a) A suretyship is a contract. Hence, the surety B may raise any contract defenses such as lack of consideration. In this case, if surety B only guaranteed the losses of the new hirer L due to L as a secretary , then B may have no obligation as L is now a teller and no longer a secretary. This may be a material change from the original contract releasing B from liability.
b) If B fully reimburses the bank for loss, then B may take the bank's case against L due to subrogation , which is grants B the rights the bank has against L for theft.
Refer to the case Union National Bank v Fern Schimke
The following are facts to the case
• F (defendant) signed a guaranty contract; she will make payments owed by her husband for to the bank (plaintiff).
• After the husband passed away, the bank sought payment from F for money the husband owed.
• F claimed an unenforceable contract due to lack of consideration
The issue is whether the guaranty contract is enforceable. Trial court held for F , the bank appealed.
Relevant Terms, Laws, and Cases
Lack of consideration - a contract is enforceable only if there is consideration. Both parties must give up something in order for the contract to be binding. E.g. if A agree to sell B her bike, then B 's consideration would be the money to pay for the bike, the contract is enforceable. But if A only gives B her bike with nothing in return from B , A may rescind her offer to give the bike anytime as there is no consideration.
The State Supreme Court affirmed the decision. They argued that:
• Guaranty contracts require consideration.
• However, if the contract is signed without it being a request from the creditor, then it is only binding if the creditor (bank) notifies the guarantor (F) of their acceptance of it.
The court notes that the above two provisions was not met for the contract to be enforceable, the bank gave nothing of value to F to sign the guaranty and it did not notify F of acceptance of the guaranty.
Hence, F is not liable to the bank as the guaranty contract is unenforceable.
Guarantor - is a person or entity that " guarantees " the debt of another. The guarantor is only responsible for the debt when the principle debtor (person owing the money) defaults, and the creditor (person who lent the money) had already sought action for money owed by the debtor.
A guarantor of a debt is only responsible for the portion of the debt in default. Unlike a surety, the creditor must seek action against the principle debtor first. If the creditor recovered some amount of money from the principle debtor then the guarantor will only owe the unrecovered portion. Hence, the answer is d.