R8 Flashcards
Surety
one who is liable for the debt or obligation of another
Parties in Suretyship
creditor, principal, surety
Surety vs. Guarantor
*surety is directly liable whereas the guarantor is only secondarily liable
Is suretyship covered by the Statute of Frauds?
Yes
Gratuitous Surety vs. Compensated Surety
Gratuitous
- any variation of risk releases surety
- promise must be made before the loan; after doesn’t count
Compensated
- any variation of material risk releases surety
- consideration is compensation
Another term for compensated surety
bonding company
Creditor’s Rights when Debtor Defaults
- immediately demand payment from the surety
- immediately demand payment from the debtor
- immediately go after collateral, if there is any
*guarantors have the right to require a proceeding against the debtor or collateral first
Surety’s Rights against Debtor
- exoneration (suit to compel payment)
- subrogation (enforcement of creditor’s right against principal)
- reimbursement (suit against principal after payment)
Surety’s Rights against Co-Sureties
- exoneration (before surety pays; each pays pro rata fair share)
- contribution
* *not specified: split equally
* *varying amounts: pro rata contribution reimbursement
* *co-surety discharged: eliminate from total calculation; will get nothing from them
Defenses of Surety
C reditor bad faith
P ayment and tender of payment
R elease of principal debtor
S urety’s incapacity or bankruptcy
Loss of Security and Release of Co-surety
- release of security held by the creditor discharges the surety in the amount of the value of the security released
- a release of a co-surety without the other’s consent means that the remaining surety is discharged to the extent that the surety could have recovered
No Defense Situations for Suretyship
- principal’s fraud or duress upon surety
- incapacity of principal
- bankruptcy of principal
Creditor’s Rights outside of Suretyship
- Creditor’s Composition (pays less than full claims in full satisfaction)
- Assignment for the Benefit of Creditors (debtor releases property to trustee who sells property and uses proceeds to pay creditors)
Judicial Liens
*specific property owned and possessed by the debtor
Garnishment
*property in the hands of a third party that is due to the debtor
Exemptions for Judicial Liens and Garnishment
- homestead exemption
- limit on wages
- protect personal injury awards
Mechanic’s Lien
*automatic lien on property for the price of the repairs so long as it is in the lienor’s possession
Indications of Fraudulent Conveyances for Suretyship
- transfer to insider
- debtor retained possession or control
- not disclosed or concealed
- value received for the asset was not reasonable
Remedies for Suretyship and Fraudulent Conveyances
- void or voidable
- requires legal process to repossess fraudulently transferred property
- no-self help
Fair Debt Collection Practices Act
- does not apply to creditor attempting to collect its own debts
- prohibits contacting at inconvenient times, abusive language, contacting directly when there is an attorney, making false claims
- can terminate contracts by submitting IN WRITING that they will not pay the debt
- sue for actual damages and 1,000 statutory damage award
Requisites for Principle and Agent Relationship
Principle: capacity and consent
Agent: consent
*writing is required for over one-year contracts and sale of land
Power of Attorney
*individual has power to act on behalf of the principal
Duties of Agent to Principal
- fiduciary
- duty of loyalty
- duty of obedience
- duty of reasonable care
- duty to account
- can hire a subagent
Principal’s Remedies
- tort damages
- contract damages
- recovery of secret profits into CONSTRUCTIVE TRUST
- withhold compensation