Complimentary Provisions of the Indemnity Agreement¹

Jay M. Mann

Chapter 8 of The Surety’s Indemnity Agreement: Law and Practice, 2nd Ed., American Bar Association, 2008 (co-authored with Randall I. Marmor) discusses multiple provisions of the Indemnity Agreement that complement the surety's other rights under the Indemnity Agreement and at common law. These provisions, though seemingly disparate, supplement the surety's enforcement of its existing rights and remedies and in some instances create new rights. They address, among other issues, notice requirements, waiver of rights, changes in bond terms, miscellaneous rights granted to the surety, and obligations that the indemnitors owe.

A. The Obligee Refuses to Accept a Bond

Sample provision:  The Surety is not liable to the Principal and or the Indemnitors if any person or entity refuses to accept one or more of the Surety's bonds. The Surety’s Indemnity Agreement: Law and Practice, 2nd Ed., American Bar Association, 2008

No cases have discussed the validity of the foregoing provision, nor have courts addressed generally whether a surety may be liable to the principal or indemnitors if an obligee rejects the surety's bond. Under general contract principles, however, such a provision is likely enforceable. Courts have held that an obligee does not have unlimited discretion to refuse a bond, and it cannot do so arbitrarily or without good cause.² Even if the bond is subject to the approval and satisfaction of the obligee, the refusal of the bond must be in good faith and upon some ground other than mere sentiment or suspicion.³

It also follows that if a bond obligee refuses to accept a surety's bond, the bond does not become operative and no liability should accrue to the surety.⁴

B. Additional Obligations of the Principal and the Indemnitors to the Surety

1. Obligation and/or Right to Obtain the Release and Discharge of the Bonds

a. By the Principal and the Indemnitors

Sample provision: The Principal and indemnitor will, at the request of the Surety, procure the discharge of the Surety from any bond and all liability by reason thereof.

The Indemnity Agreement may require the principal and the indemnitors, upon the request of the surety, to procure the release and discharge of the surety from liability under a bond. The only reported case in which this provision is mentioned is Continental Casualty Co. v. Funderburg.⁵ The North Carolina Supreme Court upheld this provision indirectly in the course of enforcing the entire lndemnity Agreement.⁶ While the principal and indemnitors may not be able to obtain the surety's discharge and release from liability from the bond obligee, they can meet their obligations under this provision by obtaining a substitute surety willing and able to assume responsibility for the remaining bonded obligations. No courts have addressed whether a surety, through enforcement of this lndemnity Agreement provision, may compel the principal and indemnitors to do so. Some jurisdictions, however, have enacted procedures that allow sureties to obtain a discharge from remaining bond obligations.⁷

In a commercial context involving long-term obligations, such as workers compensation or mining reclamation bonds, obligees commonly enact procedures to effect the replacement of a surety with a replacement surety.⁸

This Indemnity Agreement provision is consistent with the surety's common law and equitable rights, under ordinary principles of suretyship, including the right to demand that the principal exonerate the surety.⁹ Exoneration is an equitable remedy of the surety that requires the principal to pay the debt thereby discharging the surety.

The Indemnity Agreement may permit the surety to take such action as it deems appropriate to secure its own release and discharge from any bond or from bond liability. This provision of the Indemnity Agreement supplements the surety's rights under other provisions of the Indemnity Agreement and at common law by imposing upon the principal and indemnitors a duty of cooperation and the duty to assist the surety to obtain its release from bonds. No cases have addressed this provision, but this provision likely is enforceable under general contract principles.

2. The Principal and Indemnitors' Agreement to Subordinate Certain Claims to the Surety's Rights

The lndemnity Agreement may require that any assignment of the bonded contract, or of monies due or to become due thereunder, shall be subordinate and inferior to the rights of the surety. While courts have not construed this provision of the lndemnity Agreement, the provision should be enforceable under general contract principles. Moreover, the provision is consistent with a fundamental right of the performing surety-the surety's superior equitable right to receive contract funds over competing interests of the principal's assignees.¹⁰

a. Claims of lndemnity and/or Contribution by the Principal and Indemnitors Against Each Other

An Indemnity Agreement may preclude the principal and indemnitors from seeking contribution, indemnity, or subrogation from one another until the principal and indemnitors have satisfied their obligation to exonerate and indemnify the surety for all loss arising from the bond. No cases have addressed this provision, but this provision likely is enforceable under general contract principles.

b. Loans Between Principal and indemnitors

An Indemnity Agreement may prohibit the Principal and Indemnitors from repaying any debt owed to one another, or from lending money to or acting as sureties for each other or third parties. No cases have addressed this provision. Again, this provision likely is enforceable under general contract principles.

3. Notice Obligations of the Principal and Indemnitors

Indemnity Agreements have required the principal and indemnitors to notify the surety of any changes in their identity, legal status, ownership, control, or financial condition, or of the sale or perfection of any liens on key assets of the principal or indemnitors. Sureties use this provision to protect themselves from changes in ownership or management of the principal or changes in the indemnitors' status that may impact their ability to indemnify the surety in the event of loss or the availability of assets to secure the bond obligation.

Notice of changes in the ownership or management of a principal's business is important to the surety, in that such changes have often affected a principal's financial circumstances or ability to prosecute bonded work and consequently has increased a surety's risk. Further, when a financial institution or other creditor has obtained or perfected an interest in assets of the principal or indemnitors, it has had the effect of diminishing a principal's effectiveness or financial status and conflicted with the surety's rights to those assets, particularly contract funds.¹¹

4. The Indemnitors' Obligation to Know the Status of the Principal's Financial Condition and the Bonded Contracts

The Indemnity Agreement may require the indemnitors to acknowledge that they are aware of the financial condition of the principal and the status of the bonded contracts. 'The intent of such a provision is to inhibit indemnitors from asserting, in defense to a surety's claim for indemnification, that the surety did not act in good faith when it issued the bond because the surety should have known the principal did not have the financial means to perform the contract, or that the surety should have disclosed to the indemnitors facts bearing on the principal's financial condition so they could have taken action prior to principal's default, potentially eliminating or reducing the surety's loss. There are no cases that have addressed such a provision in the Indemnity Agreement.

C. Changes or Modifications

1. Changes in the Bond and Underlying Bonded Contracts

The Indemnitors waive notice of the execution of any Bond, any continuation, extension, modification renewal or substitution thereof, or any event that may give rise to or increase liability under any Bond.

A material change in the underlying contract that affects the scope of an indemnitor's liability, made without the indemnitor's consent, may result in a discharge of the indemnitor's liability.¹² An indemnitor, however, may give prior consent to material changes without notice.¹³ Toward that end, Indemnity Agreements have provided that the indemnitors consent to amendments or changes to the bond or bonded contracts without discharging the indemnitors from their obligations under the Indemnity Agreement, or that the indemnitors waive notice of any such changes. Courts have generally upheld such provisions.¹⁴

In Cincinnati Insurance Co. v. Leighton,¹⁵ an indemnitor asserted that his obligation was discharged because, following the execution of the Indemnity Agreement, the surety had increased the amount of the bond from $40,000 to $100,000 without his knowledge or consent. The Indemnity Agreement stated that the indemnitor waived notice of "any change, alteration, or extension" of the underlying bond. The court held that the provision unambiguously waived notice of or required the indemnitors' consent to material changes in the bond and that such provisions are enforceable according to their plain terms. The court held that, although there was no evidence the surety had given notice before it had increased the amount of the bond by 150%, the indemnitor's obligation was not discharged¹⁶ In so ruling, the court also noted that the size of the increase in the bond amount did not nullify the effectiveness of the indemnitor's waiver of notice in the Indemnity agreement.¹⁷

In Hammond v. Travelers Insurance Co.,¹⁸ the Indemnity Agreement applied to any claims that the surety paid arising out of "any renewal, extension, modification or continuation [of the bond], or Consent of Surety or additional suretyship ...whether with or without notice thereof to the indemnitors.¹⁹ The surety increased the bond's penal sum twice, thereafter paid a claim against the bond and brought an action for indemnity. An indemnitor claimed his duty to indemnify the surety was discharged because the surety had failed to give him notice of or obtain his consent to the penal sum increase. The court disagreed, holding that the Indemnity Agreement's waiver language was a clear expression of the parties' intent that the obligation to indemnify the surety applied to any increases in the bond amount, with or without notice to or consent of the indemnitors.²⁰

The Pennsylvania Supreme Court reached a different conclusion under related circumstances in Reliance Insurance Co. v. Penn Paving, Inc.²¹

In that case, a husband and wife agreed to indemnify a surety from loss arising from bonds "which may be already or hereafter executed on behalf of the [principal], or renewal or continuation thereof…."²² The Indemnity Agreement provided that the surety "shall not be required to notify or obtain the approval or consent of the undersigned prior to granting, authorizing or executing any assent, assignment, change or extension."²³

Two years later, the principal defaulted under multiple bonds and the surety sought recovery from both indemnitors, since divorced. The wife claimed that her indemnity obligation was discharged because, following her execution of the Indemnity Agreement, the surety had increased the principal's bonding capacity from $200,000 to $5.4 million and had issued $5.2 million in bonds without her consent and without giving her notice. The court held that the Indemnity Agreement did not expressly waive notice of or consent to material modifications to the bonding line.

2. Change in the Indemnity Agreement

No cases appear to have construed the enforceability of this Indemnity Agreement provision, although it is clearly a standard provision seen in many if not most written contracts. Although likely enforceable, it is also likely subject to a myriad of exceptions dependent upon the facts in any particular case, the discussion of which is beyond the scope of this chapter.

