Business Law and the Legal Environment Study Set 1

Business

Quiz 32 :

Nature of the Debtor-Creditor Relationship

Quiz 32 :

Nature of the Debtor-Creditor Relationship

Question Type
search
arrow
First National Bank hired Longdon as a secretary and obtained a surety bond from Belton covering the bank against losses up to $100,000 resulting from Longdon's improper conduct in the performance of his duties. Both Longdon and the bank signed the application for the bond. After one year of service, Longdon was promoted to teller, and the original bond remained in effect. Shortly after Longdon's promotion, examination showed that Longdon had taken advantage of his new position and stolen $50,000. He was arrested and charged with embezzlement. Longdon had only $5,000 in assets at the time of his arrest. (a) If the bank demands a payment of $50,000 from Belton, what defense, if any, might Belton raise to deny any obligation to the bank? (b) If Belton fully reimburses the bank for its loss, under what theory or theories, if any, may Belton attempt to recover from Longdon?
Free
Essay
Answer:

Answer:

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.

Tags
Choose question tag
close menu
arrow
Fern Schimke's husband, Norbert, was obligated on two promissory notes in favor of Union National Bank. Some time prior to his death, Union National Bank prepared a guaranty contract that was given to Norbert for his wife to sign. She signed the guaranty at the request of her husband without any discussion with him about the provisions of the document she was signing. On Norbert's death, the bank brought suit against Fern on the basis of the guaranty. Fern argued that because there was no consideration for the guaranty, she could not be liable. Is Fern correct? Must there be consideration for a guarantor to be responsible for payment? [Union Nat'l Bank v Fern Schimke, 210 NW2d 176 (ND)]
Free
Essay
Answer:

Answer:

Refer to the case Union National Bank v Fern Schimke
Case Issue
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.
Opinion
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.

Tags
Choose question tag
close menu
arrow
Marbury Surety, Inc., agreed to act as a guarantor of collection of Madison's trade accounts for one year beginning on April 30, 1980, and was compensated for same. Madison's trade debtors are in default in payment of $3,853 as of May 1, 1981. As a result: a. Marbury is liable to Madison without any action on Madison's part to collect the amounts due. B) Madison can enforce the guaranty even if it is not in writing because Marbury is a del credere agent. C) The relationship between the parties must be filed in the appropriate county office because it is a continuing security transaction. D) Marbury is liable for those debts for which a judgment is obtained and returned unsatisfied.
Free
Multiple Choice
Answer:

Answer:

Relevant terms
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.
Discussion
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.

