7.5 - Suretyship Flashcards
One who agrees to be liable of the debt or obligation of another:
Surety
A surety transaction involves 3 parts:
Creditor (the oblige)
The principal debtor (obligor)
Surety
Is directly liable on the contract and is distinguished:
Is liable to the creditor only if the debtor does not perform his order duty to the creditor:
Surety
Guarantor
Requires written evidence of the promise to answer for the debt of another signed by the surety:
Statue of frauds
When a debtor defaults in a suretyship situation, the creditor may do any of the following in any order:
- Immediately demand payment from the surety
- Immediately demand payment from the debtor
- Immediately go after collateral if there is any
The principal debtor owes the surety:
A duty to perform
If the principal fails to pay the creditor, the surety may:
Bring a suit for exoneration in equity to compel the principal to pay
After paying the principal debtors obligation, the surety may enforce:
Any rights that the creditor had against the principal debtor
The surety is entitled to reimbursement from his principal debtor for any amount the surety paid on behalf of the debtor. This is also called:
Right to indemnification
Two or more sureties of the same obligation. Jointly and severally liable.
Cosureties
If a surety in a cosureties situation has paid more than their share, they are entitled to:
Contribution from the cosureties for their share of the payment
If the contract does not specify the liability of each surety…
Each surety is liable for a pro rata share determined by the number of solvent sureties
Where cosureties are obligated for varying amounts by their agreement…
Each surety remains liable for the original amount stated in the agreement
There are 3 solvent and 2 insolvent sureties. How much is each surety responsible for?
Each solvent surety is liable for 1/3 of the debt
C loans D 9,000. X, Y and Z agree to be cosureties. The maximum liability of each is: X = 6,000; Y = 3,000; and Z = 9,000. After making payments, D defaults and Z pays the entire balance of 6,000. How much can Z collect from X and Y?
X = 6/18 X 6,000 = 2,000
Y = 3/18 X 6,000 = 1,000
If a cosurety’s obligation is discharged in bankruptcy, their share should:
Not be considered in determining the pro rata share of the remaining cosureties
C loans D 9,000. X, Y, and Z agree to be cosureties. The maximum liability for each is: X = 6,000; Y = 3,000, and Z = 9,000. After makin payments, D defaults and Z pays the entire balance of 6,000. X’s debt, including their surety obligation, were previously discharged in bankruptcy. How much can Z collect from X and Y?
X = 0 due to default
Y = 3/12 X 6,000 = 1,500
An unpaid surety is called:
Gratuitous surety
A variation of a contract that changes a compensated surety’s risk will discharge the surety only if:
The change is material and increases the surety’s risk of loss
When a debtor owes a creditor money and does not have sufficient funds to pay, besides filing a petition in bankruptcy, the debtor can:
Enter into a creditor’s composition OR make an assignment for the benefit of creditors
An agreement between the debtor and at least two creditors that the debtor pays the creditors less than their full claims in full satisfaction of their claims:
Creditors composition
In this, the debtor transfers some or all of their property to a trustee who disposes of the property and uses the proceeds to satisfy the debtors debts. The debtor is not discharged from unpaid debts by this procedure.
An assignment for the benefit of creditors
Creditors without a security interest or mortgage in the debtor’s property can gain rights in the debtors property through:
Imposition of a judicial lien on the property in the debtor’s hand OR garnishment of property in the hands of a third party
If the creditor has reason to believe that the debtor will not pay, the creditor can:
Ask the court to provisionally attach a piece of the debtors property
This excluded items of a person’s household, up to a certain mount, from the liens of most creditors:
Homestead exemption
If a debtor is adjusted to owe a creditor money and the judgement has gone unsatisfied, the creditor can request the court to impose this on specific property owned and possessed by the debtor:
Judicial lien
Where a debtor is adjusted to owe a creditor money and the debtor has property in the hands of a third party, this may be sought:
Garnishment
This orders the person holding the property to turn it over to the creditor. Social security payments are not subject to this. And states often limit the amount of an employee’s wages that may be subject to this.
Garnishment
This occurs when a debtor transfers property with the intent to hinder, delay, or defraud any of their creditors:
Fraudulent conveyance
Is a fraudulent conveyance void or voidable?
Both
In determining if a fraudulent conveyance occurred, a court will consider whether:
- The transfer was to an insider
- The debtor retained possession or control of the property
- The transfer was not disclosed or was concealed
- The transfer was substantially all the debtors assets
- The value received by the debtor for the asset was not reasonable
- The debtor was insolvent or became insolvent shortly after
This curbs abuses by collection agencies in collecting consumer credits:
The emerald fair debt collection practices act (FDCPA)
The FDCPA restricts collection agencies ability to call third parties, such as relatives, to indirectly pressure the debtor. However, the collection agency can contact third parties to:
Discover a debtors whereabouts but may not disclose that it is a collection agency
What other items does the FDCPA prohibit?
- Contacting the debtor at inconvenient or unusual times
- Contacting the debtor directly if represented by an attorney
- Using harassing or abusive language
- Making false or misleading claims
- Contacting the debtor at their place of employment I the employer rejects
A debtor has the power to terminate the collection agency’s contacts by:
Notifying the agency in writing that the debtor will not pay the debt and to stop further communication
