Suretyship

Front 1

Is a surety directly liable on the obligation?

Back 1

Yes. The creditor need not go first to the debtor.

Front 2

Is a guarantor directly liable on the obligation?

Back 2

No. The creditor can go after the guarantor only if the debtor defaults.

Front 3

What is a guarantor of collectibility?

Back 3

A person who promises to pay the obligation of the debtor only if the creditor is unable to collect from the debtor after exhausting all legal remedies, including demand, suit, judgment and exhaustion of all supplementary proceedings.

Front 4

How can a gratuitous surety get out of the obligation?

Back 4

If the creditor does anything to vary the risk that the surety assumed.

Garatuitous sureties are "favorites of the law."

Front 5

What is the other kind of surety?

Back 5

A compensated surety.

Front 6

Is a surety's promise enforceable?

Back 6

Only if it is supported by consideration.

Front 7

How can a gratuitous surety have consideration?

Back 7

The only consideration is the creditor's promise to or performance for the debtor.

Thus, if the creditor performs BEFORE the gratuitous surety, there is no consideration, and the promise is unenforceable.

Front 8

What is the exception to the above rule?

Back 8

If the creditor gives additional consideration in exchange for the surety's promise.

Front 9

Does the SOF apply to sureties?

Back 9

Yes, IF it's collateral to another person's promise to pay.

Also, there is the main purpose exception.

Front 10

How is a gratuitous surety construed?

Back 10

Against the creditor.

Front 11

When can a surety compel collection by the creditor?

Back 11

1. The surety apprehends that the principal is likely to become insolvent or leave the state without paying, AND
2. A right of action has accrued on the contract.

Front 12

How can a surety compel the creditor to act?

Back 12

Must make a WRITTEN request to the creditor. If the creditor does not proceed with due diligence, the surety is fully discharged. If there are several sureties, only the ones who acted will be discharged.

Front 13

What else can sureties force creditors to do?

Back 13

Apply the value of security held to reduce the debt, if it can be shown that the principal won't pay and enforcing the security is not unreasonable.

Front 14

What if the debtor has several debts to creditor, only one of which is guaranteed by surety?

Back 14

Surety has no power to force creditor to credit payments to his debt, unless the principal explicitly directed it.

Front 15

What is a suit for exoneration?

Back 15

If the principal does not perform, surety may bring a suit in equity to compel him to pay the creditor.

Front 16

May surety be subrogated against debtor?

Back 16

Yes, if he paid debtor's debts. This includes being able to after security and any priority in bankruptcy that the creditor enjoyed.

Front 17

If a creditor goes after one of several sureties, can surety bring the others in?

Back 17

Yes, through a suit for exoneration.

Front 18

Is a surety entitled to contribution from co-sureties?

Back 18

Yes, for a pro rata share determined by the number of SOLVENT sureties.

If one surety pays more than her pro rata share (since she agreed to be a surety for a certain amount), she can get contribution to get back to pro rata.

Front 19

What if one surety obtains security from the principal?

Back 19

She has to share it with her co-sureties.

Front 20

Is a surety entitled to contribution from a co-surety, even if the co-surety would have had a defense in an action by the creditor?

Back 20

Yes.

Front 21

What if a surety had a defense but paid anyway? Can she get contribution?

Back 21

No. She's a "volunteer" and not entitled to contribution.

Front 22

What are defenses of a surety?

Back 22

Forged signature; defrauded principal; duress upon principal; illegality of principal's obligation; nonperformance by creditor; impossibility; discharge of principal's obligation (release, covenant not to sue, failure to prevail in suit).

Front 23

Does modification of creditor-debtor agreement let compensated surety off the hook?

Back 23

ONLY if he can show that the parties made a material change, without his consent, that increased his risk.

Front 24

If the creditor gives the debotr additional time to pay, does this release the gratuitous surety? The compensated surety?

Back 24

Gratuitous surety: yes, it releases him.

Compensated surety: it's discharged to the extent of a resulting injury.

Front 25

When is an agreement to extend time binding?

Back 25

If it meets all the requirements for contract formation.

Front 26

Anything special about the UCC and agreement to extend time for performance?

Back 26

Agreements to extend time will discharge surety to the extent the surety can show a loss.

Front 27

What happens if the creditor releases security?

Back 27

The surety is discharged in the amount of the value of the security released. However, if the security is lost to the creditor's inaction (e.g., didn't perfect it), surety is not discharged unless the creditor promised to use diligence.

Front 28

What if the creditor is negligent in enforcing the security?

Back 28

The surety is discharged in the amount of decrease of the value.

Front 29

What if the creditor refuses to take payment from the debtor?

Back 29

The surety is discharged.

Front 30

What are NOT defenses of a surety?

Back 30

1. Fraud, misrepresentation, duress upon surety BY PRINCIPAL.
2. Incapacity of principal.
3. Bankruptcy of principal.