Also known as: suretyships
Written by attorneys · grounded in primary & secondary sources — see below
A three-party relationship in which one party undertakes to answer for the duty or debt of another to a third party. The first party is the surety, the second is the principal obligor, and the third is the obligee or creditor. The surety's obligation is secondary and arises only upon the principal's default.
Stephen Shaw sold his factory to Southland Foods. The deed credited the outstanding mortgage balance against the purchase price, and Southland Foods took title subject to the mortgage held by Sterling Dynamics. When Southland Foods later defaulted, Sterling Dynamics modified the loan terms without Shaw's consent. Shaw asserted suretyship defenses to avoid personal liability for the deficiency after foreclosure.
Santiago Sanchez asked Sierra Solutions to extend credit to his supplier, Selena Singh. During a phone call Sanchez told Sierra Solutions that if Singh missed payments he would cover the debt. Sierra Solutions extended the credit, Singh defaulted, and Sanchez refused to pay. Sierra Solutions sued Sanchez on the oral promise.
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A promise falls within the provision when the promisor undertakes to answer for the duty of another to the creditor. The promise must be evidenced by a writing signed by the party to be charged unless an exception applies.
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When the transferee assumes the mortgage obligation the transferor becomes a secondary obligor and the transferee a principal obligor. The transferor then holds suretyship rights including exoneration, reimbursement, and subrogation against the transferee.
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A secondary obligor may be discharged by an express release from the obligee or by operation of suretyship defenses when the obligee materially modifies the obligation without the secondary obligor's consent.
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