Legal Memorandum: Obligations a surety owes a debtor

Issue: Under Illinois law, what are the obligations a surety owes to the debtor?

Area of Law: Banking & Financial Services, Banking and Financial Services, Contracts
Keywords: ; Obligtion; Surety; Debtor; Indemnity; Agreement
Jurisdiction: Illinois
Cited Cases: None
Cited Statutes: None
Date: 03/01/2016

"Indemnity is a common law doctrine which shifts the entire responsibility from the party who has been compelled to pay the plaintiff’s loss to another who actually was at fault. [Citation.] The right to indemnity may be express, as in a contractual provision, or may be implied in law, arising in situations in which a promise to indemnify can be implied from the relationship between the parties." Kerschner v. Weiss & Co., 282 Ill.App.3d 497, 502 (1996).

Where one party assumed another’s obligations under an Agreement and those obligations formed a basis for the surety bonds, a suretyship relation arose as a matter of law.  In light of such a relationship, the surety owes a common-law duty to perform its obligations and to hold its debtor harmless from its failure to do so. Estate of Ramsay, 183 Ill. at 567; Keeshin, 187 Ill.App.3d at 1091-92. TRG cites Talandis Construction Corp. v. Illinois Building Authority, 23 Ill.App.3d 929, 935 (1974), for the proposition that "a stranger to a contract between two parties cannot be compelled to indemnify one of the parties for breach of contract absent the stranger’s express agreement" to do so.  As noted by our supreme court over a century ago, "[w]hen 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." Estate of Ramsay, 183 Ill. at 567.

Elgin v. Arch Ins. Co., No. 2-15-0013, 2016.IL.0000274 (Ill. Ct. […]

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