Co-sureties: Definition, Example and Related Terms
What are Co-sureties ?
Co-sureties are parties who share the responsibility for guaranteeing the repayment of a debt or the performance of an obligation under a suretyship agreement in contract law. This means that if the principal debtor fails to meet their obligations, the co-sureties are collectively liable to fulfill the debt or obligation.
For example, if a company (the principal) takes out a loan and two individuals (the co-sureties) agree to guarantee the loan, these individuals are agreeing to be responsible for repaying the loan if the company defaults. Both co-sureties are liable, and the creditor can pursue either or both of them for the repayment.
Co-sureties are often used to reduce the risk for each individual surety, as the responsibility is divided among multiple parties. However, each co-surety remains fully liable for the entire obligation if the others fail to fulfill their portions.
Example(s)
Scenario Description A construction company obtains a performance bond to guarantee completion of a project, and three surety companies agree to act as co-sureties. If the construction company fails to complete the project, the three surety companies are responsible for ensuring that the project is completed. Each co-surety may be required to pay a portion of the total bond amount, but they are all collectively liable for the entire obligation. Two individuals co-sign a loan for a friend to start a business. If the friend defaults on the loan, the two co-sureties are responsible for repaying the debt. The lender can demand repayment from either or both of the co-sureties, and each co-surety is fully liable for the entire amount owed.