In Home Indemnity Co. v. Wachter,²⁴ the surety settled a claim by a subcontractor and sought recovery of the loss from its indemnitors. The indemnitors asserted that the surety was equitably estopped from enforcing the Indemnity Agreement because the surety's attorney led them to believe that the surety would not seek indemnification. The court held that the indemnitors had failed to demonstrate either a justifiable reliance on the alleged oral representation or substantial prejudice therefrom and had failed to allege facts sufficient to overcome the effect of the "conclusive evidence" clause of the Indemnity Agreement.²⁵

D. Notices

1. Manner and Method

Under some Indemnity Agreements, the surety's notice to the principal or to any one indemnitor may constitute notice to the principal and all indemnitors.²⁶ Such provisions may prevent an indemnitor, in defense of the surety's claim for indemnification, from asserting that the surety failed to give the indemnitor notice of a claim or its intention to settle a claim.

Three cases have addressed Indemnity Agreements' notice requirements.

In National Union Fire Insurance Co. of Pittsburgh, Pa v Broadhead²⁷ and In re Main,²⁸ the principals under financial guaranty bonds filed for bankruptcy and mailed notices of the bankruptcy to National Union. The Indemnity Agreements specified the address to which the principal and the indemnitors must send notice to the surety-the surety's main office. The courts found that the debtors had sent timely notice of the bankruptcy proceedings to the surety's main office, but had failed to address the notices to the specific division manager and department identified in the Indemnity Agreements. The courts held that the debtors had not complied with the notice requirements in the Indemnity Agreements and, therefore, National Union was not time-barred from asserting its indemnity claims in the bankruptcy proceedings. The courts noted that, in light of the size and number of persons that National Union employed, notices addressed only to the surety's main office did not adequately comply with the terms of the Indemnity Agreements. However, while the court in Main strictly enforced the notice requirements, the court in Broadhead implied that it would do so only upon a showing of prejudice.

In Safeco Insurance Co. v. Criterion Investment Corp²⁹ the surety received claims and forwarded notices to the principal, but the principal had moved and never received the notices. The surety paid the claims and sought indemnification. The principal asserted a lack of notice defense. In rejecting this defense, the court held that the surety had no duty to "hunt by telephone or by letter for persons responsible for handling [the principal's] claims."³⁰

2. The Principal and the Indemnitors' Notice to the Surety of Claims or Demands

The Indemnity Agreement may impose upon the indemnitors a duty to give the surety written notice of any potential claims on a bond. Under this provision, the indemnitors have an affirmative duty to notify the surety of all circumstances that may lead to bond liability. No courts have construed such provisions. In practice, it is rare that a principal will advise its surety of an impending claim although certain principals have done so in order to prevent surprise on the part of the surety and to convince the surety of the correctness of the principal's position in response to the claim.

E. Waivers and Non-Waivers

1. The Principal's and the Indemnitors' Waivers and non-waivers

a. Claims Against the Surety

The Indemnity Agreement may require the indemnitors to waive any claims for damages they may have against the surety arising from any good faith actions of the surety, either in fulfilling its obligations under the bond or in exercising its rights under the Indemnity Agreement. There are no cases that address this provision, but the provision is consistent with right of settlement clauses, which provide that the surety's decision to pay, settle, or defend any claim on the bond shall be final, conclusive, and binding on the indemnitors.³¹ Courts construing right of settlement clauses have typically held that the surety's recovery of amounts paid in settlement of bond claims is not conditioned upon whether the surety was legally liable under the bond.³² A surety who has exercised its settlement discretion in good faith may not need to prove that the principal was obligated to make payment.³³ Absent the surety's fraud or a lack of good faith, the surety has sole discretion to compromise a claim and the decision is binding upon the indemnitors.³⁴

Because the surety's discretion to settle claims is conditioned upon standards of good faith, the surety is not entitled to indemnity for settlements that were made fraudulently or in bad faith.³⁵ The waiver of claims provision, illustrated above, is conditioned on the same good faith standard. Such waiver provisions are consistent with the surety's broad discretionary right of settlement.

b. Notices and Defenses

The Indemnity Agreement may include one or more provisions in which indemnitors waive notice of facts or events that may affect the indemnitors' rights or the surety's liability, such as notice of the execution of any bond,³⁶ changes in the bond or predicate contract,³⁷ or settlement with a co-indemnitor.

In Reliance Insurance Co. v. Penn Paving, Inc.³⁸ the court construed the following general waiver of notice clause in an Indemnity Agreement:

the undersigned shall be and continue to be liable to the Surety hereunder notwithstanding any notice of any kind to which the undersigned might have been or be entitled and notwithstanding any defenses which the undersigned might have been or be entitled to make^.39

The indemnitor argued that she did not waive notice of or consent to increases in the principal's bonding line. The court held that because the Indemnity Agreement did not mention a specific defense, and did not specifically waive notice of increases in the bonding amount, her duty to indemnify was completely discharged.⁴⁰

In Massachusetts Bonding and Insurance Co. v. Osborne,⁴¹ an indemnitor argued she was not obligated to indemnify the surety for bonds issued after she had signed the Indemnity Agreement because she did not receive notice of execution of the bonds and did not sign the subsequent bond applications. Prefatory language in the Indemnity Agreement stated "Whereas at the ...request of the Principal (and the Indemnitors…) the Surety... may from time to time... execute [such bonds] on behalf of the Principal…" Another provision stated that a written application for the execution of additional bonds, signed by any officer of the principal, is ample authority for the surety to issue such bonds. The court held that the indemnitor had waived notice of execution of the bonds.⁴²

Indemnitors often assert that a surety that settles claims without notice to indemnitors has failed to exercise its settlement discretion in good faith. Sureties have relied on the waiver of notice provision, illustrated above, to attempt to pre-empt such arguments. By the same token, some cases that have considered whether the surety exercised its settlement discretion in good faith under the Indemnity Agreement have examined whether the surety notified the principal and the indemnitors of the claim or settlement. Courts are divided as to whether the surety has a duty to inform the indemnitors of claims and settlement offers.⁴³

In New Amsterdam Casualty Co. v. Lundquist,⁴⁴ the Minnesota Supreme Court held that a surety had a duty to communicate to indemnitors "all offers of settlement which affect the indemnitor's obligation to the indemnitee.⁴⁵ The surety received a $10,000 settlement offer, but did not convey it to the principal. Following trial, the court entered a $15,000 judgment against the surety. The court held that the surety has a good faith duty to communicate settlement offers to its indemnitors that are within the bond limits. Since it did not do so, the surety's recovery from the indemnitors was limited to $10,000, the amount for which the surety could have settled the claim.

The court in American Bonding Co. v. Nelson⁴⁶ held that the waiver of notice and right of settlement provisions in the Indemnity Agreement created an ambiguity because one provision waived all notices while the other implied that the surety would notify the indemnitors so that they could exercise their right to deposit collateral and request litigation. Strictly construing the Indemnity Agreement against the surety, the court held that the Indemnity Agreement implicitly required the surety to notify the indemnitors of claims.

Conversely, some courts have held that a surety has no duty to notify the principal or indemnitors of claims, absent a specific requirement in the Indemnity Agreement. In Republic Insurance Co. v. Real Development Co.,⁴⁷ the indemnitors contended that a notice requirement was implicit in the right of settlement clause because, absent notice, the indemnitors could not determine whether to exercise the option to deposit collateral and request litigation of the claim. The court held that the Surety had no duty to give notice of claim to the indemnitor because the Indemnity Agreement did not expressly require notice and included a waiver of notice clause. In Safeco Insurance Co of America v. Gaubert,⁴⁸ the indemnitors argued that the surety had a duty to give adequate notice so that they could be present at trial. The court held that, under the Indemnity Agreement, the surety had no duty to notify the indemnitors of the claim, the decision to defend, or the eventual settlement.

In Data Sales Co., Inc. v. Diamond Z Mfg.⁴⁹ the court rejected indemnitors' premise that, under Section 48 of the Restatement of Surety and Guaranty, only certain defenses are waivable and the remainder are not. In Data Sales, the surety claimed that the indemnitors had waived the defense, found in Restatement Section 41(b)(i), based on modification of the underlying obligation. Section 48 of the Restatement describes only six rights that are subject to waiver, and indemnitors argued that any right omitted from that list may not be waived in advance. Rejecting the argument, the court held that Section 48 identifies only some suretyship defenses that are waivable but does not preclude waiver of others. The court noted that other sections of the Restatement plainly allow waivers to be included in advance.⁵⁰

2. The Surety's Waivers and Non-Waivers

This provision acknowledges that the surety reserves all rights and defenses available to the surety under the Indemnity Agreement or at common law and that no action or inaction by the surety constitutes a waiver of such rights. The indemnitors remain liable to the surety even if they relied upon the surety's actions or inactions.

a. The Surety Accepts, Fails to Obtain, or Releases Other Indemnity Agreements

Under this provision, the surety's modification of the Indemnity Agreement by addenda, including the addition of new indemnitors or the waiver of indemnity from certain others, may not discharge the obligation of the existing indemnitors.

