suretyship

Question 1

definition of suretyship

Answer 1

conventional obligation by which a third person binds himself to a creditor to fulfill the obligations of another upon the failure of the latter to do so

Question 2

what are the requirements for suretyship

Answer 2

1. CCCO
2. writing –AUPS suffices (surety must expressly promise to pay the obligee)
3. signature of the surety (obligee need not formally accept)
4. express language/intent to be bound (parol evidence not admissible to establish a promise to pay someone’s debt; continuing guarantees are possible)
5. principal debt secured

Question 3

what are the types of suretyship

Answer 3

1. ordinary – suretyship contract that is neither commercial or legal
2. legal
3. commercial

Question 4

when is a suretyship commercial

Answer 4

1. surety is paid for undertaking the promise to pay
2. either the surety or the debtor is a business entity; or
3. the principal obligation or the suretyship K arisees out of a commercial transaction

Question 5

what are the defenses of the surety

Answer 5

1. defenses of the principal obligor (except bankruptcy and incapacity)
2. remission of principal or accessory obligation
3. modification and/or impairment

Question 6

what is the effect of modification (of obligation) or impairment (of collateral security)

Answer 6

original suretyship is totally extinguished by any material modification or impairment of collateral;

commercial suretyship is extinguished to the extent that a modification or impairment has injured the surety;

creditor bears the burden of proving that modification didn’t injury the surety**

Question 7

if one co-surety is remissed from the obligation, what happens to remaining co-sureties?

Answer 7

they shall benefit to the extent that their obligation is reduced by the VP of the remitted surety

principal obligor remains indebted