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41 Cards in this Set
- Front
- Back
Suretyship (definition)
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a contract where one (surety) assumes the obligations of another (debtor)
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Cast =
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Debtor (aka obligor, principal debtor) +
Creditor (aka obligee) + Surety (personal who backstops the debt of the debtor) |
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Distinguish between __________ and __________ surities
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compensated
gratuitous |
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Compensated Surities
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paid to be a surety
(i.e., building contractors) |
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gratuitous surities
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assume daddy agrees to backstop the debt of Son to Friendly Sam the Auto Man. Is daddy bound? DEPENDS
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Current
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Was Daddy's promise made concurrently with the transfer of the car to sonny?
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If so,
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then Daddy is bound (the consideration is the car)
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Non-current
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Was daddy's promise made after the transfer of the car to sonny?
(dad is an accommodation party) |
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Is daddy bound?
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Not liable, it was a nonnegotiable instrument
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But, if Dad signed a negotiable instrument he is bound b/c
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Code says so
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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? |
If yes, primary obligor (accommodation maker)
[face] |
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Gaurantor (of payment)
When debt is due, must creditor first proceed against debtor? |
If yes, secondary obligor (accommodation indorser)
[back] |
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Guarantor (of collectibility)
When debt is due, must creditor first sue debtor? |
If yes,
[say you're a collector guarantee on front or back] |
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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
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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
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Statue of Frauds applies to
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MY LEGS
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S stands for
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Suretyship
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SoF applies to
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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
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Main Purpose Exception
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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
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Suretyship typically arises by contract, but it can also arise
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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 ___________
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surety by operation of law
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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 |
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Is strict surety entitled to notice of default from creditor?
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No
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Is "strict" surety entitled to have credit first try to collect debt from debtor?
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No
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Can surety require creditor to first utilize security (assuming a security held)?
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No, EXCEPTION ILLINOIS EQUITY (important to surety; unimportant to creditor)
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Can surety designate which debt (if multiple) the creditor must credit (assuming multiple debts, but only one has a surety)?
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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 |
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Rights of Surety against Debtor
Why? |
1. Exoneration
2. Subrogation 3. Reimbursement (Its the debtor's debt) |
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Exoneration
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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 |
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Subrogation
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If total satisfaction by surety; derived creditor right
(if you pay someone's debt, you can force your way in) |
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Reimbursement
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indemnification
any payment a surety makes, he is entitled to get back from the debtor |
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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) |
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Contribution
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any co-surety payment of more than his fair share triggers contribution
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Defenses of Surety
Can a surety use the debtor's defenses? |
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)
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Surety can't use the debtor's defenses where the debtor's defenses are:
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Infancy, Insanity and bankruptcy
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Of course the surety can use the defenses of Infancy, insanity, or bankruptcy if the defenses are
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their own (i.e., the surety's own defenses)
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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
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Effect of variation of risk
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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) |