Legal Definitions - cosurety

A cosurety is one of two or more individuals or entities who have each separately promised to be responsible for the same debt or obligation of another person or entity. If the primary debtor fails to fulfill their commitment, the cosureties share the burden of making good on that promise, often proportionally according to their agreement.

In essence, while a single surety backs an obligation alone, cosureties are multiple parties who collectively guarantee the same obligation, sharing the potential risk and financial responsibility if the primary party defaults.

Examples:

• Business Loan Guarantee:

  Imagine a new tech startup, "Innovate Solutions," needs a $750,000 bank loan to develop its product. The bank, seeing that the company is new and has limited assets, requires personal guarantees from the company's three co-founders: Sarah, Michael, and Lisa. Each co-founder signs a guarantee promising to repay the loan if Innovate Solutions defaults.

  In this scenario, Sarah, Michael, and Lisa are all cosureties. If Innovate Solutions fails to repay the loan, the bank can pursue any or all of them for the outstanding amount. If one co-founder ends up paying the entire debt, they would typically have the right to seek contributions from the other two cosureties to share the financial burden.

• Real Estate Development Bond:

  A large city government requires a $20 million performance bond for a major urban redevelopment project to ensure the developer, "Cityscape Builders," completes the project on time and to specifications. Because of the significant amount and inherent risks, no single insurance company is willing to underwrite the entire bond alone.

  Instead, two different surety companies, "MegaSurety" and "GlobalBonds," agree to each issue a $10 million portion of the total performance bond. Here, MegaSurety and GlobalBonds are cosureties. If Cityscape Builders fails to complete the project as agreed, both MegaSurety and GlobalBonds would be collectively responsible for paying out up to $20 million to the city, sharing the cost based on their respective portions of the bond.

• Commercial Equipment Lease:

  A small manufacturing company, "Precision Parts Inc.," wants to lease specialized machinery worth $300,000. The leasing company, concerned about Precision Parts Inc.'s relatively short operating history, requires personal guarantees from the company's two principal owners, Mr. Chen and Ms. Rodriguez.

  Mr. Chen and Ms. Rodriguez each sign a personal guarantee for the lease payments. They are acting as cosureties. If Precision Parts Inc. defaults on its lease payments, the leasing company can demand the overdue amount from either Mr. Chen or Ms. Rodriguez, or both. Should one owner pay the full amount, they would generally have a claim against the other cosurety for their share of the payment.