2. Suretyship Flashcards
Suretyship must be ____________.
Question 1Answer
a. limited in duration and amount.
b. gratuitously made in favor of the creditor by the surety.
c. express and in writing.
d. consented to by the debtor.
c. express and in writing.
In Ball Marketing Enterprise v. Rainbow Tomato Co., the court held:
Question 2Answer
a. Because the agreement was ambiguous, it should be interpreted against the drafter, Plant, Inc. and in the creditor’s favor.
b. Although Plant Inc.’s assurance that Rainbow’s debt would be paid amounted to an express statement of suretyship, no contract of suretyship was formed because the creditor did not consent to the contract.
c. Plant Inc. did not expressly agree to be bound as surety for Rainbow’s debt.
d. A valid and enforceable contract of suretyship was established under the circumstances.
c. Plant Inc. did not expressly agree to be bound as surety for Rainbow’s debt.
In Blair Rubber Co. v. Altra Coatings Technology, the court held:
Question 3Answer
a. Mr. Poirrier was obligated as surety of the debt that Altra Coatings, Technology Inc. owed to Blair Rubber Company.
b. Mr. Poirrier’s letter was an invitation to negotiate a guarantee.
c. Mr. Poirrier’s letter was not an “express” statement of suretyship because it used the phrase “personally guarantee” and did not explicitly mention “suretyship.”
d. Mr. Poirrier was not obligated as surety because he did not have a business or pecuniary motive for binding himself as a surety.
a. Mr. Poirrier was obligated as surety of the debt that Altra Coatings, Technology Inc. owed to Blair Rubber Company.
Which of the following statements regarding an act of mandate authorizing a mandatary to bind the principal as surety is false?
Question 4Answer
a. the act of mandate must be made in writing.
b. the act of mandate must confer express authority upon the mandatary to bind the principal as surety.
c. a mandatary upon whom a general grant of authority has been conferred may bind the principal as surety.
d. the act of mandate need not be witnessed or notarized.
c. a mandatary upon whom a general grant of authority has been conferred may bind the principal as surety.
A writing is not required to prove a promise to pay the debt of a third person as a principal obligor if the promisor had a material interest in making the promise and has received something in return for it.
Question 5Select one:
True
False
True
Which of the following is not a cause for extinction of the obligations of the surety?
Question 1Answer
a. performance of the principal obligation.
b. Remission of the principal obligor.
c. Remission of the surety.
d. the death of the surety.
d. the death of the surety.
An action for repayment on a promissory note prescribes ___ year(s) from the time payment is due.
Question 2Answer
a. three
b. five
c. one
d. ten
b. five
In Cottonport Bank v. Reason, the court held:
Question 3Answer
a. the Reasons were no longer obligated as sureties because the debt that their son incurred at the time they agreed to be bound as sureties had prescribed.
b. the Reasons were still obligated as sureties of their son’s debts, up to an amount of $5,000, even though the first debt that he had incurred had prescribed, because the prescription of the principal obligation does not extinguish the obligations of the surety.
c. the Reasons were still obligated as sureties of their son’s debts, up to the amount of $5,000, even though the first debt that he had incurred had prescribed, because they signed a continuing guarantee that was not tied to any particular obligations.
d. the Reasons were no longer obligated as sureties because the contract of suretyship is subject to a prescription of ten years from the date the contract of suretyship is made.
c. the Reasons were still obligated as sureties of their son’s debts, up to the amount of $5,000, even though the first debt that he had incurred had prescribed, because they signed a continuing guarantee that was not tied to any particular obligations.
In Matter of O’Connor, the court held:
Question 4Answer
a. the interruption of prescription against the surety interrupted prescription against the principal obligor because the interruption of prescription against the surety always interrupts prescription against the principal obligor.
b. the interruption of prescription against the surety did not interrupt prescription against the principal obligor because the parties did not mutually agree to be bound together.
c. the interruption of prescription against the surety did not interrupt prescription against the principal obligor because the interruption of prescription against the surety never interrupts prescription against the principal obligor.
d. the interruption of prescription against the surety interrupted prescription against the principal obligor because the parties mutually agreed to be bound together when they executed the same written agreement containing both the principal obligation and the guarantee.
d. the interruption of prescription against the surety interrupted prescription against the principal obligor because the parties mutually agreed to be bound together when they executed the same written agreement containing both the principal obligation and the guarantee.
