Suretyship I. Definition A contract where one (surety) assumes the obligation of another A.

. Distinguish between (contract and surety) 1. compensated paid to provide surety (construction) 2. gratuitous done without compensation (co-signer) a. current: if done at same time = consideration b. non-current: if done later 1) Nonnegotiable = not bound for lack of consideration 2) Negotiable = bond as signed (indorser or maker) B. Distinguish between (types of liability): 1. Surety primary obligor (e.g. accommodation maker signed on face) 2. guarantor (of payment) secondary obligor (e.g. accommodation indorser signed on back) 3. guarantor of collectibility guarantor of collection (must use those words) C. statute of frauds applies to all types of suretyship (surety is bound through oral promise if the main purpose of the suretys promise is to benefit the surety) D. Arising by operation of law where third party contracts with debtor to pay creditor and there is no novation, the original debtor becomes a surety by operation of law II. Rights of Surety A. Against creditor no rights except to pay (obligation) 1. no notice requirement 2. no requirement of surety to try to collect from debtor first 3. surety cannot require to utilize security first except when debtor is bankrupt 4. surety cannot designate which debt the creditor must credit B. Against debtor 1. exoneration (suit to compel payment) 2. subrogation (if total satisfaction; derived creditor right) 3. reimbursement (indemnification) C. Against Co-Sureties (arises by contract) 1. Exoneration (suit to compel payment) suit to get other surety to pay portion 2. subrogation (if total satisfaction of debt) 3. contribution action to get back anything paid that is more than fair share III. Defenses of Surety A. Debtors defenses 1. yes - fraud or duress (unclean hands) 2. No infancy, insanity, bankruptcy B. Variation of Risk

1. Types alteration of contract, extension of time, release of security, release of co-surety, impairment of collateral, etc 2. Effect a. gratuitous surety total discharge b. compensated surety (Article 3, UCC) discharge to the extent you can show a lose as a result of the variation (fact based)