Suretyship

Front 1

Suretyship (definition)

Back 1

a contract where one (surety) assumes the obligations of another (debtor)

Front 2

Cast =

Back 2

Debtor (aka obligor, principal debtor) +
Creditor (aka obligee) +
Surety (personal who backstops the debt of the debtor)

Front 3

Distinguish between __________ and __________ surities

Back 3

compensated
gratuitous

Front 4

Compensated Surities

Back 4

paid to be a surety
(i.e., building contractors)

Front 5

gratuitous surities

Back 5

assume daddy agrees to backstop the debt of Son to Friendly Sam the Auto Man. Is daddy bound? DEPENDS

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Current

Back 6

Was Daddy's promise made concurrently with the transfer of the car to sonny?

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If so,

Back 7

then Daddy is bound (the consideration is the car)

Front 8

Non-current

Back 8

Was daddy's promise made after the transfer of the car to sonny?
(dad is an accommodation party)

Front 9

Is daddy bound?

Back 9

Not liable, it was a nonnegotiable instrument

Front 10

But, if Dad signed a negotiable instrument he is bound b/c

Back 10

Code says so

Front 11

Another way to divide up suretyship

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1. Surety (strict)
2. Guarantor (of payment) [generic]
3. Guarantor (of collectibility) [generic]

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Strict Surety
When debt is due, can a credior proceed against debtor and/or surety?

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If yes, primary obligor (accommodation maker)
[face]

Front 13

Gaurantor (of payment)
When debt is due, must creditor first proceed against debtor?

Back 13

If yes, secondary obligor (accommodation indorser)
[back]

Front 14

Guarantor (of collectibility)
When debt is due, must creditor first sue debtor?

Back 14

If yes,
[say you're a collector guarantee on front or back]

Front 15

If you have a roommate that wants you to cosign on auto purchase, if you had to do it, sign as a guarantor of collection

Back 15

that way they have to sue roommate first before coming to you

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But creditor wants you to be a strict surety

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so they can come to you (the surety) first

Front 17

Statue of Frauds applies to

Back 17

MY LEGS

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S stands for

Back 18

Suretyship

Front 19

SoF applies to

Back 19

all suretyships (strict or generic) even a 1cent suretyship

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Exception to SoF applying to suretyship:

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"Main Purpose" Exception

Front 21

Main Purpose Exception

Back 21

Where main purpose of the surety's promise is to benefit the surety and not debtor, he is bound thought the promise is oral

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Example of Main Purpose Exception

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I am having a house built by a contractor. But the material man is worried about contractor going belly up. So I say deliver the materials to the contractor, I'll guarantee you get paid. Main purpose was to get my house built, not to help the contractor

Front 23

Suretyship typically arises by contract, but it can also arise

Back 23

by operation of the law (constructive sureties)

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Where a third person contracts with debtor to pay creditor and there is no novation, the original debtor becomes a ___________

Back 24

surety by operation of law

Front 25

Rights of Strict Surety against a creditor

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1. No Notice Rights
2. No compelling of collection
3. No application of security held (IL EXCEPTION)
4. No application of funds

Front 26

Is strict surety entitled to notice of default from creditor?

Back 26

No

Front 27

Is "strict" surety entitled to have credit first try to collect debt from debtor?

Back 27

No

Front 28

Can surety require creditor to first utilize security (assuming a security held)?

Back 28

No, EXCEPTION ILLINOIS EQUITY (important to surety; unimportant to creditor)

Front 29

Can surety designate which debt (if multiple) the creditor must credit (assuming multiple debts, but only one has a surety)?

Back 29

No. the debtor determines which debt a payment covers.
If debtor sends a check and doesn't say which debt to pay off, then the creditor designates which one it is

Front 30

Rights of Surety against Debtor
Why?

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1. Exoneration
2. Subrogation
3. Reimbursement
(Its the debtor's debt)

Front 31

Exoneration

Back 31

Suit to compel payment
As soon as debt is due and owing, the surety can sue the debtor saying pay now
A surety doesn't have to be out of pocket at all to compel payment

Front 32

Subrogation

Back 32

If total satisfaction by surety; derived creditor right
(if you pay someone's debt, you can force your way in)

Front 33

Reimbursement

Back 33

indemnification
any payment a surety makes, he is entitled to get back from the debtor

Front 34

Rights of a surety against Co-sureties (100% contractual) (joint + severally liable)

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1. Exoneration (suit to compel)
2. Subrogation (if total staisfaction)
3. Contribution (if one co-surety pays more than his fair share)

Front 35

Contribution

Back 35

any co-surety payment of more than his fair share triggers contribution

Front 36

Defenses of Surety
Can a surety use the debtor's defenses?

Back 36

yes and no

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Surety can use the debtor's defenses where

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the creditor is a crook (unclean hands, fraud, undue influence)

Front 38

Surety can't use the debtor's defenses where the debtor's defenses are:

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Infancy, Insanity and bankruptcy

Front 39

Of course the surety can use the defenses of Infancy, insanity, or bankruptcy if the defenses are

Back 39

their own (i.e., the surety's own defenses)

Front 40

Types of variation of risk

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alteration of K between debtor and creditor, extension of time, release of security, release of co-surety, impairment of collateral, non filing under article 9

Front 41

Effect of variation of risk

Back 41

Gratuitous surety -- off the hook
Compensated surety (or article 3) -- pro tanto discharge (discharge to the extent you can show you suffered a loss b/c of the change)