Also known as: principal surety relationship · suretyship · principal and surety
Written by attorneys · grounded in primary & secondary sources — see below
A relationship in which one party bears primary liability for an obligation while another party bears secondary liability to perform if the primary party defaults. The secondary obligor is entitled to exoneration, reimbursement, restitution, and subrogation against the primary obligor upon default or conduct creating unreasonable risk of default.
Preston Pratt sold his mortgaged warehouse to Pioneer Energy under an assumption agreement. Pioneer later negotiated with the lender to increase the loan principal substantially without notifying Preston. When the lender sought a deficiency after foreclosure, Preston invoked suretyship defenses arising from the unconsented modification that increased his risk.
Penelope Price asked Pacific Bank to extend credit to her supplier Pearl Porter. Penelope orally promised the bank she would pay if Pearl defaulted. The bank later sued Penelope on the oral assurance after Pearl's default, but the court applied the suretyship provision of the statute of frauds to bar enforcement.
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The relationship arises when the transferee assumes the mortgage obligation. The transferor then occupies the position of secondary obligor and the transferee becomes the principal obligor under suretyship principles.
The secondary obligor gains rights to exoneration, reimbursement, restitution, and subrogation against the principal obligor. These rights exist even before the secondary obligor makes payment and may be enforced by direct action.
An oral promise to answer for the duty of another is unenforceable under the suretyship provision unless a principal-surety relationship is absent or an exception applies. The promise must be in writing when the relationship exists and the promise is collateral.
Yes. An unconsented material modification that increases the secondary obligor's risk triggers suretyship defenses and may discharge the transferor from personal liability even without an express release.