Business Law- Suretyship

Question 1

What is a surety?

Answer 1

Someone who will pay the creditor if the debtor doesn’t pay

Question 2

What is the difference between a surety and guarantor of collection or guarantor of payment?

Answer 2

Surety: Someone who stands behind the debtor. upon collection, bank can go to the surety and demand payment.

Guarantor: A few more steps between the bank and guarantor before the bank can collect (i.e. litigation, trying to collect from debtor, etc)

Question 3

What are the rights of the creditor against a surety?

Answer 3

Proceed directly against surety (unless guarantor of collection).

Question 4

What is subrogation?

Answer 4

Right of the surety after they pay to step into the shoes of the debtor and creditor; has the same rights

Question 5

What is exoneration?

Answer 5

Right of the surety to force principle debtor to pay

Question 6

What is contribution?

Answer 6

Right from cosureties

Question 7

What is Reimbursement?

Answer 7

Right of surety to collect from debtor

Question 8

What allows a surety to be released?

Answer 8

1) Fraud by the CREDITOR
2) Changes in loan terms unless it alters RISK of surety has to be MATERIAL
3) Performance of the debtor
4) Release, destruction of collateral (to the extend of value of the collateral)
5) Substitution of a debtor
6) Refusal by creditor to accept payment from debtor
7) Statute of frauds- not in writing, not valid
8) Statute of limitations
9) Incapacity of the surety

Question 9

If the creditor releases the principle debtor, is the surety also released?

Answer 9

Generally it is not a release