Suretyship Status

Question 1

A surety has “suretyship status” whenever:

3

Answer 1

1. pursuant to a contract/bond, a creditor has recourse against a surety or property in response to debtor’s underlying obligation
2. The creditor is entitled to enforce the underlying obligation of the debtor or the surety
3. As between the debtor and surety, the debtor is primarily responsible for performance

Question 2

the primary condition precedent to enforcement of the surety’s obligation

Answer 2

The default of debtor

Question 3

When can a creditor go after a surety?

-Exceptions

Answer 3

-right after debtor’s default (≠notice)

Agreement requires notice
Or unambiguous guarantee of collection (needs notice of attempt to collect)

Question 4

A creditor must enforce its security interest in any collateral before enforcing the obligation against the surety where:

Answer 4

a condition of the surety is that the creditor needs to go after a security interest to satisfy the debt; or,

Question 5

Surety rights against the debtor?

Answer 5

1. ability to collect from debtor payments made to creditor
2. If debtor has notice of surety, can demand debtor’s performance under the contract

3.

Question 6

surety’s right of exoneration is a right to

Answer 6

take action against the debtor to compel the debtor’s payment to creditor
or
start performance on an obligation

Question 7

When a surety is required to pay the debtor’s obligation to the creditor, the surety has the right to recover from the debtor the amounts expended, by means of:
(3)

Answer 7

1. subrogation
2. reimbursement
3. restitution

Question 8

Surety’s right to subrogation?

Triggered by?

Answer 8

The surety stands in the shoes of the creditor to debtor

• Triggered by full payment of outstanding obligation of debtor (the entire amount taken out by debtor)
• Takes priority of creditor

Question 9

In subrogation what does rights does surety acquire

3

Answer 9

1. rights against debtor
2. creditor’s interest in property securing obligation
3. any person who’s conduct is responsible for causing the default on the obligation

Question 10

Surety’s right to reimbursement exists if:

Answer 10

The surety’s partial payment of the debtor’s obligation

Question 11

The debtor’s duty to reimburse the surety does not arise until?

Answer 11

The time for debtor’s performance has come

Question 12

The right of reimbursement includes

Answer 12

Payments + incidental expenses (lawyers)

Question 13

The debtor has no duty to reimburse the surety:

5

Answer 13

1. to the extent debtor goes to bankruptcy
2. the duty is contractual and there is a lack of capacity
3. debtor has a defense to obligation
4. creditor releases debtor
5. if the surety performs despite notice of a defense to its secondary obligation, unless the surety’s performance was a reasonable business decision under circumstances where the surety had a business reason to do so (under some business compulsion); or

Question 14

In circumstances where the surety performs its secondary obligation but is not entitled to reimbursement from the debtor:

Answer 14

the surety can see restitution to the extent of unjust enrichment
-debtor has been enriched to the extent that the surety’s performance has discharged the underlying obligation and saved the debtor any costs that would have been related to the debtor’s performance

Question 15

Surety’s right against the creditor?

Answer 15

Creditor does not have to proceed to judgment against the debtor before the creditor

If surety believes that the debtor is likely to become insolvent or leave the state without satisfying the contract –> surety can get Creditor to sue debtor –> if they do not, surety is discharged

Question 16

Collateral securing the debtor’s debt to the creditor can also

Answer 16

security their debt to the surety

Question 17

If a creditor sues a debtor, a judgment in favor of the debtor bars:
Unless?

Answer 17

a claim against the surety; unless, the the judgement was based upon a defense unavailable to the surety

Question 18

A judgment in favor of the creditor is not necessarily conclusive of the issues involved in the action but:

Answer 18

creates a rebuttable presumption in an action against a surety to enforce obligations

• Unless the judgment in favor of the creditor was obtained by default or confession of judgment, then:
• Surety can try to rebut presumption

Question 19

If a creditor first sues the surety, a judgment rendered for the surety:

Answer 19

will have preclusive effect against any action brought by the creditor against the debtor

Question 20

co-suretyship, occurs where?

Answer 20

more than one surety agree to share in any loss from debtors default in a proportionate basis
-in absence of express agreement, jointly and severally liable to their proportion

Question 21

When may the surety require a creditor to sue to collect from the debtor immediately?
(2)

Answer 21

1. Believes debtor is likely to become insolvent or intends to leave the state without discharging contract
   +
2. Right of action has accrued on the contract