Question

Which of the following events will release a noncompensated surety from liability?

1) The principal defaults on the underlying obligation
2) The surety dies
3) The surety becomes bankrupt
4) The principal pays off the underlying obligation

Answer 1

A noncompensated surety can be released from liability when the principal pays off the underlying obligation.

Step-by-step explanation:

A noncompensated surety can be released from liability when the principal pays off the underlying obligation. The surety is initially liable for the debt if the principal fails to fulfill their obligations. However, once the principal pays off the debt, the surety's responsibility ends.

For example, if a person acts as a surety for a loan, and the borrower repays the loan in full, the surety is no longer liable for any outstanding debt.

It's important to note that this principle applies to noncompensated sureties. Compensated sureties may have different conditions and terms of liability release.