Sureties & Guarantors

Question 1

For sureties and guaranties what is being promised?

Answer 1

Someone is promising to pay the debt of somebody else

Question 2

What is the big difference between a surety and a guarantee?

Answer 2

• A surety has primary liability

- A guarantee has secondary liability, so the creditor must try to collect from the primary party first

Question 3

Does the statute of frauds apply to surety’s? Guarantee’s?

Statute of Frauds:
The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a writing, signed by the party to be charged, with sufficient content to evidence the contract.

Answer 3

Only guaranties since they are secondary in nature

Question 4

What are 3 synonyms for Suretyship? For Guaranty?

Answer 4

Suretyship:

• Surety
• guarantee of payment
• absolute guarantee

Guaranty:

• guarantor
• guarantee of collection
• conditional guarantee

Question 5

During creation how many contracts are created? Who between?

Answer 5

There are two created
1- between principal debtor and creditor
2- between creditor and surety/guarantor

Question 6

If a debt is backed by both collateral and a surety/guarantee then which must the creditor go for first?

Answer 6

The creditor can go for either first

Question 7

What types of defenses, partial or complete, does a surety/guarantor have when a debtor and creditor materially change the contract between the debtor and creditor without the s/g’s permission? What factor does this depend on?

Answer 7

It depends on if the s/g is compensated or not.

For a compensated s/g (business) there is a partial defense

For an uncompensated s/g (family/friend) there is a complete defense.

Question 8

In a situation where the creditor releases the debtor without the surety’s consent what type of defense does the s/g usually have? What is the exception?

Answer 8

This offers a complete defense

Unless: the creditor has expressly reserved the right to go against the s/g

Question 9

What type of defense does a s/g have if the creditor refuses the debtor’s tender of payment?

Answer 9

a complete defense

Question 10

The s/g can use any defenses that a debtor can except cant use 3 things as defenses against payment. They are…

Answer 10

1- incapacity or bankruptcy

2- Statute of Limitations has run on the debtor’s debt

3- the debtor’s personal offsets against the creditor (ex. defamation claim-

Question 11

What are the complete defenses that a S/G can raise under his own contract?

Answer 11

• personal incapacity or bankruptcy

- creditors breach of contract

Question 12

What defense is awarded to a s/g if a creditor fails to disclose known information material to the s/g’s assessment of risk either at the time entered into contract or afterwards

Answer 12

this is a complete defense

Question 13

what defense is awarded when a creditor surrenders or impairs collateral or releases another S/G without the consent of the S/G

Answer 13

partial defense

Question 14

What are the three rights of the surety/guarantor

Answer 14

1- subrogation

2- reimbursement / indemnity

3- contribution from Co-S/G

Question 15

What is the right of subrogation for a s/g?

Answer 15

Upon full payment of the debt the S/G steps into the shoes of the creditor and can collect from the debtor

Question 16

What is the right of reimbursement/ indemnity for the s/g?

Answer 16

This means the primary debtor is responsible for any legal fees or other costs paid by the s/g

Question 17

What is the right of contribution from Co-s/g’s?

Answer 17

The S/G can collect from other s/g’s according to the proportional amount the Co-s/g’s agreed to help with