Guarantor or Surety of a Negotiable Instrument
Written by Jason Gordon
Updated at July 7th, 2021
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Table of Contents
What is the role of a guarantor or surety of a negotiable instrument?What are the Types of Guarantor?What is a Guarantor of Payment?What is a Guarantor of Collection?Discussion QuestionPractice QuestionAcademic ResearchWhat is the role of a guarantor or surety of a negotiable instrument?
A guarantor (also known as a surety or co-signor) serves to add certainty of payment of a negotiable instrument. A guarantor of a note or draft is an accommodation party who signs the instrument as an indorser.
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What are the Types of Guarantor?
There are a couple of forms of guarantor, as follows:
What is a Guarantor of Payment?
A co-maker's accommodation indorsement guarantees payment. The holder may demand payment from her without first seeking payment from other co-maker.
What is a Guarantor of Collection?
A collection guarantor is an accommodation party who is liable only if a judgment is rendered against a payor and the judgment is uncollectible against the debtor or is returned unsatisfied.
Discussion Question
Why do you think the UCC provides for a distinction between a guarantor of payment versus a guarantor of collection?
Practice Question
Sara makes a promissory note payable to Dave or order. Dave does not want to accept the note from Sara because of her poor credit history. Angela, who has excellent credit, agrees to cosign the note to add certainty. What are the rights of the parties in this situation?