What is a suretyship contract?

🤔 Contracts • Defenses to Enforcement and Formation K#054

Legal Definition

A suretyship agreement is a promise to pay another's debt if they fail to do so (i.e., a guarantee). Although such agreements must generally be in writing, the main purpose exception provides that where the main purpose of the obligation served the promisor's own interest, the contract is not within the Statute of Frauds.

Plain English Explanation

A suretyship agreement is basically like a co-signer. It is promising to pay someone's debt if they fail to do so. It falls under the Statute of Frauds and, thus, must be in writing and signed.

However, be aware of the main purpose exception, which states that a signed writing is not required if the purpose of the suretyship is to serve the promisor's own interests. For example, imagine if Bob contracted with Sam to make him 100 tacos for a catered lunch. Bob realizes that Sam may not have enough food on-hand to make the tacos, so Bob contact's Sam's tortilla supplier and guarantees that Sam will pay whatever it ends up costing. Here, the main purpose of Bob guaranteeing payment to Sam's tortilla supplier was to ensure that Sam had enough tortillas to make his tacos. Because of that, a writing is not required.

Hypothetical

Hypo 1: Sam wants to buy a car, but Sam has bad credit. Sam brings Bob with him to the car dealership. Bob tells the salesman, "It's okay -- sell Sam the car, and if he can't pay for it, I'll cover it." The salesman agrees and sells Sam the car. Result: Bob's offer to cover Sam's debt is an oral contract. However, it fails the Statute of Frauds because it is a suretyship contract, which must satisfy the Statute of Frauds with a signed writing.

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