In Cincinnati Insurance Co. v. Leighton,⁵¹ the surety sought indemnification from a corporate officer whose employment terminated after he signed the Indemnity Agreement. Upon renewal of the bond, the remaining officers signed a new bond application and Indemnity Agreement. Each Indemnity Agreement applied to "any bond, including the extension or renewal thereof," and in each, the indemnitor also "waives notice of any change, alteration, or extension of any bond, and agrees that this indemnity shall cover any subsequent bond of any type for the applicant." The court held that the new Indemnity Agreement was a novation and extinguished the formerly employed indemnitor's liability under the initial Indemnity Agreement. In so ruling, the court distinguished decisions in which courts have held that a second agreement did not constitute a novation because, in those cases, the first agreement "anticipated and rejected the possibility that a subsequent agreement could relieve the indemnitors."⁵²

In US. Fidelity and Guar. Co, v. Klein Corp.,⁵³ the Indemnity Agreement provided that the indemnitors "shall not be relieved of liability hereunder by any change, addition, substitution, continuation, renewal, extension, successor or new obligation ...."⁵⁴ The indemnitors argued that a takeover agreement between the surety and the owner was a novation and discharged their obligations under the Indemnity Agreement. The court rejected the argument and found that the language of the Indemnity Agreement preserved the original indemnity obligation.⁵⁵

The addition of new indemnitors was an issue before the Louisiana Supreme Court in Travelers Indemnity Co. v. Ducote.⁵⁶ The surety obtained Indemnity Agreements from multiple indemnitors in connection with the issuance of a performance bond. After one of the indemnitors died, the surety obtained another indemnity Agreement that added new indemnitors. The court rejected the original indemnitors' argument that their obligations were extinguished by novation. The court found that the addition of another Indemnity Agreement did not evidence that the surety intended to extinguish the first obligation and substitute another in its place.

b. The Surety Releases One or More of the Indemnitors

This illustrative provision, when included in an Indemnity Agreement, memorializes the joint and several nature of the indemnity obligation. It states that the surety may release one or more of the indemnitors without prejudicing its rights against the other indemnitors. This provision gives the Surety flexibility to negotiate a settlement with certain indemnitors without releasing the obligations of the others. It also may allow the surety to release an indemnitor who leaves the employ of a principal and from whom the surety does not wish to seek indemnification.⁵⁷

c. The Surety Accepts, Fails to Obtain, or Releases Collateral

The surety's decision to obtain collateral as security for a bonded obligation or to release existing collateral arguably does not prejudice the surety's right to seek indemnification under the Indemnity Agreement. In Elk River Concrete Products Co. v. American Casualty Co.⁵⁸ the Indemnity Agreement provided that "the release of any indemnity or security that may have been taken by, or the return or exchange of any collateral that may have been deposited with, the surety or sureties executing any such bond" and not affect the liability of an indemnitor.⁵⁹ Upon default of the principal, the Indemnity Agreement assigned to the surety as collateral the principal's equipment and assets. The court held that the surety's "mere inaction or passive negligence in failing to resort to the collateral is not sufficient of itself to release the indemnitor from his obligation to pay the debt."⁶⁰

In Travelers Casualty and Surety Co. of America v. Amoroso,⁶¹ the court refused to extend the implied duty of good faith and fair dealing to the surety's use of collateral. The court noted that the Indemnity Agreement "plainly states that Travelers has the exclusive right to settle all outstanding claims against Amoroso, that 'Travelers has the exclusive right to provide refuse to provide requested bonds, and that Amoroso is required to deposit collateral upon Travelers' demand.⁶² The court held that, because the Indemnity Agreement did not explicitly impose a duty of good faith upon the surety's use of collateral, it could use the pledged collateral as it saw fit.

d. The Surety Delays in Exercising its Rights

This provision acknowledges that a surety's failure to exercise its rights and remedies, or its delay in doing so, is not a waiver or impairment of the surety's rights and remedies. It is likely enforceable although there are no cases that have addressed such a provision in an Indemnity Agreement.

3. The Indemnitors' Waiver of Their Homestead Rights and Other Exemptions

The principal and the indemnitors often attempt to protect assets from execution or sale by invoking personal exemptions available to them, including the homestead exemption. As a result, many Indemnity agreements include a waiver of the right to claim such a homestead exemption, in order to prevent an indemnitor from invoking the exemption to shield assets from a surety that executes against the indemnitors' property.⁶³

Most states have enacted homestead laws, by statute or constitution, at prevent creditors from seizing a debtor's principal residence for nonpayment of debts. The permissible scope of the homestead exemption varies significantly from state to state. In some states, such as Florida and Texas, the law will protect homesteads of any value, while other states have only nominal homestead exemptions or none at all.⁶⁴

A contractual waiver of homestead rights in favor of general creditors is not enforceable in all state.⁶⁵ In states that prohibit or limit enforcement of such a waiver, the public policy consideration often is that the exemption is for the benefit of a debtor and his family.⁶⁶ Jurisdictions in which the surety may enforce contractual waivers of homestead exemptions are Alabama,⁶⁷ Alaska,⁶⁸ Arizona,⁶⁹ Arkansas,⁷⁰ Delaware,⁷¹ Georgia,⁷² Illinois,⁷³ Kentucky,⁷⁴ Louisiana,⁷⁵ Massachusetts,⁷⁶ Minnesota,⁷⁷ Missouri,⁷⁸ Nevada,⁷⁹ New Mexico,⁸⁰ North Carolina,⁸¹ North Dakota,⁸² Oklahoma,⁸³ South Dakota,⁸⁴ Tennessee,⁸⁵ Utah,⁸⁶ Virginia,⁸⁷ Washington,⁸⁸ and Wyoming.⁸⁹

4. The Indemnitors' Waiver of Their Rights to Jury Trial

The Indemnity Agreement may contain a waiver of the right to a jury trial. There are no cases that address the validity of jury waivers in Indemnity Agreements, but the contractual waiver of the right to a jury trial is commonplace, and courts in most states have routinely upheld it in other contexts,⁹⁰ with the exception of California and Georgia.⁹¹ Some courts will uphold pre-dispute jury trial waivers, but only with certain specific qualification.⁹² For example, under the federal standard, courts will uphold a dispute, contractual jury trial waiver only if the defendant made the waiver in a "knowing, voluntary, and intelligent manner.⁹³

5. Election of Venue and Choice of Law

The Indemnity Agreement may include a choice of law provision that ___, for the purpose of construing the document, which state's laws comply. Courts routinely enforce choice of law provisions in contracts, including Indemnity Agreements, when the choice-of-law state has a _____ nexus to the parties and the subject matter of the lawsuit.⁹⁴ In _____ of a choice of law provision, a court will engage in a choice of law analysis under the conflict of law rules of the venue jurisdiction in order to determine the law that will govern the parties' dispute arising under the Indemnity Agreement.⁹⁵

Indemnity Agreement may also contain a provision in which the ____ and indemnitors consent to venue and submit to jurisdiction in a designated forum. Forum selection provisions are generally enforceable.⁹⁶ To set aside a forum selection clause, the objecting party must establish (1) fraud or overreaching, (2) that enforcement would violate some public policy of the forum state. or (3) that enforcement in a specific case would result in "litigation in a jurisdiction so seriously inconvenient as to be unreasonable."⁹⁷ The same standard applies to Indemnity Agreement provisions in which the indemnitors consent to personal jurisdiction in a particular forum.⁹⁸

F. Other Surety Rights

1. Power of Attorney for the Principal and the Indemnitors

Indemnity Agreements often include a provision, illustrated above, in which the surety or its agent is appointed attorney-in-fact for the principal and indemnitors. The attorney-in-fact or power of attorney provision enables the surety, in the name of the principal or indemnitors, to sign documents and to take such other action as the surety deems necessary to enforce the principal and indemnitors' obligations under the Indemnity Agreement and to protect the surety's rights under the bonds.

Sureties have used the attorney-in-fact/power of attorney provision, in conjunction with other clauses in the Indemnity Agreement, to empower them to complete bonded projects, settle claims against the bonds, and settle the principal's claims against third parties in a manner they reasonably seem appropriate. In Hutton Construction Co. v. County of Rockland,⁹⁹ the court held that the attorney-in-fact provision together with the assignment provision of the Indemnity Agreement gave the surety authority to settle all claims on behalf of the principal. including not only claims against the surety upon the bonds, but also but also the principal's affirmative claims arising from the bonded contracts.¹⁰⁰ The provision. therefore, has empowered sureties to enter into settlement agreements with an obligee.¹⁰¹

In contrast, at least two courts have held that once a surety receives notice of a claim, if the Indemnity Agreement gives the surety the right to act as attorney-in-fact for the principal, the surety risks being bound by a default judgment against the principal if the surety does not file an appearance and defend the claim against the principal.¹⁰²

In Drill South, Inc. v. International Fidelity Insurance Co.,¹⁰³ subcontractors filed suit against the principal and surety. Under the terms of Indemnity Agreement, the surety was appointed attorney-in-fact for the principal. but the surety did not enter an appearance for the principal and did not object when the court granted an unopposed motion for default against the principal. The district judge held the surety was bound by that default judgment and granted the subcontractors' motion for summary judgment against the surety. The Eleventh Circuit affirmed, holding that as attorney-in-fact the surety had the right to step in and defend the principal.¹⁰⁴ Because the surety had both notice and an opportunity to defend the claims against the principal, the court held it was bound by a default judgment against its principal. The court rejected decisions from three other jurisdictions that held, under similar circumstances, that a surety was not bound by a default entered against the principal.¹⁰⁵

In American Safety Casualty Insurance Co. v. C.G. Mitchell Construction, Inc.,¹⁰⁶ the principal defaulted on its subcontract and the prime contractor sued the principal and its performance bond surety. The Indemnity Agreement assigned to the surety the principal's causes of action and appointed the surety its attorney-in-fact upon default under the subcontract. The surety appeared only on its own behalf. After the principal's registered agent resigned, the trial court granted the prime contractor's motion for default judgment against the principal. The court then held that the default judgment was binding upon the surety and granted the prime contractor's motion for summary judgment against the surety. The Supreme Court of Virginia affirmed. The court held that a default judgment against the principal binds the surety when it had notice and an opportunity to defend the claim against the principal.¹⁰⁷ The court reasoned that the surety, as a co-defendant, had notice of the suit and, under the Indemnity Agreement, also had the opportunity to step in and defend the claims.

