Business Law V: Debtor/Creditor Relationships, Real Property Flashcards Preview

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Flashcards in Business Law V: Debtor/Creditor Relationships, Real Property Deck (29):


1. someone who agrees to stand liable for a debt of another.
2. a way for a creditor to have another form of backup for payment of obligation owed.
3. can be in addition to any collateral debtor may pledge to creditor.


Straight Surety/Guaranty relationship

Surety/Guarantor must pay creditor when debt is due. Creditor can turn to surety/guarantor for payment.


Guarantor of Collection relationship

Guarantor is responsible for debt only after principal debtor has defaulted.

Guarantor is secondarily liable.


Suretyship Creation

1. Contract must be in writing and signed by surety
2. Consideration not required
3. Multiple surety relationship can exist (sub-surety, cosurety)


Rights of creditors/sureties on amount paid toward principal debt

In absence of agreement, contribution of each cosurety is determined on pro rata basis computed by ratio of proportionate maximum liability of each cosurety to total amount that all cosureties have pledged


Formula for creditor/surety responsibility

(Max Liability of Cosurety / Total Max. Liability of All Cosureties) x Amount Paid by Cosurety Seeking Contribution = Amount of Contribution Entitlement


Rights of Creditor when Principal Debtor Defaults

1. Proceed against principal debtor personally and/or debtor's property
2. Proceed against surety personally according to surety contract
3. Proceed against collateral of debtor


Rights of Surety/Guarantor

1. Exoneration
2. Reimbursement/indemnity
3. Subrogation
4. Right of Contribution



Equitable right permitting surety to petition court to order creditor to exhaust recovery against principal debtor before holding surety liable



Surety has right to seek reimbursement from principal debtor:

1. to cover all costs guarantor has incurred because of surety agreement
2. if principal debtor has defense against paying creditor, surety's right of reimbursement is correspondingly reduced



Upon payment, surety succeeds to any rights creditor has, including:

1. Creditor's rights against principal debtor
2. Creditor's rights to principal debtor's collateral held by creditor/surety
3. Creditor's rights against 3rd parties
4. Creditor's rights against a cosurety


Right of contribution

Entitles cosurety to recover amount paid about his/her share owed from other cosurety

1. Generally, cosureties are jointly/severally liable
2. Release of cosurety - if released w/o other cosureties' consent, remaining cosureties' liability is released to extent that right of contribution cannot be obtained
3. Reimbursement - if fully reimbursed, no right of contribution
4. Collateral - cosureties entitled to share in proportion to their liability a debtor's collateral


Events that DO NOT release Surety from Liability

1. Insolvency of principal debtor
2. Bankruptcy of principal debtor
3. Fraud/misrepresentation by debtor
4. Principal debtor's incapacity
5. Death of principal debtor
6. Release of principal debtor by creditor
7. Changes/modification
8. Creditor failure to give surety notice of principal debtor's default
9. Creditor failure to first resort to collateral in order to satisfy debt


Events that DO release Surety from Liability

1. Principal debt paid
2. Surety's incapacity
3. Garantor's discharge decree in bankruptcy
4. Statute of limitations expires
5. Fraud/misrepresentation by creditor
6. Release of principal debtor by guarantor
7. Refusal of principal debtor's tender
8. Material alteration by creditor
9. Creditor's failure to disclose
10. Changes/modifications where surety uncompensated
11. Surrender/impairment of debtor's collateral
12. Special release for guaranty of collections
13. Statue of Frauds (must be in writing)


Freehold estate: Fee simple estate

Person has complete ownership for unlimited duration to do with property as he/she legally chooses


Freehold estate: Fee simple defeasible estate

Ownership automatically terminated upon happening of particular event.

Property reverts back to grantor/3rd party


Freehold estate: Life estate

Title held by grantor/3rd party but subject to holder of life estate to possession, use, ordinary profit derived from property for duration of tenant's life.

Absolute title passes at life tenant's death.


Nonfreehold estate: Leasehold, tenancy for years

Lease for specified duration, where lease automatically terminates at end of period and no notice to tenant is required.


Nonfreehold estate: Leasehold, tenancy from period to period

Lease automatically renewed for same fixed period until lease is terminated (month-to-month)


Nonfreehold estate: Leashold, tenancy at will

Tenancy that simply continues with permission of landlord


Nonfreehold estate: Leasehold, tenancy at sufferance

Tenancy w/o consent of the landlord


Nonpossessory interest: Easements

Right of a person to make limited use of another's realty:

1. Appurtenant - adjacent piece of realty
2. In gross - single tract of land
3. Profit - take part of land/product (gravel)
4. Grant - conveyance by contract/deed
5. Implication - circumstances indicate implied consent of use
6. Necessity - i.e. land-locked, need to cross another's land to get to highway


Nonpossessory interest: License

Revocable right to come upon another's land to enjoy it/perform a function (sporting event)



1. All fixtures initially personal property
2. Once attached to realty, it becomes part of the realty if:
- person who attached it intends it to be a fixture
- property is so attached ot the realty that its adaptation become permanent part of the realty



1. Judicial liens
2. Mechanic's lien


Real Property Acquisition

1. Gift
2. Will/inheritance
3. Sale - contract


Real Property Transfer - deeds

1. Warranty Deed - highest lvl of protection
2. Special warranty deed - guarantees no problems with title only during period owned by grantor
3. Quitclaim deed - no warranties/guarantees on title


Tenancy in Common

Ownership held by 2 or more individuals. Tenants in common can sell, will, or mortgage their interests


Joint Tenancy

1. Ownership held in equal shares
2. Requires unity in time, title, interest, possession
3. Right of survivorship
3. If one tenant transfers interest, joint tenancy is severed and transferee becomes tenant in common