Suretyship: Rights of the Parties

Question 1

Suretyship

Rights of Creditor

Answer 1

Choices:

• Proceed against debtor/ debtor’s property
• Proceed against surety
• Proceed against collateral (sell, but turnover extra)

Question 2

Suretyship

Rights of Surety/Guarantor

Answer 2

• Exoneration: exhaust recovery against debtor before moving on to surety
• Reimbursement: seek reimbursement from debtor
• Subrogation:
  
  • creditor’s rights against debtor
  • creditor’s rights to collateral
  • credtior’s rights against 3rd parties
  • creditor’s rights against cosurety
• Contribution by cosurety:
  
  • GR: jointly and severally liable
  • if creditor releases cosurety without other cosureties consent, they are not liable for that portion
  • Reimbursement: if fully reimbursed, not right to contribution
  • Collateral: share in proportion to liability the collateral

Question 3

Suretyship

Events that DO NOT Release Surety from Liablity

Answer 3

• Insolvency of debtor
• Bankruptcy of debtor
• Fraud or misrepresentation by debtor
• Principal debtor’s incapacity
• Death of debtor
• Release of debtor w/o consent doesn’t release surety
• Changes or modification (if compensated surety)
• Creditor’s failure to notify of debtors default
• Failure of creditor to first resort to collateral

Question 4

Suretyship
Defenses
Events that DO Release Surety from Liablity

Answer 4

• Principal debt is paid
• Surety’s incapacity
• Guarantor’s discharge in bankruptcy
• Statute of limitations expires
• Fraud or misrepresentation of creditor
• Release
• Refusal of principal debtor’s tender
• Material alteration by creditor
• Creditor’s failure to disclose
• Changes/modifications with Uncompensated surety (material and binding modification = release)
• Surrender or impairment of debtor’s collateral
• Special release for guarantee of collections
  
  • failure of creditor to give debtor proper notice
• Statute of frauds: Always in writing