2. Confession of Judgment

An Indemnity Agreement may provide that the surety may enter an appearance on behalf of and/or enter judgment against the principal and indemnitors. Such provisions are sometimes known as cognovits provision, a confessed judgment provision, or a judgment note. These provisions are highly disfavored in many jurisdictions and are sometimes unenforceable, or are enforceable subject to notice, jurisdictional, or other constraints.¹⁰⁸ Although there is no constitutional ban on such provisions under the United States Constitution's Due Process clause,¹⁰⁹ some states require a creditor to use statutory language¹¹⁰ while others will not allow a debtor to confess to a judgment before the creditor files a lawsuit¹¹¹ or the debtor receives notice of the entry of judgment.¹¹² Also, a confessed judgment, though valid in the state in which it was obtained, may not always be enforceable in every jurisdiction.¹¹³

The power of attorney provision in the Indemnity Agreement may also provide that the principal and the indemnitors ratify the past or future lawful conduct of the surety while acting as their attorney-in-fact. No cases have construed such provisions in an Indemnity Agreement, but courts have examined similar provisions in other contexts. Ratification generally occurs when a principal, through words or actions, adopts the prior acts of an agent.¹¹⁴ Courts typically focus on the principal's manifestation of intent to be bound by the prior act.¹¹⁵ One ratifies an act in same manner that would have been necessary to confer such authority from the outset.¹¹⁶

In White v. Moriarity,¹¹⁷ the California Court of Appeals held that a principal was bound by the prior unauthorized acts of an agent as a result of a ratification provision in an attorney-in-fact agreement. In White, the parties executed an attorney-in-fact agreement that empowered the agent to "execute all documents, do all acts, receive or pay all sums of money, and negotiate all matters" in connection with the purchase of certain equipment. The document also stated: "I hereby ratify and confirm [all] that Charles E. Anderson, said attorney in fact, shall lawfully do or cause to be done by virtue of these presence [sic]."¹¹⁸ The court held that the ratification clause applied to both future and prior acts of the attorney-in-fact.

3. Miscellaneous Other Rights and Remedies

a. Surety's Rights in Addition to Other Rights

By this provision, the rights, powers and remedies that the surety may have under the Indemnity Agreement against the principal and the indemnitors are in addition to, and not in lieu of, any and all other rights, powers and remedies that the surety may have against the principal and the indemnitors under the Indemnity Agreement, at law, or in equity, including the surety's subrogation rights. This provision makes clear that the surety reserves all of its rights at common law and that the election of certain remedies under the Indemnity Agreement does not supersede or waive those rights.

b. Surety's Exhaustion of Its Rights and Remedies

The surety's rights may be cumulative, and the Indemnity Agreement is based upon the presumption that the principal's and the indemnitors' promises to perform are the same promise of full performance.

The liability of an indemnitor is typically joint and several such that each indemnitor is responsible for the entire loss.¹¹⁹ The Indemnity Agreement may provide, therefore, that a surety is not required, prior to seeking indemnification, to exhaust its remedies against the principal, co-insureds, or others. The surety has the right to proceed against as many or as few indemnitors as it wishes, concurrently or separately, as dictated by, for example, the financial resources or bankruptcy of one or more indemnitors, or the ability to obtain jurisdiction over certain indemnitors, or other exigencies of a claim.

c. No Election of the Surety's Rights and Remedies

An election of remedies provision in the Indemnity Agreement permits the surety to act upon any of the remedies available under the indemnity Agreement, at law, and in equity. It prohibits the indemnitors from raising the doctrine of election of remedies to limit the surety's efforts to obtain recovery.

The doctrine of election of remedies means that if one party has alternative remedies that are inconsistent and repugnant to one another, his choice of one remedy precludes assertion of the other.¹²⁰ The doctrine requires a plaintiff with a choice of inconsistent remedies to elect one of the remedies to the exclusion of the other.¹²¹ For example, a plaintiff may sue for damages for conversion of property or may bring a replevin action to recover the property itself, but not both.¹²²

The election of remedy issue has arisen when a surety decides. Pursuant to the Indemnity Agreement's assignment provision, to file a U.C.C.-1 Financing Statement or file the Indemnity Agreement as a U.C.C.-1 Financing Statement to perfect its interest in the principal's property. The vast majority of courts acknowledge that the surety is not required to elect a remedy and is entitled to exercise its equitable rights as subrogated surety and legal rights as a secured creditor.¹²³

d. The Surety Shall Have Every Right, Remedy or Defense that a Personal Surety Without Compensation Would Have

The Surety shall have every right and remedy which a personal Surety without compensation would have, including the right to secure its discharge from the suretyship, and nothing herein contained shall he considered or construed to, waive, abridge or diminish any right or remedy which the Surety might have if this Indemnity Agreement were not executed.

The surety historically enjoyed special status as a favorite of the law, but it is generally acknowledged that such status is reserved today only for the uncompensated Surety.¹²⁴ The compensated surety continues to avail itself of its traditional rights and defenses, but no longer benefits from the presumptions or strict construction it enjoyed when it had favored status. For example, traditionally, any modification of the underlying bonded contract would completely discharge the surety,¹²⁵ but a compensated surety was discharged only to the extent of the resulting prejudice.

The foregoing provision in the Indemnity Agreement purports to restore to the compensated surety all rights and remedies that an uncompensated surety would have. No cases have discussed the validity of the foregoing provision. Therefore, whether it can effectively restore favored status to the compensated surety is an open question. However, the provision does attempt to emphasize that the provisions of the Indemnity Agreement shall not be construed to waive, abridge, or otherwise diminish any rights to which the surety may be entitled at law or in equity.

e. The Indemnity Agreement Shall be Liberally Construed to Protect. Exonerate, and Indemnify the Surety

Courts often construe insurance policies and other agreements against the party that prepared them. The foregoing provision acknowledges an intention of the parties that courts construe the Indemnity Agreement liberally for the purpose of protecting and indemnifying the surety and inducing the surety to execute bonds or to join with others to do so.¹²⁶ u

1. The authors would like to acknowledge the research contributions of John M. Krafi of Clausen Miller, P.C. and Patrick F. Welch of Mann Berens & Wisner LLP.

2. Empire State Sur. Co. v. Schillinger Bros., 167 Ill. App. 632 (111. App. Ct. 1912); Blied v. Barnard, 133 N.W. 795,796 (Minn. 1911).

3. Empire State Sur. Co. v. Schillinger Bros., 167 Ill. App. 632 (111. App. Ct. 1912); Blied v. Barnard, 133 N.W. 795,796 (Minn. 1911).

4. Rachman Bag Co. v. Liberty Mut. Ins. Co., 46 F.3d 230 (2d Cir. 1995) (bond is not effective until it is delivered to and accepted by the obligee).

5. Cont'l Cas. Co. v. Funderburg, 140 S.E.2d 750 (N.C. 1965).

6. Id. (finding that the indemnity provided by the wife of the principal's president was supported by consideration).

7 See, e.g., ALASKA STAT. 45.70.010 (West 2007) (surety on judicial or public officers bond may apply to court for discharge of liability); Ariz. REV. STAT. ANN. 12-1641 (surety may apply to court for discharge of liability); CAL. CIV. PROC. CODE 996.110 (West 2007); DEL. CODE ANN tit. 18, § 7704 (2007) (surety may apply to court for discharge of liability); KAN STAT.ANN. §59-1107 (West 2006) (surety may apply to court for order requiring probate fiduciary to settle account and discharging surety); ME. REV. STAT. ANN. tit. §8-306 (West 2007) (same); Mo. REV. §433.130 (West 2007) (surety may apply for discharge from court); N.J. STAT. ANN. (West 2007) (probate surety may apply to court for discharge); N.M. STAT ANN. §46-6-3 (West 2007) (surety may apply to court for discharge of liability); N.Y.C.P.L.R. LAW §2510 (McKinney 2007) (same).

8. e.g., OHIO ADMIN.CODE §1501: 13-7-03(C)(West 2007) (replacement of mining reclamation bonds); Theodore G. Martinez, Workers 'Compensation Self-Insurance Bond, in THE LAW OF SURETYSHIP 269 (Edward G. Gallagher ed., 2d ed. 2000).

9. Finkelstein v. Keith Fabrics, Inc., 278 F.2d 635, 640 (5th Cir. 1960); RESTATEMENT(THIRD) OF SURETYSHIP & GUARANTY (1996) §39(b).

