Debtor - Creditor Relationships - Surety: Intro, Creation & Types

Question 1

What is the creditor’s right in a surety relationship?

Answer 1

Upon default can proceed against collateral or surety - creditor’s choice.

Question 2

Describe the concept of reimbursement and indemnity of a guarantor.

Answer 2

Upon payment to the creditor, the guarantor has the right to seek reimbursement from the principal debtor.

Question 3

Describe a surety (or guaranty relationship).

Answer 3

Principal debtor owes money to creditor and surety or guarantor agrees to be back-up for debtor if debtor does not pay; promise to pay the debt of another in the event that “other” defaults.

Question 4

Explain the requirements for creating a surety relationship.

Answer 4

Must be in writing; can be gratuitous (given or done free of charge).

Question 5

Define “conditional guaranty.”

Answer 5

Surety or guarantor promises to pay only when certain conditions have been made, such as AFTER creditor has reduced debtor’s obligation to a judgment or AFTER the creditor has exhausted all collateral.

Question 6

Describe the right of contribution regarding sureties.

Answer 6

Cosureties have the right to collect from other sureties their pro rata share of the amount paid to the creditor.

Question 7

What is the formula for the right of a co-surety to collect from another, i.e., the right of contribution?

Answer 7

Amount guaranteed by surety / Total agreed to be paid by all sureties
Take this ratio times the amount to be paid to the creditor - that is the amount owed by this surety to the creditor or to any surety who had to pay the full amount.

Question 8

Define “absolute guaranty.”

Answer 8

Promise by surety or guarantor to pay no matter what happens or why debtor defaulted.