair Debt Collection Practices Act (FDCPA) requires collectors to be transparent about the debt and the amount owed, including any fees or interest.

This means that collectors must provide clear and concise information about the debt, including the original amount borrowed, any payments made, and the current balance.

Collectors can't use high-pressure tactics to get you to pay, and they must give you time to respond to their requests.

Debtor Walter Daniel Croney, Jr. was a member of Cowboy Campsite LLC, which borrowed $705,000 from Business Bank on August 4, 2008.

The loan was secured by real property owned by the LLC, but not by the debtor personally. The loan was guaranteed by each member of the LLC, including the debtor.

Notice of default was sent to Cowboy's members on May 10, 2010, and a general receiver was appointed for the LLC in June 2010.

Debtors filed a petition for relief under Chapter 13 on January 27, 2011, listing Business Bank as a secured creditor on Schedule D.

The claim was listed as being in an unknown amount, secured by property owned by Cowboy. Business Bank was not listed on Schedule F, where debtors listed $96,999.64 in general, unsecured debt.

Business Bank filed its Motion to Dismiss on March 16, 2011, arguing that it holds a general unsecured claim against the debtors.

Real estate loans are often secured by the property itself, which means the lender can take possession of the property if the borrower defaults on payments. This is why real estate loans are considered lower-risk for lenders.

Borrowers typically need to make a down payment of 20% or more to secure a conventional real estate loan, but some loans offer lower down payment options. This can be a major advantage for first-time homebuyers.

A real estate loan can be a 15-year or 30-year loan, and the interest rate may be fixed or variable. Borrowers should carefully consider their financial situation and goals before choosing a loan term and interest rate.

Real estate loans can be used to purchase a primary residence, second home, or investment property. This flexibility makes real estate loans a popular choice for many homebuyers.

The interest rate on a real estate loan is determined by the borrower's credit score, loan term, and other factors. Borrowers with excellent credit scores may qualify for lower interest rates.

Real estate loans often have fees associated with them, such as origination fees and closing costs. Borrowers should factor these costs into their budget when calculating their monthly payments.

A guarantee of payment is an absolute and unconditional promise to pay the debt at maturity if not paid by the principal debtor.

In North Carolina, a guarantee is subject to the statue of frauds and must be in writing, unless the "main purpose rule" applies. This exception applies where the guarantor has a direct, immediate, pecuniary interest in the subject matter of the principal debtor's contract.

A guarantee of payment is separate and independent from the obligation of the principal debtor. This means the creditor can pursue the guarantor immediately upon the failure of the principal debtor to pay the debt at maturity.

The creditor does not need to first pursue the principal debtor without success before seeking payment from the guarantor. This is a critical distinction, as it can affect the creditor's ability to collect from the guarantor if the principal obligor is in bankruptcy.

In North Carolina, there is a specific statute that governs guarantees, N.C. Gen. Stat. § 22-1, which states that a guarantee must be in writing, with a few exceptions. The "main purpose rule" is one of these exceptions, which applies when the guarantor has a direct, immediate, pecuniary interest in the subject matter of the principal debtor's contract.

If a creditor is the beneficiary of a collection guarantee, the automatic stay of § 362 may prevent them from seeking payment from the debtor if the conditions precedent for collection have not been met.

In North Carolina, the law governing guarantees is governed by state law, specifically N.C. Gen. Stat. § 22-1. A guarantee must be in writing, unless it falls under the "main purpose rule", which allows for oral guarantees when the guarantor has a direct, immediate, pecuniary interest in the contract.

The primary types of guarantees are guarantee of payment and guarantee of collection. A guarantee of payment is an absolute promise to pay the debt at maturity, whereas a guarantee of collection is a promise to pay the debt on condition that the creditor first diligently prosecutes the principal debtor without success.

The distinction between these two types of guarantees is crucial, especially in cases involving bankruptcy. If a creditor is the beneficiary of a collection guarantee, they may be precluded from collecting from the guarantor if the conditions precedent for collection have not been met, due to the automatic stay of § 362.

There are several types of guarantees that can be included in a contract. A performance guarantee ensures that the seller will complete the work or deliver the goods as promised.

A payment guarantee, on the other hand, ensures that the buyer will pay for the goods or services received. This type of guarantee is often provided by a third party, such as a bank.

A guarantee can also be a warranty, which is a promise to repair or replace faulty goods. This type of guarantee is often provided by the manufacturer or seller.

In some cases, a guarantee can be a promise to achieve a specific result, such as a guarantee of a certain level of performance. This type of guarantee is often used in service contracts.

A guarantee is a form of surety, and its basic terms are governed by state law.

It's essential to understand that a guarantee is subject to the statue of frauds, which means it must be in writing, unless the "main purpose rule" applies. This exception occurs when the guarantor has a direct, immediate, pecuniary interest in the subject matter of the principal debtor's contract.

When drafting a guarantee, make sure to specify whether it's a guarantee of collection or a guarantee of payment. A guarantee of payment is an absolute and unconditional promise to pay the debt at maturity if not paid by the principal debtor.

A guarantee of payment is separate and independent from the obligation of the principal debtor, meaning the creditor can pursue the guarantor immediately upon the failure of the principal debtor to pay the debt at maturity.

If you're dealing with a debtor in bankruptcy, it's crucial to distinguish between the two types of guarantees. If the principal obligor is a debtor in bankruptcy, a creditor may be precluded from collecting from the guarantor if they're the beneficiary of a collection guarantee.