Suretyship

Question 1

In a suretyship, if the debtor defaults what can the creditor do against surety?

Answer 1

Requires creditor sue debtor first

VA Statute: Surety makes a written demand to creditor to collect from debtor first.

Question 2

Can a surety raise a lack of consideration to suretyship as a defense if principal defaults to obligee?

Answer 2

No - if surety was provided at time obligee extended credit to principal (sufficient consideration)
Yes - if surety was made after the sale

Question 3

Must an suretyship be in writing?

Answer 3

Generally yes, unless primary reason for obligation is to benefit the surety.

Question 4

Can surety raise a defense that principal had against obligee?

Answer 4

Yes - for fraud, duress, breach of contract (transactional)

No - for infancy/insanity, bankruptcy, or statute of limitations (personal)

Question 5

Can a surety raise a statute of limitation defense that principal had against obligee?

Answer 5

No - personal defense that surety cannot raise.

Question 6

J lends car to D and G guarantees the loan. J takes a security interest in the car he sold to D, but fails to perfect. When D defaults and J sues G, can G raise a defense on the failure to perfect?

Answer 6

Yes - release or other loss of security

Question 7

In a suretyship, when the debtor defaults, what can the surety do against the debtor?

Answer 7

1) surety can bring a suit in equity to compel debtor to pay (right of exoneration)
2) right of reimbursement if surety paid creditor
3) right of subrogation - full payment to creditor and steps into shoes of creditor against debtor.