Surety and Creditor's Right

Question 1

Surety

Answer 1

Someone liable for the debt or obligation of another. Surety’s promise must be evidenced in writing.

Question 2

Surety vs Guarantor

Answer 2

Surety is directly liable while a guarantor is liable only if the debtor does not perform his duty.

Question 3

Gratuitous surety vs Compensated surety

Answer 3

Based on compensation, gratuitous is not compensated, , no consideration, only consideration is the debtor performing to the debtor. For a compensated, consideration is usually money.

Question 4

Surety’s rights against Debtor

Answer 4

Exoneration- force them to pay; Subrogation - after paying surety may enforce any creditors right against the debtor; Reimbursement - debtor to repay any amount surety paid called indemnification.

Question 5

Defenses of surety

Answer 5

Creditor acted in bad faith; discharge of principal obligation , surety is unable to pay due to bankruptcy, etc.

Any change to contract releases a gratuitous surety, material increase in risk releases a compensated surety, same result in an extended of time situation.

Fraud by the principal is a defense if the creditor know about the fraud.

Principals bankruptcy and incapacity is not a defense for the surety.

Question 6

Composition

Answer 6

Agreement between the debtor and at least 2 creditors that the debtor pays the creditors less than their full satisfaction of their claims.

Question 7

Assignment

Answer 7

Debtor transfers some or all assets to a trustee, who disposes and uses the proceeds to satisfy the debtor’s debt. No discharge.