## Facts

- In 1977, Thomas and Leila Krenik executed a deed of trust on real property to secure a bank loan used to purchase the property.
- In 1981, the Kreniks sold the property to Marie Swanson, who assumed the Kreniks’ bank loan and, as part of the transaction, gave the Kreniks a second deed of trust on the property.
- In 1983, Swanson sold the property to Ray Rush and Howard Luther, Jr.; Rush and Luther assumed the same bank loan and gave Swanson a third deed of trust on the property.
- The 1983 sale contract stated that the Kreniks, Swanson, Rush, and Luther were jointly and severally bound to repay the bank loan, but it also stated that the contract did not change the then-existing relative liability between the Kreniks and Swanson.
- In 1986, Rush and Luther defaulted on the bank loan.
- In 1988, the bank filed a foreclosure action against the Kreniks, Swanson, Rush, and Luther.
- The trial court allowed foreclosure; the sale proceeds were insufficient to satisfy the debt, leaving a deficiency of $1,173,992.
- Rush and Luther filed for bankruptcy in 1989, preventing the bank from recovering the deficiency from them.
- Swanson asserted a claim against the Kreniks contending that they were her co-sureties on the bank loan and therefore should share deficiency liability with her.
- The trial court ruled for the Kreniks, rejecting Swanson’s co-surety theory, and Swanson appealed to the Alaska Supreme Court.

## Issues

1. After successive assumptions of the same deed-of-trust obligation, did the “joint and several” clause in the later sale contract make the original mortgagors and the intermediate assuming grantee co-sureties (requiring contribution), or did the original mortgagors remain subsureties entitled to full indemnification from the intermediate assuming grantee?

## Decision

- The Alaska Supreme Court affirmed.
- The court held that Swanson’s 1981 assumption made her the principal obligor as between her and the Kreniks, leaving the Kreniks in a surety position as to Swanson.
- The court further held that the 1983 assumption shifted primary liability to Rush and Luther, made Swanson a surety as to Rush and Luther, and left the Kreniks as subsureties (sureties for Swanson’s surety obligation).
- The “joint and several” language in the 1983 contract addressed liability to the bank and did not alter the existing internal allocation of liability between Swanson and the Kreniks, especially in light of the clause stating that relative liability between them was unchanged.
- Because the Kreniks were subsureties rather than co-sureties with Swanson, Swanson was not entitled to contribution from the Kreniks on a co-surety theory.

## Legal Principles

- When a purchaser assumes a mortgage or deed-of-trust debt, the purchaser becomes the principal obligor as between purchaser and seller, and the seller becomes a surety with respect to the purchaser.
- With successive assumptions of the same debt, the most recent assuming grantee is generally treated as the principal obligor; earlier obligors move into sequential surety roles, which can place the original borrower in a subsurety position as to an intermediate assuming party.
- Language making parties “jointly and severally” liable may define the creditor’s rights against multiple obligors without changing the internal allocation of liability among those obligors, particularly where the contract also states that existing relative liability is unchanged.
- Co-suretyship (and contribution) requires that the parties share the same level of secondary liability; it does not arise where transaction history and agreements establish a hierarchy of primary and secondary liability.
- A subsurety who pays the underlying debt may seek full reimbursement from the surety whose obligation the subsurety supported, rather than only pro rata contribution.

## Conclusion

Swanson v. Krenik held that successive assumptions of a deed-of-trust debt created a chain of primary and secondary liability: Swanson’s assumption made her primarily liable as between her and the Kreniks, and the later assumption made Rush and Luther primarily liable while moving Swanson into a surety role and leaving the Kreniks as subsureties. The 1983 contract’s joint-and-several clause did not convert the Kreniks and Swanson into co-sureties because it preserved their existing relative liability, so Swanson could not obtain contribution from the Kreniks for the foreclosure deficiency.


Swanson v. Krenik, 868 P.2d 297 (1994)