7.1 DEBTOR CREDITOR RELATIONSHIPS

Question 1

WHAT IS A SURETYSHIP?

Answer 1

A PROMISE TO ANSWER FOR THE DEBT OF ANOTHER.
THE SURETY IS PRIMARILY RESPONSIBLE TO THE CREDITOR.
A CREDITOR HAS THE RIGHT TO PROCEED IMMEDIATELY AGAINST THE SURETY WITHOUT NEEDING TO FIRST SEEK REMEDY AGAINS THE PRINCIPAL DEBTOR.

Question 2

WHAT ARE THE DIFFERENT TYPES OF SURETY’S?

Answer 2

THE SURETY TYPICALLY IS EITHER A,

A) SURETY/COSIGNER - “CREDITOR CAN SEEK PAYMENT OF DEBT ON EITHER THE DEBTOR OR COSIGNER” “NO NEED TO PROVE DEFAULT”
B) GUARANTOR - CREDITOR MUST FIRST SEEK PAYMENT FROM DEBTOR AND IF THE DEBTOR DEFAULTS, THEN THE GUARANTOR IS LIABLE.

1) GUARANTOR OF COLLECTION - AGREES TO PAY THE PRINCIPAL DEBTOR’S DEBT AFTER THE CREDITOR HAS EXHAUSTED ALL POSSIBLE MEANS OF COLLECTION, INCLUDING A SUIT TO RECOVER PAYMENT

2) COSURETY - AN ADDITIONAL SURETY ON AN OBLIGATION, CAN BE LIABLE FOR THE FULL AMOUNT OR CERTAIN PERCENTAGE

3) SUBSURETY - IF THE PRIMARY SURETY DEFAULTS, THEN A SUBSURETY STEPS IN.

Question 3

WHAT ARE THE REQUIREMENTS IN THE CREATION OF A SURETYSHIP?

Answer 3

1) WRITING REQUIRED - “SIGNED BY THE SURETY”
2) CONSIDERATION IS NOT REQUIRED
3) AMOUNT OF SURETY PLEDGE - SURETY CAN PLEDGE TO PAY 100% OF THE DEBT, WHEN THERE ARE COSURETY’S WITH UNEQUAL AMOUNTS PLEDGED THE ALLOCATION IS COMPUTED PRORATA. IF A COSURETY PAYS THE FULL DEBT THE COSURETY CAN RECORVER THE PRORATA AMOUNTS FROM THE REMAINING COSURETIES.

Question 4

WHAT ARE THE RIGHTS OF THE SURETY OR GUARANTOR?

Answer 4

1) EXONERATION: PERMITS A SURETY TO PETITION THE COURT TO ORDER THE CREDITOR DECREE TO EXHAUST RECOVERY AGAINST THE PRINCIPAL DEBTOR BEFORE HOLDING THE SURETY LIABLE.

2) SUBROGATION IS WHEN THE SURETY ASSUMED THE CREDITORS RIGHT AGAINST THE DEBTOR AFTER THE SURETY PAYS THE DEBTORS DEBT TO THE CREDITOR. THEREFORE, THE SURETY ASSUMES THE ROLE OF THE CREDITOR AND TAKES ON THE SAME RIGHTS THE CREDITOR HAD AGAINST THE DEBTOR.

Question 5

WHAT CREDITOR ACTIONS RELEASE A SURETY?

Answer 5

SEE SCREENSHOT

SOMETHING TO KEEP AN MIND IS THAT IF THE DEBTOR USED FRAUD TO INDUCE THE SURETY THIS DOES NOT RELEASE THE SURETY UNLESS THE CREDITOR WAS AWARE.

*EVEN THOUGH A RELEASE OF THE PRINCIPAL DEBTOR WITHOUT THE SURETY’S CONSENT WILL USUALLY DISCHARGE THE SURETY, THERE IS NO DISCHARGE IF THE CREDITOR EXPRESSLY RESERVES HIS RIGHTS AGAINST THE SURETY

A SURETY MAY BE RELEASED BY EXERCISING THE CONTRACTUAL DEFENSE OF THE PRINCIPAL DEBTOR, SUCH AS FRAUD IN THE EXECUTION.

Question 6

WHAT ARE THE OPTIONS AVAILABLE TO A CREDITOR WHEN A DEBTOR OWES MONEY?

Answer 6