10. Prairie State Nat'l Bank v. United States, 164 US. 227 (1896); Fed. Ins. Co. v. Fifth Third Bank, 867 F.2d 330 (6th Cir. 1989); Nat'l Shawmut Bank of Boston v. New Amsterdam Cas. Co., 41 1 F.2d 843 (1st Cir. 1969); Transamerica Ins. Co. v. Barnett Bank of Marion County, 540 So. 2d I 1 3 (Fla. 1989). See also Edward G. Gallagher, Entitlement to Contract Proceeds, in THE LAW OF PERFORMANCE BONDS 61 (Lawrence R. Moehnann & John T. Harris eds., 1999); G. Steven Ruprecht, Surety's Rights and Remedies Against Principals and Against Indemnitors Under the General Indemnity Agreement, in THE LAW OF PERFORMANCE BONDS 77 (Lawrence R. Moelmann & John T. Harris eds., 1999) (discussing the surety's priority rights to unpaid contract funds against, inter alia, the principal's other creditors, assignee banks and bankruptcy trustee).

11 See Amen Shahinian, The General Agreement of lndemnity, in THE LAW OF SURETYSHIP 487 (Edward G. Gallagher ed., 2d ed 2000) (discussing filing of the Indemnity Agreement as a financing statement to perfect the surety's security interest in contract funds and the principal's property).

12. See, e.g., US. Fid. & Guar. v. Hathaway, 394 S.E.2d 764, 768 (W. Va. 1990) (collecting cases); Olympic Dev. Group, Inc. v. Am. Druggists' Ins. Co., 333 S.E.2d 622, 627-28 (Ga. Ct. App. 1985) (change in primary obligation must be material to effect a discharge of secondary obligation). Buisee US. v. Firemen's Fund Ins. Co., 191 F.Supp. 317 (D. Idaho 1961) (indemnitor was not discharged following surety's increase in bond amount where surety sought recovery only for original bond amount). See also RESTATWEMENT (THIRD) of Suretyship & Guaranty (1996) § 41 (guarantor is discharged by a contractual modification that "creates a substituted contract or imposes risks on the secondary obligor fundamentally different from those imposed pursuant to the transaction prior to modification").

13 Cincinnati Ins. Co. v. Leighton, 403 F.3d 879, 886 (7th Cir. 2005); Firstsouth, FA v. LaSalle Nat'l Bank, 699 F.Supp. 1248, 1251 (N.D. 111.1988); Data Sales Co. v. Diamond Z Mfg., 74 P.3d 268, 272 n. 4 (Ariz. Ct. App. 2003); Reliance Ins. Co. v. Penn Paving, Inc., 734 A.2d 833, 838 (Pa. 1999); Brzozowski v. N. Trust Co., 618 N.E.2d 405, 410 (Ill. App. Ct. 1993); Mercy Med. Ctr., Inc. v. United Healthcare of the Mid-Atl., Inc., 815 A.2d 886,901-02 (Md. App. 2003), cerf. denied., 824 A.2d 59 (Md. 2003); Sherwin-Williams Co. v. ASBN, Inc., 550 S.E.2d 527, 530 (N.C. Ct. App. 2001), cert. denied, 560 S.E.2d 137 (N.C. 2002); Baumgarten v. Bubolz, 311 N.W.2d 230, 233 (Wis. Ct. App.198l). See also U.S. v. Stump Home Specialties Mfg., 905 F.2d 1117 (7th Cir. 1990) (waiver of guarantor's right to be discharged due to material change in the terms of the debt is valid under Indiana law); Woods-Tucker Leasing Corp. v. Kellum, 641 F.2d 210, 217 (5th Cir.1981) (finding no discharge where terms of guaranty expressly consent to modification); Nikimiha Sec. Ltd. v. Trend Group, 646 F.Supp. I211, 1218 (ED. Pa.1986) (novation did not discharge guarantor where an express provision within guarantee consented to reservation of rights); Bank of Boston Int'l of Miami v. Arguello Tefel, 644 F.Supp. 1423, 1429 (E.D.N.Y.1986) (provision in loan agreement waived guarantor's right to notice of modifications); McGill v. Idaho Bank & Trust Co., 632 P.2d 683, 688 (Idaho 1981) (guarantor contractually waived the defense of release of the principal debtor); Abadie v. Markey, 710 So.2d 327, 330-31 (La. Ct. App.1998) (terms of lease expressly waived surety's right to release due to modification); State v. French, 945 P.2d 752 (Wash. App. 1997) (indemnitors can give prior consent to waiver of defense based on expansion of primary obligation); 39A C.J.S. Guaranty § 87 (1996 & 2007 Supp.).

14 See cases cited supra note 13.

15 403 F.3d 879 (7th Cir. 2005).

16 Id.

17 Id. (citing ITT Diversified Credit Corp. v. Kin~mel5, 08 F.Supp. 140, 143 (N.D. Ill. 1981) (guarantor liable despite dramatic increase in liability because of plain terms of waiver clause); U.S. v. Stump Home Specialties Mfg., 905 F.2d 11 17, 1121 (7th Cir. 1990) (same rule under Indiana law); Jacobson v. Devon Bank, 351 N.E.2d 254,256 (Ill. App. Ct. 1976) (same).

18. 553 S.W.2d 205 ('Tex. App. 1977).

19. Id. at 206.

20 Id.

21 734 A.2d 833 (Pa. 1999).

22 Id. at 837.

23 Id. at 839-40.

24. 115 A.D.2d 590 (N.Y. App Div. 1985).

25 Id. at 591-592.

26. E.g. Patrick Fay et al. v. James M. Edmiston, 25 Kan. 439 (Kan. 1881);

27. United States Fid. & Guar. Co. v. Haggart, 163 F. 801 (1908).

28. 133 B.R. 746 (Rankr. W.D. Pa. 1991), af'd., 157 B.R. 786(Bankr. W.D. Pa. 1992)

29. 732 F.Supp. 834 (E.D. Tenn. 1989).

30. Id. at 840.

31 See supra Chapter V, section F, and Chapter VII, section B.4.

32. See, e.g., Fid. & Deposit Co. of Md. v. Bristol Steel & Iron Works, Inc., 722 F.2d 1160 (4th Cir. 1983) (sureties' payment under performance bond not tainted with bad faith and entitled them to reimbursement by indemnitors); Employers Ins. of Wausau v. Able Green, Inc., 749 F. Supp. 1100, 1103 (S.D. Fla. 1990) (surety is entitled to reimbursement of payments made in good faith regardless of whether any liability actually exists); Hess v. Am. States Ins. Co., 589 S.W. 2d 548, 55 I (Tex. App. 1979); U.S. Fid. & Guar. Co. v. Napier Elec. & Constr. Co., 571 S.W.2d 644, 646 (Ky. Ct. App. 1978); Commercial Union Ins. Co. v. Melikyan, 430 So.2d 1217, 1222 (La. Ct. App. 1983) (under bond, surety's liability can be no greater than that of principal, but under Indemnity Agreement, indemnitors can be bound to surety in any manner the parties elect); Md. Cas. Co. v. Spitcaufsky, 178 S.W.2d 368, 371 (Mo. 1944) (surety under "no necessity to require its liability to be fixed by final judgment" before it made payment); Fid. & Deposit Co. 0fMd.v. Fleischer, 772 S.W.2d 809,816 (Mo. Ct. App. 1989) (surety's right of reimbursement does not require that it was liable on the bonds); Safeco Ins. Co, of Am. v. Gaubert, 829 S.W.2d 274,282 (Tex. App. 1992) (whether surety was liable on bond "makes no difference"); H. M. Ford v. Aetna Ins. Co., 394 S.W.2d 693 (Tex. App. 1965) (whether surety or principal is liable on bond is immaterial).

33. U.S. Fidelity & Guar. Co. v. Feibus, I5 F.Supp.2d 579,585 (M.D.Pa. 1998). Contra Gen. Guar. Ins. Co. v. Hansen Eng. Co., 364 So2d 602 (Fla. Dist. Ct. App. 1977) (surety is required to prove liability of its principal); Gen. Ins. Co. of Am. v. K. Capolino Constr. Co., 903 F. Supp. 623 (S.D.N.Y. 1995) (absent evidence of principal's liability, a question of fact existed as to whether the surety paid as a volunteer). But see Gen. Accident Ins. Co. of Am. v. Merritt-Meridian Constr. Co., 975 F. Supp. 5 1,5 18 (S.D.N.Y. 1997) (it is irrelevant whether surety was actually liable for the payments made).

34. Engbrock v. Fed. Ins. Co., 370 F.2d 784, 786 (5th Cir. 1967) (indemnitor may attack surety's settlement only by proving fraud); J.F. White Eng'g Corp. v. Gen. Ins. Co. of Am., 351 F.2d 231,233 (10th (3.1965) (surety could select whatever contractor it wished to complete bonded work); Integon Indem. Corp. v. Thorup Building & Design, Inc., No. Civ. A. 89- 2005-0, 1989 WL 75630, at *1 (D. Kan. June 29, 1989) (surety had no contractual obligation to confer or cooperate with principal in completing bonded work). See also, Arnien Shahinian, The General Agreement of Indemnity, in THE LAW OF SURETYSHIP 487 (Edward G. Gallagher ed., 2d ed. 2000).

35. For a comprehensive analysis of the good faith standard, see supra Chapter V, section E, and Chapter VII, section B, and infra Chapter IX, section B.3.a.

36. See, e g , Westchester Fire Ins. Co. v. Campbell, 55 F.3d 32 (1st Cir. 1995) (indemnitors waived notice and surety was not obligated to apprise them each time surety issued new bond); Buckeye Union Ins. Co. v. Boggs, 109 F.R.D. 420 (S.D. W.Va. 1986) (indemnitors were not entitled to notice from surety that it paid claim); Travelers Indem. Co. v. Ducote, 380 So.2d 10 (La. 1980) (under Indemnity Agreement's express terms, but also impliedly under attendant circumstances, indemnitors waived right to notice from surety that it accepted their offer of indemnity).

