Security Rights - Civil Law

Question 1

Suretyship

Answer 1

The surety promises the creditor that she will pay one or more of the debtors debt if the debtor does not pay

Accessory Contract

An obligation can be secured by Suretyship

Question 2

Formalities for Creating a Suretyship

Answer 2

i. Express
1. Contract must be unambiguous about surety’s promise to pay and exactly which principal

obligation
2. Parole Evidence is not admissible to establish promise to pay the debt of a third person

ii. Writing
1. Act under private signature

Question 3

Ostensible Suretyship

Answer 3

Suretyship through recharacterization of a contract where it looks like the surety has expressly agreed to pay as a principal obligor

Two Conditions

a. The principal cause of the contract with the creditor is to guarantee performance of such obligation AND
b. The creditor clearly knows this

Question 4

Types of Suretyships

Answer 4

1. Legal
2. Commercial
   a. Surety is paid for giving promise to pay
   b. Surety or debtor is a business entity
   c. The principal obligation (debt) or the Suretyship contract arises out of a commercial transaction
3. Ordinary Suretyship (neither legal nor commercial)
   a. Ordinary Suretyship is strictly construed in favor of the surety