Legal Memorandum: Defining a surety relationship

Issue: Under Illinois law, what constitutes a surety relationship?

A surety relationship arises when one agrees to assume liability for the payment of another’s debt or the performance of another’s obligations under a contract. See Black’s Law Dictionary 1456 (7th ed. 1999); Restatement (Third) of Suretyship and Guaranty (hereinafter, Restatement) § 1 (1996); see also Mercantile Holdings, Inc. v. Keeshin, 187 Ill.App.3d 1088, 1094 (1989) (surety relationship may arise by operation of law). A surety is a secondary obligor whose liability is collateral to that of the principal obligor. Chandler v. Maxwell Manor Nursing Home, Inc., 281 Ill.App.3d 309, 323 (1996) ("The surety’s obligation, wherein he agrees to be answerable for the debt or obligation of another, is not an original and direct obligation for the performance of his own act, but rather is an accessorial obligation to the obligation contracted by the principal.)." "As a general rule, the liability of a surety is measured by the liability of its principal." Village of Rosemont v. Lentin Lumber Co., 144 Ill.App.3d 651, 668 (1986). Because the surety is bound to perform if the principal obligor does not, the surety has the right to compel the principal obligor to either perform its obligation or pay the costs that accrue to the surety because of the principal obligor’s nonperformance. Estate of Ramsay v. Whitbeck, 183 Ill. 550, 567 (1900) ("When a surety signs a bond the law raises an implied promise by the principal to reimburse the surety for any loss which he may sustain ."); Restatement § 21. Thus, although both the […]