37. See supra this chapter, section C (regarding changes in bonds and contracts).

38. 734 A.2d 833 (Pa. 1999).

39. Id. at 839-40.

40. Id.

41. 233 Cal. App. 2d 648 (Cal. Ct. App. 1965).

42. Id. at 655. See also Am. Sur. Co. of N.Y. v. Egan, 62 F.2d 223 (6th Cir. 1932) (prefatory language in Indemnity Agreement contemplated issuance of new bonds without express authority of each indemnitor).

43. See generally E.H. Schopler, Annotation, Sufficiency and 7'imeliness of Notice By Indemnitee to Indemnitor of Action By Third Person, 73 ALR.2d 504 (1960); Bert Brumley, Duty of a Shielded Surety to Investigate, 17 FORUM 266 (1 98 1)

44. I98 N.W.2d 543 (Minn. 1972).

45. Id. at 55 1. Buf see Citizens Bank of Big Lake v. Transamerica Ins. Co., 815 F.Supp. 309 (D. Minn. 1993).

46. 763 P.2d 814 (Utah 1988).

47. 554N.Y.S.2d574(N.Y.App.Div.1990).

48. 829 S.W.2d 274 (Tex. App. 1992).

49. 74 P.3d 268 (Ariz. Ct. App. 2003).

50. Citing RESTATEMENT (THIRD) OF SURETYSHIP & GUARANTY (1996) § 6 ("Each rule in this Restatement stating the effect of suretyship status may be varied by contract between the parties subject to it."); §48 cmt, d (permitting parties to a guaranty contract to waive any defenses "by agreement or waiver"); § 37 cmt. e (providing that suretyship defenses listed in § 37 may be waived by the guarantor).

51. 403 F.2d 879 (7th Cir. 2005).

52. Id. at 888.

53. 558 N.E.2d 1047 (111. App. Ct. 1990).

54. Id at 1051.

55. Id at 1051.

56. 380 So.2d 10 (La. 1980).

57. See Mass. Bonding and Ins. Co. v. Osborne, 233 Cal. App. 2d 648,662 (Cal. Ct. App. 1965) (release of one co-indemnitor by surety does not release other indemnitors from liability).

58. 129 N.W.2d 309 (Minn. 1964).

59. Id. at 315

60. Id.

61. No. C O3-5746,2004 WL 1918890 (N.D. Cal. Aug. 24,2004) (unpublished opinion).

62. Id. at *2.

63. See generally Lawrence Ponoroff, Exemption Limitations: A Tale of Two Solutions,71 AM. BKR. L.J. 22 1 (1997).

64. FLA. CONSTR §. X, § 4(a); Tw. CONSTR. art. XVI, § 50; Ponoroff, supra note 63, at 222; Elizabeth Warren, A Principled Approach to Consumer Bankruptcy, 71 AM. BKR. L.J. 483,498 (1997).

65. CAL. CIV. PROC. CODE $ 703.040 (2006) (prior contractual waiver of homestead exemption is against public policy and void); MD. CODE ANN., CTS. & JUD. PROC. 5 ll-504(d) (West 2007); OHIO REV. CODE $ 2329.66l(B) (2006); Transamerica Ins. Co. v. Avenell, 66 F.3d 715 (5th Cir. 1995) (debtor's waiver of homestead exemption was unconstitutional under Texas law); Matter of Bradley, 960 F.2d 502 (5th Cir. 1992) (homestead disclaimer by guarantor will not preclude her from claiming Texas homestead exemption); Weaver v. Lynch, 79 537,246 P. 789 (Colo. 1926) (stipulation in note waiving right of exemption is invalid as against public policy); Tuxis-Ohr's Fuel, Inc. v. Trio Marketers, Inc., No. CV044002067S, 2005 WL 3047266 (Conu. Super. Ct. Oct. 26, 2005); Wallingsford v. Bennett, 1 Mackey 303 (D.C. 1881); DeMayo v. Chames, 934 So.2d 548 (Fla. Dist. Ct. App. 2006) (waiver of homestead exemption in agreement was invalid); Lee v. Sun Valley Co., 695 P.2d 36 1 (Idaho 1984); Maloney v. Newton, 85 Ind. 565 (1882); In re Hebert, 301 B.R. 19 (Bankr. N.D. Iowa 2003) (waiver of homestead exemption rights in guarantee that did not refer to specific property was ineffective under Iowa law); Celco, Inc. of Am. v. Davis Van Lines, Inc., 598 P.2d 188 (Kan. 1979) (waiver of homestead exemption in Indemnity Agreement invalid); Iowa Mut. Ins. Co. v. Parr, 370 P.2d 400 (Kan. 1962) (same); Teague v. Weeks, 89 Miss. 360 (1906); Anaconda Fed. Credit Union, 483 P.2d 909 (Mont. 1971) (advance general waivers in executory contracts of exemption laws are void); Kneettle v. Newcomb, 22 N.Y. 249 (1 860); Mayhugh v. Coon, 33 1 A.2d 452 (Pa. 1975); Maxwell v. Reed, 7 Wis. 582 (1859). See generally K.H., Annotation, Validity of Contractual Stipulation or Provision Waiving Debtor's Exemption, 94 A.L.R.2d 967 (2007).

66. See, e.g., Burrows v. Burrows, 886 P.2d 984 (Okla. 1994); Public Health Trust v. Lopez, 531 So.2d 946, 948 (Fla. 1988).

67. ALA. CODE § 6-10-120.

68. ALASKA STAT. §§ 706-708,710 (2007).

69. ARIZ. REV. STAT. ANN. § 33-1104 (2007).

70. See, e.g. , Rogers v. Great Am. Fed. Sav. & Loan Ass'n, 801 S.W.2d 36 (Ark. 1990); Tri-State Delta Chem., Inc. v. Wilkison, 55 S.W.3d 304 (Ark. Ct. App. 2001) (homestead exemption may be waived).

71. DEL. CODE. Ann. tit. 10, $ 4912.

72. GA. CODEANN 44-13-40 (2006); Inre Caldwell, 15 B.R. 81 1 (Bankr. N.D. Ga. 1981).

73. 735 ILL. Corn. STAT. 5112-904 (2006).

74. KY. REV. STAT. ANN. § 427- 100 (2006).

75. LA. REV. STAT. ANN. § 20:l (2006)

76. MASS. GEN. LAWS ANN. Ch. 188 § 7 (2006).

77. See Argonaut Ins. Co. v. Cooper, 261 N.W.2d 743 (Minn. 1978); Republic Leasing C o p v. Farnes, No. C9-99-1628,2000 WL 462939 (Minn. App. April 25,2000) (waiver of homestead exemption in Indemnity Agreement was enforceable).

78. MO. REV. STAT. § 513.475(2) (2006).

79. NEV. CONST. Art. 4, § 30; NEV. REV. STAT. § 115.040(3) (2007).

80. See, First State Bank v. Muzio, 666 P.2d 777 (N.M. 1975).

81. N.C. Gm. STAT. $ 1C-I 601 (c) (2) (2006); Cameron v. McDonald, 6 S.E.2d 497 (N.C. 1940).

82. N.D. CENT. CODE § 47-1 8-05.1 (2005).

83. Matter of Wallace's Estate, 648 P.2d 828 (Okla. 1982) (constitutional homestead exemption is a personal right that may be waived).

84. S.D. CODIFIED LAWS tj 43-31-17 (West 2007).

85. TENN. CODE. ANN. 26-2-301(c) (2007). But see Sherwin -Williams Co. v. Morris, 156 S.W.2d 350 (Tenn. 1941).

86. UTAH CODE ANN. § 78-23-3(3) (2006); Oliver v. Mitchell, 376 P.2d 390 (Utah 1946).

87. VA. CODE ANN. § 34-22 (2007).

88. WASH. REV. CODE. § 6.1 3.080 (2007); Cammarano v. Longmire, 99 Wash. 360 (1918).

89. WYO. STAT. ANN. §34-2-121; Geist v. Converse County Bank, 79 B.R. 939 (D. Wyo. 1987).

90. See, e.g. Gay lord Dep't Stores of Ala., Inc. v. Stephens, 404 So.2d 586 (Ala. 1981) (upholding pre-dispute, contractual waiver of right to jury trial); C & C Wholesale, Inc. v. Fusco Mgmt. Corp., 564 So.2d 1259 (Fla. Dist. Ct. App. 1990) (contractual jury trial waivers are generally valid); Pers. Travel, Inc. v. Canal Square Assocs., 2002 WL 1870456 (D.C. 2002); Cook v. Hibemia Nat. Bank, 847 So.2d 617 (La. Ct. App. 2002) (same); Walther v. Sovereign Bank, 386 Md. 41 2 (2005) (upholding contractual waiver of right to jury trial); Commercial Corp. v. Owen, 588 N.E.2d 705 (Mass. 1992) (upholding contractual waiver of right to jury trial); Malan Realty Investors, Inc. v. Harris, 953 S.W.2d 624 (Mo. 1997) (upholding waiver of right to jury trial in real estate lease); Tiffany at Westbury Condo. v. Marelli Dev. Corp., 826 N.Y.S.2d 623 (N.Y. App. Div. 2006) (parties can waive right to jury trial through contract); Eighth-North-Val, Inc. v. William L. Parkinson, D.D.S., P.C., Pension Trust, 773 A.2d 1248 (Pa. Super. Ct. 2001) (right to jury trial may be waived by conduct or express statement); Rhode Island Depositors Econ. Prot. Corp. v. Coffey and Martinelli, Ltd., No. 2000-517- Appeal, 2003 WL 1903406 (R.I. Apr. 18,2003); Beal v. Doe, 987 S.W.2d 41 (Tenn. Ct. App. 1998) (party may explicitly or implicitly waive right 10 jury trial); In re Prudential Ins. Co. of Am., 148 S.W.3d 124 (Tex. 2004) (contractual jury waivers are not per se invalid); Azalea Drive-In Theatre, Inc. v. Sargoy, 214 S.E.2d 131 (Va. 1975). See also Jay M . Zitter, Annotation, Contractual Jury Trial Waivers in State Civil Cases, 42 A.L.R.5th 53 (1996 & Supp. 2007); V. Woerner, Annotation, Sufficiency of Waiver of Full Jury, 93 A.L.R.2d 410 (1964 & Supp. 2007). See supra Chapter V, section C.8.

