Obscure But Important Surety and Guarantee Rules

Gray Reed
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Gray Reed & McGraw

Texas surety law contains obscure procedural rules that can have outsized consequences. Chapter 43 of the Civil Practice and Remedies Code is an important example.

Applicability

This chapter applies to everything that is a “surety” as defined by the statute. The statute’s definition includes “an endorser, a guarantor, and a drawer of a draft that has been accepted; and …every other form of suretyship…” This means sureties on payment and performance bonds and even personal guarantees.

Notice and Discharge

A surety on a contract may send a written notice requiring the obligee to bring a suit on the contract. If the obligee fails to do so within the “first term of court” or fails to do so within the “second term of court if good cause is shown for delay” then the surety is discharged of liability. “Term of court’ is antiquated. However, that has since been construed to mean a “reasonable time.”

The Priority of the Execution

If a judgment is entered against a principal and a surety, then Chapter 43 requires the sheriff to first levy the principal’s property until the judgment is satisfied. If the principal does not have enough property in the county to satisfy the judgment, then the surety’s property may be levied.

Subrogation

The surety may also subrogate to the judgment creditor’s rights to extent the surety makes or is complelled to make payment(s) to satisfy the judgment.

Waiver

These rights may be waived by agreement. For this reason, these rights are often, directly or indirectly, waived.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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