Debtor/Creditor Relationships

Question 1

Suretyship

Answer 1

Relationship whereby one person agrees to answer for the debt of another

Question 2

Statute of Frauds

Answer 2

Requires certain contracts to be in writing to be enforceable

Question 3

Co-suretyship relationship

Answer 3

Jointly and severly liable to the creditor

Question 4

Surety

Answer 4

Promises to pay the debt on default of principal debtor

Question 5

Indemnity

Answer 5

One party promises to reimburse debtor for payment of debt or loss if it arises

Question 6

3rd Party Beneficiary

Answer 6

Receives the intended benfits of a contract

Question 7

Exoneration

Answer 7

Right of surety to require the debtor to pay before surety pays

Question 8

Contribution

Answer 8

Upon payment of more than his/her proportionate share, each cosurety may compel other cosureties to pay their shares

Question 9

Right of reimbursement

Answer 9

Upon payment of debt, surety may recover payment from debtor

Question 10

Subrogation

Answer 10

Upon payment, surety obtains same rights against the debtor that creditor had

Question 11

Surety still pays if following occurs

Answer 11

• fraud by debtor
• misrep by debtor
• changes in loan terms
• release of principal debtor
• bankruptcy of principal debtor
• insolvency of principal debtor
• death of pd
• incapacity of pd
• lack of enforcement by creditor
• creditor’s failure to give notice of default (unless a guarantor of collection) - failure of creditor to resort to collateral

Question 12

Surety is released in the following:

Answer 12

• proper performance by debtor
• release, surrender, or destruction of collateral
• Substitution of debtor
• fraud/misrep by creditor
• refusal by creditor to accept payment from debtor
• change in loan terms (uncompensated surety only and MUST be material)
• Statute of frauds
• Statute of limitations