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21 Cards in this Set

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Types of surety
1 - compensated - $ is the consideration
2 - gratuitous - uncompensated, not paid to make the promise to become liable on the debtor's obligation
Surety - cast of characters!
debtor
creditor
surety
types of gratuitous surety
1. before or current to performance - perf or promise will service as consid for surety's promise

2. Noncurrent - gen no consid.

EXCEPTIONS: 1) obtaining surety is a cond'n precedent (stated in a K), 2) add'l consid - if creditor gives add'l consid for surety's promise, surety will be bound
Surety - types of liability
1. surety (strict surety) - accomodation maker, primary obligation. prom is collateral to someone else's promise to pay (17 yr old who wants car)
2. guarantor (of pymt), aka K of guarantee - cred must go to debtor before guarantor
3. guarantor of collectibility - cred must first SUE debtor before going to guarantor
(3 kinds)
S of F apply? How?
Yes - typically reqs written evid of the promise to answer for the debt of another
Surety S of F exceptions
Exception:
1. Primary promise (where 3rd party makes primary promise to pay; no surety inolved; prom need not be in writing
2. Main purpose - if the main purpose of the surety's prom is his own pecuniary advantage, he will be bound even though there is not writing
2
constructive suretyship
arises by operation of law. where a 3rd pty Ks with debtor to pay creditor and there is no NOVATION (form of substitutive K) the orig debtor becomes a surety by op of law
gratuitous suretyship K will be construed...
against the creditor
compensated or commercial surety will be construed...
strictly against the surety, if commercial surety has provided his own printed form (customary)
surety who signs as principal is entitled to the rts of a surety...(to what extent?)
only as against those persons who know he is signing as a surety
rts of

surety v. creditor
basically none.

- Notice - not entitled to notice of default from creditor
- strict surety not entitled to have red first try to collect from debtor
- BUT NOTE: IL law 740 ILCS 155/1
IL 740 ILCS 155/1
Surety has right to compel creditor to collect from the principal when

1. Prin is likely to become insolvent or leave the state w/out perf the K
2. a rt of action has accrued on the K
3. surety makes written request to the cred to enforce the C of A, and if the cred does not...the surety is fully discharged
rts of

surety v. debtor/principal
arsenal of rts!!!

1. Exoneration - suit to compel pymt
2. Subrogation
3. Reimbursement
Subrogation
- triggered by *total* satisfaction. surety can pay off all debt and then stand in the shoes of the creditor; surety is subrogated to the rts of the creditor
reimbursement
term for sureties (USE THIS, NOT indemnification, tho concept similar) after any payment
surety rts:

surety v. co-sureties
arises by K. One rt can be stronger than another!

1. Exoneration
2. Subrogation
3. Contribution
contribution
(term for co-sureties, USE THIS) like indemnification, after any pymt can go after others for what A pd that was more than A's share
How contribution calculated
surety's share:
1. amt not specified - pro rata share by # of solvent sureties
2. amt specified - each cosurety remains liable for the orig amt stated in agmt

- If one surety obtains security from the prin, she must share it
- cosurety ent to cont from a cosurety even if the cosurety would hae had a defense against the creditor
Defenses of a surety
1. Fraud, duress, nonperf by creditor (never on bar)
2. impossibility - if prin's perf is excused by this, so is surety's
3. Infancy, insanity, bankruptcy - surety can use as it's own defense, but can't use prin's inf/insan/bnkrpt as its defense
4. Discharge of prin's obligation
discharge of a principal's obligation
1. Release
2. Covenant not to sue
3. Indemnified surety (surety w/ security for the amt of liab is not dischgd by a release of the prin b/c he will be fully indemnified from the security)
4. Failure to prevail in suit (both sued and action fails, surety's obl is dischgd)
5. payment
5 ways - RCIFP
Variation of risk - types, effect
types:
1. alteration of K
2. ext of time
3. release of security
4. release of co-surety
5. impairment of collateral

effect -
1. gratuitous - TOTAL dischg!
2. compensated - dischg the surety to extent the surety can show he suffered a loss b/c of the change (Art 3 UCC)