Tags
Choose question tag
close menu
arrow
UPS Capital Business Credit agreed to loan Ashford International, Inc, an American company based in Atlanta, Georgia, for the sale of computers to the Ministry of Education in Jordan. Ashford was required to obtain a letter of credit from United California Discount Corporation (UCDC) for the loan. Ashford filed for bankruptcy and UPS submitted documentation for payment on the letter of credit. UCDC responded to the payment demand with a list of requirements for compliance with the letter of credit demands. UPS satisfied all the demands and UCDC then refused to pay because UPS did not submit original documents as required by the letter of credit. UPS maintains that UCDC waived that requirement by not listing it in its demands. Who is correct and why? [ Export- Import Bank of the U.S. v. United Cal. Discount Corp. , 738 F. Supp. 2d 1047 (C.D. Cal. 2010)]
Essay
Answer:
Tags
Choose question tag
close menu
arrow
Which of the following defenses by a surety will be effective to avoid liability? a. Lack of consideration to support the surety undertaking B) Insolvency in the bankruptcy sense of the debtor C) Incompetency of the debtor to make the contract in question D) Fraudulent statements by the principal debtor that induced the surety to assume the obligation and that were unknown to the creditor
Multiple Choice
Answer:
Tags
Choose question tag
close menu
arrow
In May 1989, Alma Equities Corp., owned by its sole shareholder and president, Lewis Futterman, purchased a hotel and restaurant in Vail, Colorado, from Alien for $3,900,000. Alma paid $600,000 in cash to Alien, and Alien provided a purchase money loan to Alma for the remaining amount of the sale price, with the loan secured by a deed of trust on the hotel and restaurant. The hotel and restaurant did not do well, and Futterman negotiated a friendly foreclosure on the property in 1991, whereby Alma would continue to operate the hotel and restaurant on a lease basis, with Futterman providing a personal guaranty for the lease. Alma failed to make the lease payments for the months of November and December 1991 and, following an unlawful detainer action filed by Alien for possession of the hotel and restaurant, was forced into bankruptcy. Alien turned to Futterman for satisfaction on the lease payments. Futterman said he should not have been forced to pay because Alien's unlawful detainer forced Alma into bankruptcy. Was Futterman correct? Did he have a defense? [Alien, Inc. v Futterman, 924 P2d 1063 (Colo)]
Essay
Answer:
Tags
Choose question tag
close menu
arrow
Charles Fontaine completed a form for Gordon Contractors in which he signed that portion of the form labeled "Name of Guarantor." His signature followed immediately after a paragraph beginning, "[I]n consideration of the extension of credit by Gordon Building Supply Inc. the undersigned customer hereby agrees that the terms and conditions of all sales are as follows." There was also a blank following this paragraph for "Customer Name," and it was signed by a Robert Schlaefli, although it is unclear whether he signed it individually or as an agent. At the beginning of the application, the blank for "Name of Individual Applying" was filled in with both Fontaine's and Schlaefli's names, and the blank for "Name of Company or Business" bore the words "McIntyre Development, Inc." Finally, the blank for "Names of People Authorized to Purchase" was filled in with Schlaefli's name and that of a Glen Bush. Upon default of the debtor (never clearly identified in the agreement), Gordon Contractors filed suit to collect from Fontaine as a guarantor. Fontaine moved for summary judgment because he was not identified on the contract as a guarantor. The trial court granted Gordon Contractors a summary judgment against Fontaine, and Fontaine appealed. Determine the parties' relationships and who is liable to whom. [Fontaine v Gordon Contractors Building Supply, Inc., 567 SE2d 324 (Ga App)]
Essay
Answer:
Tags
Choose question tag
close menu
arrow
When a principal debtor defaults and a surety pays the creditor the entire obligation, which of the following remedies gives the surety the best method of collecting from the debtor? a. Exoneration b. Contribution c. Subrogation d. Attachment
Essay
Answer:
Tags
Choose question tag
close menu
arrow
Paul owed Charles a $1,000 debt due September 1. On August 15, George, for consideration, orally promised Charles to pay the debt if Paul did not. On September 1, Paul did not pay, so Charles demanded $1,000 from George. Is George liable? Why or why not?
Essay
Answer:
Tags
Choose question tag
close menu
arrow
Hugill agreed to deliver shingles to W. I. Carpenter Lumber Co. and furnished a surety bond to secure the faithful performance of the contract on his part. After a breach of the contract by Hugill, the lumber company brought an action to recover its loss from the surety, Fidelity Deposit Co. of Maryland. The surety denied liability on the grounds that there was concealment of (a) the price to be paid for the shingles and (b) the fact that a material advance had been made to the contractor equal to the amount of the profit that he would make by performing the contract. Decide. [W. I. Carpenter Lumber Co. v Hugill, 270 P 94 (Wash)]
Essay
Answer:
Tags
Choose question tag
close menu
arrow
Queen paid Pax and Co. to become the surety on a loan that Queen obtained from Squire. The loan is due, and Pax wishes to compel Queen to pay Squire. Pax has not made any payments to Squire in its capacity as Queen's surety. Pax will be most successful if it exercises its right to a. Reimbursement (indemnification) B) Contribution C) Exoneration D) Subrogation
Multiple Choice
Answer:
Tags
Choose question tag
close menu
arrow