91. Grafton Partners, L.P. v. Super. Ct., 116 P.3d 479 (Cal. 2005) (refusing to enforce contractual jury trial waiver); Bank S. v. Howard, 444 S.E.2d 799 (Ga. 1994) (Georgia constitution contemplates contractual jury trial waiver only valid if made after litigation begins).

92. Nat'l Equip. Rental, Ltd. v. Hendrix, 804 F.2d 828 (4th Cir. 1986) (espousing generally-followed federal policy that pre-dispute jury trial waivers evaluated by (1) conspicuousness of waiver clause, (2) parties' parity i n bargaining power, and (3) sophistication of party challenging waiver); Chilton-Wren v. Olds. I P.3d 693 (Ala. 2000) (waiver of right to jury trial must be explicit); L&R Realty v. Conn. Nat'l Bank, 699 A.2d 291 (Conn. App. Ct. 1997) (party asserting pre-dispute jury trial waiver bears burden of proving it was knowingly, intelligently, and voluntarily entered in to); Pancakes of Hawaii v. Pomare Props. Corp., 944 P.2d 97 (Haw. Ct. App. 1997) (parties may waive their right to a jury trial but only after waiver shown through evidence of unequivocal acts); Lowe Enters. Residential Partners v. Eighth Jud. Dist. Ct. ex re1 County of Clark, 40 P.3d 405 (Nev. 2001) (applying same test and upholding jury waiver); Fairfield Leasing Corp. v. Techni-Graphics, Inc., 607 A.2d 703 (N.J. Super. Ct. Law Div. 1992) (rejecting jury trial waiver that was buried in inconspicuous text in contract); N. Charleston J.V. v. Kitchens of Island Fudge Shoppe, Inc., 416 S.E.2d 637 (S.C. 1992) (contractual jury trial waivers are to be strictly construed against drafter); Godfrey v. Hartford Cas. Ins. Co., 16 P.3d 617 (Wash. 2001) (same). See also Krupa v. Farmington River Power Co., 157 A.2d 914 (Conn. 1959) (pre-dispute jury trial waiver invalid without "reasonably clear evidence of an intent to waive"); Berlinger v. Suburban Apt. Mgmt. Co., 454 N.E.2d 1367 (Ohio 1982) (pre-dispute jury trial waivers generally valid but court will interpret ambiguities against drafters); State ex re/. Dunlap v. Berger, 567 S.E.2d 265 (W. Va. 2002) (waiver must be "knowing and intentional").

93. ____DO Fin. Servs. v. Powell, 191 F. Supp. 2d 8 11, 8 13 (N.D. Tex. 2002).

94. ____ m. Motorist Ins. Co. v. Southcrest Constr., No. Civ.A. 3:04-CV-2575M, ____006 WL 995202 at *3 (N.D. Tex. Apr. 17, 2006) (unpublished) (giving ____ffect to the parties' choice of law provision found in Indemnity ____agreement); Pa. House Inc. v. Barrett, 760 F. Supp. 439, 443 (M.D. Pa. ____1991); Ins. Co. of N. Am. v. Bath, 726 F. Supp. 1247,125 1 (D. Wyo. 1989) ____enforcing choice of law provision found in Indemnity Agreement). See ____supra Chapter V, section C.4.

95. ____ a. House Inc. v. Barrett, 760 F. Supp. 439,443 (M.D. Pa. 1991); Klaxon ___o. v. Stentor Elec. Mfg., 313 US. 487 (1941).

96. Safeco Ins. Co. of Am. v. Mabra, 932 F. 2d 973 (9th Cir. 1991) (enforcing provisions for consent to both forum and personal jurisdiction in Indemnity Agreement); Nw. Nat'l Ins. Co. v. Donovan, 916 F. 2d 372 (7th Cir. 1990) (forum selection clause in Indemnity Agreement enforceable); Pa. House Inc. v. Barrett, 760 F. Supp. 439, 439 (M.D. Pa. 1991) (forum selection clause enforceable; rejecting arguments that lndemnity Agreement mentioned only venue and not in personam jurisdiction); Nw. Nat'l. Ins. Co. v. Dennehy, 739 F. Supp. 1303 (E.D. Wis. 1990) ("[W]hen a party consents to venue in a particular court [by means of a forum selection clause], it implicitly consents to the exercise of personal jurisdiction by that court."); Mut. Fire, Marine &Inland Ins. Co. v. Barry, 646 F. Supp. 831 (ED.P a. 1986) (denying defendants' motion to dismiss for lack of in personam jurisdiction on ground that foruni selection clause in Indemnity Agreement was enforceable absent proof of fraud); Mut. Fire, Marine & Inland Ins. Co. v. Dalcomb, Civ. A. No. 86-2862, 1986 WL, 12030 (E.D. Pa. Oct. 22, 1986) (unpublished) (giving effect to forum selection clause absent fraud or overreaching, and inconvenience); Safeco Ins. Co. of Am. v. Shaver, No. 0 l A0 1-930 1 -CH-00005,1994 WL 48 1402 (Tenn. App. 1994) (unpublished) (upholding trial court's enforcement of forum selection clause, concluding that clause was freely negotiated in the absence of fraud).

97. Bremen v. Zapata Off-Shore Co., 407 US. 1, 15-16 (1 972).

98. Safeco Ins. Co. of Am. v. Mabra, 932 F. 2d 973 (9th Cir. 1991); NW. Nat'l. Ins. Co. v. Donovan, 916 F. 2d 372 (7th Cir. 1990).

99. 52 F.3d 1191 (2d Cir. 1995).

100. !(I. at 1192; Great Am. Ins. Co. v. McElwee Bros., Inc., No. 03-2793,2007 WL 861 152 (E.D. La. Mar. 19,2007) (attorney-in-fact and other provisions gave surety unfettered right to complete the project as it saw fit); Mezzacappa Brothers, Inc. v. City of New York, No. 03 Civ.0223 NRB, 2003 WL 22801429 (S.D.N.Y. Nov. 24,2003) (release that surety executed as attorney-in-fact was binding on principal). See cdso Thomas 3. Demski and Lester Chanin The Surety's Rights of Assignments, 31 TORT & INS. L.J. 17, 26 (1995); John Hinchey, Surety's Performance over Protest of Principal: Consideration and Risks, 22 TORT & INS. L. J. 133 (1986). See also supra Chapter VII, section B.8.

101. Bell BCI Co. v. Old Dominion Demolition C o p , 294 F.Supp.2d 807 (E.D. Va. 2003). See also James McKinney & Sons, Inc. v. Lake Placid 1980 Olympic Games, Inc., 462 N.E.2d 137 (N.Y. 1984). See also supra Chapter VII, section B.8.

102. See Drill South, Inc. v. Int'l Fid. Ins. Co., 234 F.3d 1232 (11th Cir. 2001); Am. Safety Cas. Ins. Co. v. C.G. Mitchell Constr. 601 S.E.7d 633 (Va. 2004).

103. 234 F.3d 1232 (1lth Cir. 2001).

104. Id. at 1236.

105. Id. at 1237, n.7 (the court acknowledged cases in which a surety, sued with the principal in the same action, answers and defends only on its own behalf, and is not bound by a default judgment entered against the principal, but the court relied on contrary authority from other jurisdictions).

106. 601 S.E.2d 633 (Va. 2004).

