Legal Definitions - right of discussion

The right of discussion is a legal principle, primarily found in Scots law, that allows a guarantor (someone who promises to pay a debt or fulfill an obligation if the primary debtor fails to do so) to insist that the creditor first attempt to recover the debt or enforce the obligation against the primary debtor's assets before pursuing the guarantor. It essentially means the guarantor can demand that the primary debtor's resources are "discussed" or exhausted first.

Here are some examples to illustrate this concept:

• Business Loan Guarantee:

  Imagine a small business owner, Maria, takes out a loan from a bank to expand her bakery. Her friend, David, agrees to be a guarantor for the loan, meaning he promises to pay if Maria cannot. If Maria's business faces unexpected difficulties and she defaults on her loan payments, the bank would typically turn to David for the money.

  How it illustrates the term: If David has the right of discussion, he can legally require the bank to first attempt to recover the outstanding loan amount from Maria's business assets. This might involve selling bakery equipment, collecting outstanding invoices owed to the bakery, or using any other available funds from Maria's business, before the bank can demand payment from David personally.

• Rental Agreement Surety:

  Consider a university student, Liam, who is renting an apartment. Since Liam has limited income, his parents, Mr. and Mrs. Davies, sign a surety agreement, guaranteeing that they will cover the rent if Liam fails to pay. After a few months, Liam falls behind on his rent payments.

  How it illustrates the term: If Mr. and Mrs. Davies have the right of discussion, they can insist that the landlord first try to recover the unpaid rent directly from Liam. This could involve using Liam's security deposit, pursuing any wages Liam might earn, or seeking payment from other assets Liam possesses, before the landlord can demand the full outstanding amount from Mr. and Mrs. Davies.

• Construction Project Performance Bond:

  A city council hires "MegaBuild Corp." for a major public construction project. To ensure the project's completion, a separate surety company, "Reliable Bonds Inc.," provides a performance bond. This bond guarantees that if MegaBuild Corp. fails to complete the project, Reliable Bonds Inc. will step in to ensure it gets finished. MegaBuild Corp. later experiences severe financial problems and cannot continue the work.

  How it illustrates the term: If Reliable Bonds Inc. has the right of discussion, it can demand that the city council first attempt to recover costs or complete the project using any remaining funds, materials, or equipment that MegaBuild Corp. still possesses or has on site. Only after these primary resources have been pursued and exhausted would Reliable Bonds Inc. be fully obligated to cover the remaining costs of completing the project.