2. Rights and duties

Question 1

What is the framework for a suretyship issue?

Answer 1

1. Am I a surety? What is my obligation: type of S; K issues affecting enforceability
2. Can I avoid my obligation or any part of it: S rights against creditor/oblige; S exoneration rights against principal and co-sureties; Before the surety performs
3. If I have to pay, what next: reimbursement, subrogation & contribution; After the S performs

Question 2

Surety rights against creditor/obligor

Answer 2

S can demand that C seek payment directly from principal or proceed against any collateral

Requirements: Don’t Wait or Neglect Themis: (1) obligation must be due and payable, (2) demand must be in writing, (3) the S must notify the co-S or co-G in writing, (4) Co-S have 10 days to join the notice or file a similar notice against the creditor

If C fails to comply w/in 30 days, S are discharged to the extent they were prejudiced by such failure

Question 3

What are the surety rights against the debtor/principal?

Answer 3

Exoneration: before S performs, S may bring suit against principal to compel performance

Reimbursement: after S performs, S may demand reimbursement from principal for any amount including expenses that S paid to C . However, if principal is not liable on underlying debt (BK, K defense) principal will generally not have a duty to reimburse.

Question 4

Surety rights against co-surties

Answer 4

Exoneration: before the S performs: can compel co-S to pay pro rata share

Contribution: after the S performs: can receive contribution from Co-S;

If one co-S is insolvent, others may be req to take on pro rata share;

If one co-S has a defense against the C that the others do not have, the co-S w/ the defense will not be liable for contribution only if she did not consent to the other co-S becoming co-S

Subrogation: after the S performs in full: S is subrogated to C’s rights and may seek payment from co-S to recover pro rata share.

Question 5

Surety’s Defenses

Answer 5

5. Surety’s Defenses
   Can raise most defenses that principal would have on the theory that S isn’t liable unless principal is; except personal defenses: incompetency/incapacity, bk, infancy.

S can raise own K based defenses. If entered into K by fraud, duress or misrepresentation, S can’t assert against innocent creditor.

If principal and C make a material mod to K w/out consent of S, uncompensated S are discharged unless mod only benefits S. Compensated S are only discharged if they suffer injury by mod.

If principal and C entered into a binding agreement to extend the time of payment, uncompensated S are discharged unless C reserves its rights against the S or the S consents. Compensated S only discharged if they suffer injury.

Impairment of collateral: if C does anything that impairs the value of collateral held w/out S consent, the secondary obligation will be discharged or reduced to the extent of the impairment.

If C fails to accept valid tender by D, the S obligations are discharged

Forgery: if one co-principal forges another’s name and S guarantees the obligation for both, the S is not liable to the C.