First Interstate Bank issued a letter of credit in favor of Comdata Network. Comdata is engaged in money transfer services. It provides money to truckers on the road by way of cash advances through form checks written by truckers. When Comdata enters into a business relationship with a trucking company, it requires a letter of credit. This requirement is to secure advances made on behalf of the trucking company. One of the trucking companies defrauded the bank that issued the letter of credit. Comdata demanded that the bank make payment to it under the letter of credit for cash advances that the trucking company had not repaid. The bank, alleging fraud by the trucking company, refused. Comdata filed suit. Can Comdata force payment? [Comdata Network, Inc. v First Interstate Bank of Fort Dodge, 497 NW2d 807 (Iowa App)]
Essay
Answer:
Tags
Choose question tag
close menu
arrow
LaBarge Pipe Steel Company agreed to sell PVF $143,613.40 of 30-inch pipe provided that PVF obtain a letter of credit for $144,000, with the letter of credit entitling LaBarge to payment if PVF did not pay for the pipe within 30 days of invoice. PVF obtained the letter of credit from First Bank but received only a facsimile copy of it. The letter of credit required LaBarge to submit the original of the letter of credit for a demand of payment. PVF did not pay within 30 days and LaBarge submitted a facsimile copy of the letter of credit and requested payment. First Bank denied the request for payment and LaBarge filed suit against First Bank for failure to pay. LaBarge argued that it was not disputed that PVF had not paid on the contract and First Bank was required to pay on the letter of credit. How would you explain First Bank's rights to LaBarge? [ LaBarge Pipe Steel Co. v. First Bank , 550 F.3d 442 (5th Cir.)]
Essay
Answer:
Tags
Choose question tag
close menu
arrow
Donaldson sold plumbing supplies. The St. Paul- Mercury Indemnity Co., as surety for him, executed and delivered a bond to the state of California for the payment of all sales taxes. Donaldson failed to pay, and the surety paid the taxes that he owed and then sued him for the taxes. What was the result? [St. Paul-Mercury Indemnity Co. v Donaldson, 83 SE2d 159 (SC)]
Essay
Answer:
Tags
Choose question tag
close menu
arrow
When a principal debtor defaults and a surety pays the creditor the entire obligation, which of the following remedies gives the surety the best method of collecting from the debtor? a. Exoneration b. Contribution c. Subrogation d. Attachment
Essay
Answer:
Tags
Choose question tag
close menu
arrow
For each of the numbered words or phrases, select the one best phrase from the list a through j. Each response may be used only once. (1) Indemnity contract (2) Suretyship contract (3) Surety (4) Third-party beneficiary (5) Co-surety (6) Statute of frauds (7) Right of contribution (8) Reimbursement (9) Subrogation (10) Exoneration
Multiple Choice
Answer:
Tags
Choose question tag
close menu
arrow
Ribaldgo Argo Consultores entered into a contract with R. M. Wade Co. for the purchase of irrigation equipment. Ribaldgo obtained a letter of credit from Banco General, a bank with its principal place of business in Quito, Ecuador. The letter of credit required that Wade submit certain documents to obtain payment. The documents were submitted through Citibank as correspondent bank for Banco General. However, the documents were incomplete, and Citibank demanded additional information as required under the letter of credit. By the time Wade got the documents to Citibank, more than 15 days had expired, and the letter of credit required that Wade submit all documentation within 15 days of shipping the goods to obtain payment. Citibank refused to authorize the payment. Wade filed suit. Must Citibank pay? Why or why not? [Banco General Runinahui, S.A. v Citibank International, 97 F3d 480 (11th Cir)]
Essay
Answer:
Tags
Choose question tag
close menu
arrow
Jack Smith was required by his bank to obtain two sureties for his line of credit of $100,000. Ellen Weiss has agreed to act as a surety for $50,000, and Allen Fox has agreed to act as a surety for $75,000. Smith has used the full $100,000 in the line of credit and is now in bankruptcy. What is the maximum liability of Weiss and Fox if the bank chooses to collect from them for Smith's default? How should the $100,000 be allocated between Weiss and Fox?
Essay
Answer:
Tags
Choose question tag
close menu
arrow
On August 1, 1987, Dori Leeds signed a "guarantee of credit" with Sun Control Systems, which guaranteed "the prompt payment, when due, of every claim of [Sun Control Systems] against [Dori Leeds dba 'Blind Ambitions']." At the time she signed the guarantee of credit, Blind Ambitions was in the business of installing window treatments and installed only Faber brand blinds, which were purchased from Sun Control Systems. In 1991, Sun Control Systems sold and assigned all of its assets to Faber. Shortly thereafter, Dori assigned her interest in Blind Ambitions to David and Judith Leeds, who continued to do business as Blind Ambitions. In 1994 and 1995, Blind Ambitions made credit purchases from Faber and did not pay under the terms of those contracts. Faber brought suit against Dori Leeds as the guarantor of credit for Blind Ambitions. Dori refused to pay on the grounds that she was acting as a personal guarantor for her business, not for Blind Ambitions. Is she correct? [Faber Industries, Ltd. v Dori Leeds Witek, 483 SE2d 443 (NC App)]
Essay
Answer:
Tags
Choose question tag
close menu
arrow
Tri County Truck Diesel borrowed $165,000 from Security State Bank and pledged its inventory as security for the loan. In addition, Fred and Randelle Burk agreed to act as sureties for the loan. Tri County defaulted on the loan and Security Bank repossessed the collateral. The inventory was damaged while Security Bank held it, and as a result, the sale of the inventory brought only $5,257.50 at a public auction. The Burks raised the defense of the damages as a setoff to their surety amount for the remainder of the loan. Security Bank said the Burks could not raise the damages as a defense because the Burks were sureties and had guaranteed the full amount of the loan. The trial court granted summary judgment for Security Bank, and the Burks appealed. What should the court do? [ Security State Bank v. Burk , 995 P.2d 1272 (Wash App.)]
Essay
Answer:
Tags
Choose question tag
close menu
Showing 1 - 20 of 21