107. Id. at 639-40.

108. AI.A. CODE 1975 8 8-9-1 1 (2007); ALASKA STAT. 5 09.30.050 (2007) (confessions of judgment valid); ARIZ. REV. STAT. ANN. $44-1 43 (2007) (confessions of judgment permitted after debt becomes due); ARK. CODE ANN. 16-65-301 (West 2007) (confessions of judgment valid); Ca.. Civ. PROC. CODE 1132 (West 2007) (confession of judgment valid only if debtor's attorney represents in signed certificate that he examined the proposed judgment and has advised client of the waiver of rights and defenses therein); CONN. GEN. STAT. ANN. § 36a-775 (West 2007) (confessions of judgment valid except in consumer transactions); Dm. CODE ANN. tit. 10, § 2306 (2007) (confession of judgment permitted but final judgment requires prior notice to debtor); D.C. SUP. CT. R. 68-1 (West 2007) (confession of judgment allowed only if executed after complaint filed and defendant has been counseled on ramifications); FLA. STAT. ANN. § 55.05 (West 2006) (all pre-litigation powers of attorney for confessing judgment null and void no matter where executed); GA. CODE ANN § 9-12-18 (West 2007) (confession of judgment valid only if executed after litigation commences and in county where debtor resides); HAW. REV. STAT. §476-15 (West 2007) (confession of judgment unenforceable); IDAIIO R. CIV. PROC. 3(a) (West 2006) (no judgment may be entered before complaint is filed and served upon defendant); 735 ILL. COMP. STAT. ANN. 512-1301(c) (West 2007) (may obtain judgment without service of process but must be in county where instrument was executed or where debtor resides or where debtor's property is located); IND. CODE Am. § 34-54-3-2 (West 2007) (confession of judgment invalid if executed pre-litigation or in connection with negotiable instrument or other contract to pay money); IOWA CODE ANN. § 677.1 (West 2007) (confession of judgment valid); KAN. STAT. ANN. § 16a-3-306 (West 2007) (confession of judgment in consumer credit transactions invalid); KY. REV. STAT. ANN. § 372.140 (West 2007) (confession of judgment, or power of attorney to do so, is void); LA. REV. STAT. ANN. § 9-3590 (West 2007) (confession of judgment not valid prior to maturity of obligation); ME.R EV. STAT. ANN. tit. 9 §3-306 (West 2007) (confession of judgment relating to consumer credit transactions invalid); MD. CODE ANN. Rule 2-61 1 (confession of judgment permitted provided clerk of the court shall issues notice informing defendant of entry of judgment and defendant is given opportunity to vacate judgment); MASS. GEN. LAWS ch . 231, § 13A (confession of judgment provision invalid); MICH. COMP. LAWS § 600.2906 (West 2007) (confession of judgment valid); MINN. STAT. ANN. § 548.22 (West 2006) (same); MISS. CODEANN §.1 1 -7- 18 1 (West 2007) (same); Mo. REV. STAT. § 511.070 (West 2007) (same); MONT. CODE ANN. 27-9-1 01 (West 2007) (same); NEB. REV. STAT. $9 25- 1302-09 (West 2007) (same); NEV. REV. STAT. ANN. § 17.090 (West 2007) (same); N.H. REV. STAT. ANN. § 399-A:] 1 (LexisNexis 1007) (confession of judgment not permitted in small loans, payday loans, title loans, or rent-to-own contracts); N.J. Civ. PRAC. R. 4:45-2 (West 2007) (confession of judgment valid only on motion and after notice thereof to debtor); N.M. STAT. ANN. § 39-1-9 (West 2007) (confessions of judgment valid); N.Y. C.P.L.R. 3218 (McKinney 2007) (same); N.C. GEN. STAT. ANN. § I A-I, R. 68.1 (West 2007) (same); N.D. R. Civ.P.68 (West 2007); OHIO REV.CODE ANN. § 2323.12 (LexisNexis 2007) (same); OKLA. STAT. ANN. § 689 (West 2007) (same); OR. R. CIV. P. 73 (West 2007) (same) PA. STAT. ANN. § 1605 (2007) (same); R.I. Gm. LAWS § 19-1 4.1-1 (2007) (confession of judgment valid in connection with secured real estate loan); S.C. CODE ANN. § 15-35- 350 (West 2007) (confessions of judgment valid); S.D. CODIFIED LAWS § 21-26-1 (West 2007) (same); TENN.CODE.ANN. § 25-2-101 (West 2007) (power of attorney to confess judgment invalid); TEX. CIV.P RAC &. REM. CODE ANN. § 30.001 (2007) (confessions of judgment invalid if executed prior to bringing suit); UTAH CODE ANN. § 78-22-3 (West 2007) (confessions of judgment valid); VA. CODE ANN. §§ 8.01-431-441 (West 2007) (confessions of judgment valid); VT. STAT. ANN. § 467 1 (West 2007) (confession of judgment valid but will not attach to property already attached by other creditors without their prior written consent); WASH. KEv. CODE. ANN § 4.60.010 (West 2006) (confessions of judgment valid if provision contains statutorily-mandated language); W. VA. CODE ANN §§ 6-4-48 (West 2007) (confessions of judgment valid if debtor served with summons and complaint); WISC. STAT. ANN. § 806.25 (West 2007) (confessions of judgment invalid); WYO. STAT. ANN. § 1-16-201 -02 (West 2007) (confessions of judgment valid); Hecker v. Vail, 431 P.2d l l (Colo. 1967) (generally holding cognovit provision valid even in absence of service upon debtor). See also Isbell v. County of Sonoma, 21 Cal.3d 61 (Cal. Ct. App. 1978) (upholding confession of judgment). See, generally, Joseph B Edwards, Annotation, Constitutionality, Construction, Application, and Effect of Statute invalidating Powers of Attorneys to Confess Judgment or Contracts Giving Such Power, 40 A.L.R.3d 1 158 (Supp. 2007); James D. Buchwalter, Annotation, Vacating or Opening Judgment by Confession on Ground of Fraud, Illegality, or Mistake, 91 A.L.R.4th 485 (2001). See supra Chapter V, section C. 6.

109. D.H. Overmeyer Co. v. Frick Co., 405 U.S. 174 (1972).

110. See, e.g, VA. CODE ANN §§. 8.0 1-433.1 (West 2007) (requiring a confession of judgment provision to contain specific language in eight-point, boldface font advising debtors that the instrument contains a confession of judgment provision).

111. See, e.g., FLA. STAT. ANN. § 55.05 (West 2007) (confessions of judgment executed prior to action to collect predicate debt are invalid).

112. See, e.g,, MD. R.P. 2-61 I(c) (confession of judgment permitted provided clerk of the court issues notice informing defendant of entry of judgment and defendant is given opportunity to vacate judgment).

113. See E.H. Schopler, Annotation, Validity and Enforceability of Judgment enforced in Sister state Under a Warrant of Attorney to Confess Judgment, 39 A.L.R. 2d 1232 (1955 & Supp. 2007).

114. Lee v. Green Land Co., 538 S.E.2d 189 (Ga. Ct. App. 2000) (real estate contracts can be ratified only by part performance or in writing). See also RESTATEMENT (THIRDO) F AGENCY 5 4.01 (2006) (defining ratification as words or actions that manifest affirmance of another's prior act); RESTATEMENT OF AGENCY $ 83 (1933) (affirmance is manifestation of an election by one on whose account unauthorized act has been performed to treat act as authorized, or one's conduct that is only justifiable if there is such election).

115. See, e.g , Lucareli v. Lucareli, 614N.W.2d 60,64-65 (Wis. Ct. App. 2000) (manifestation of intent not sufficient to ratify prior acts where durable power of attorney prohibited act sought to be ratified).

116. See, e.g.. Estate of Huston, 51 Cal. App. 4th 1721 (Cal. Ct. App. 1997) (one can ratify an act only by same means that would have been necessary to confer authority at outset, or where oral authorization would suffice, by accepting or retaining the benefit of act, with notice thereof).

117. 15 Cal. App. 4th 1290, 1293 (Cal. Ct. App. 1993).

118. Id. at 1293.

119. See supra Chapter IV, section AS.

120. Alexander v. Gardner-Denver Co., 415 U.S. 36, 50 (1974).

121. Bernstein v. United States, 256 F.2d 697, 705 (10th Cir. 1958).

122. Total Petroleum, Inc. v. Davis, 822 F.2d 734, 737 n. 5 (8th Cir. 1987).

123. Transamerica Ins. Co. v. Barnett Bank, 540 So.2d 1 13 (Fla. 1989); Am. Oil Co. v. L.A. Davidson, Inc., 290N.W.2d 144 (Mich. Ct. App. 1980); School Bd. v. J.V. Constr. Corp., No. 03-60005-CIV-MOWGAR, 2004 WL 1304058 (S.D. Fla. Apr. 23, 2004). See also T. Scott Leo & J. Blake Wilcox, Bankruptcy Considerations and Bond Defaults, in BOND DEFAULT MANUAL. 330-35 (Duncan L. Clore et al. eds.. 3d ed. 2005); Chad L. Schexnayder, Bankruptcy and the Surety, in THE LAW OF SURETYSHIP 317 (Edward G. Gallagher ed., 2d ed. 2000).

124. Transamerica Premier Ins. Co, v. Brighton School Dist., 940 P.2d 348, 352 (Col. 1997); Elkins Manor Association v. Eleanor Concrete Works, Inc., 396 S.E.2d 463, 470 (W. Va. 1990) (courts will construe bond most strongly against compensated surety).

125. Eg., Hammond v. Hurst, 277 S.W. 308 (Ky. 1925); Beers v. Strimpie, 22 S.W. 620 (Mo. 1893); Cont'l Bank v. Axler, 510 A.2d 726 (Pa. Super. Ct. 1986) (gratuitous surety completely discharged upon material modification in underlying contract, but compensated surety must show resulting increase in risk); Fid. & Dep. Co. v. Kelsay Lumber Co., 33 S.W.2d 73 1 (Tex. Comm'n App. 1930). See also RESTATEMENT OF SECURITY § 128 (1941).

126. See, e.g., Fireman's Fund Ins. Co. v. Nizdil, 709 F.Supp. 975 (D. Or. 1989'); Am. Bonding Co. v. Nelson, 763 P.2d 814 (Utah App. 1988) (collecting cases); Keystone Equity Mgmt. v. 'Thoen, 730 S.W.2d 339 (Tex. App. 1987). See also Nw. Nat'l Ins. Co. v. Lutz, 71 F.3d 671 (7th Cir. 1996); Roger W. Stone & Jeffrey A. Stone, Indemnifying in Iowa Construction Law, 54 DRAKE L. REV. 125 (2005).