In Robbins Tire & Rubber Co., Inc. v. Winnfield Retreat, Inc., the court held:
Question 5Answer
a. Straughn’s obligations as surety were extiguished when Winnfield released real security that it held for the principal obligation.
b. Straughn’s obligations as surety were not extinguished by Winnfield’s release of real security that it held for the principal obligation because Straughn consented to such release.
c. Straughn’s obligations as surety were not extinguished because he suffered no prejudice when Winnfield released real security that it held for the principal obligation.
d. Straughn’s obligations as surety were not extinguished by Winnfield’s release of real security that it held for the principal obligation because commercial suretyship is not extinguished by the creditor’s impairment of real security held for the principal obligation.
c. Straughn’s obligations as surety were not extinguished because he suffered no prejudice when Winnfield released real security that it held for the principal obligation.
Which of the following is a correct statement of Louisiana law?
Question 1Answer
a. Suretyship may be express or implied, as long as it is in writing.
b. Suretyship must be expressly made in an authentic act.
c. Suretyship must be express and in writing.
d. Suretyship may be express or implied and may be made in writing or verbally.
c. Suretyship must be express and in writing.
Abigail purchased goods from Commercial Warehouse, Inc. on credit for her small business. When she fell behind on her payments, Commercial Warehouse, Inc. told her they would not sell her any additional goods on credit unless she could provide some “assurance” of payment. She asked her rich uncle Frank to write a letter on her behalf, which he did. The letter stated in part: “I, Frank, personally assure you that you will be paid by Abigail in full.” Frank signed the letter and mailed it to Commercial Warehouse, Inc. However, Commercial Warehouse never responded to the letter. Did Frank’s letter create a contract of suretyship?
Question 2Answer
a. No, because it did not explicitly refer to “suretyship.”
b. Yes, because he promised that the creditor would be paid “in full.”
c. Yes, because it used the phrase “personally assure.”
d. No, because he assured the creditor that it would be paid “by Abigail.”
d. No, because he assured the creditor that it would be paid “by Abigail.”
Buster decided to quit his day job and realize his dream of opening a theater in downtown Baton Rouge. To finance his new business venture, he borrowed $500,000 from his best friend Eddie’s Rich grandmother, Nana. Nana, a retired actress, had no financial interest in lending Buster the money to finance the theater, but instead did so to help her son’s friend and better her community. As security for the loan, Nana required Eddie to guarantee the debt. Eddie, who was not compensated for acting as a surety, agreed to this arrangement because he really wanted to see his friend Buster’s dream come true. Which of the following statements is correct?
Question 3Answer
a. The suretyship is legal.
b. The suretyship is commercial.
c. The suretyship is ordinary.
b. The suretyship is commercial.
Shaw Construction purchased a forklift from Toyota Industries and planned to finance the purchase with a loan from Iberville Bank. The morning of the closing, Iberville Bank’s representative contacted Shaw Construction’s President and CEO, Buddy Shaw, and told Buddy that it would not lend the money to Shaw Construction for the purchase of the forklift unless Buddy personally agreed to guarantee repayment of the $45,000 loan. In a rush to close the deal, Buddy sent an email to the Iberville Bank representative stating, “I, Buddy Shaw, hereby personally and unconditionally guarantee any and all debts owed by Shaw Construction, Inc. to Iberville Bank, whether presently existing or arising in the future.” The Iberville Bank representative did not respond to this email. Although Buddy had done business with Iberville Bank for years, and frequently communicated with Iberville Bank representatives through email, he had never formally agreed with Iberville Bank to conduct business transactions electronically. Which of the following statements about this state of affairs is correct?
Question 4Answer
a. The suretyship is not enforceable because Buddy Shaw and Iberville Bank did not agree to transact electronically before Buddy sent the email to Iberville Bank.
b. The suretyship is not enforceable because Iberville Bank did not accept Buddy’s offer to guarantee Shaw Construction’s loan.
c. The suretyship is not enforceable because it does not state a maximum amount of debt that Buddy will guarantee.
d. All of the above are reasons why the suretyship is not enforceable.
a. The suretyship is not enforceable because Buddy Shaw and Iberville Bank did not agree to transact electronically before Buddy sent the email to Iberville Bank.
Lauren is a tie-dye artist who specializes in making and selling Mardi Gras clothing and wares. Lauren runs her business through her LLC, which she solely owns: Mardi Gras Madness LLC. Mardi Gras Madness LLC purchases all of the clothing, dyes, packaging, and other items needed for the business from Commercial Warehouse, Inc. on an “open account” (meaning that Commercial Warehouse Inc. allows Mardi Gras Madness LLC to pay for the goods over time). Last month, Mardi Gras Madness LLC fell behind on its payments to Commercial Warehouse, Inc., and a representative from Commercial Warehouse Inc. called Lauren and told her that Commercial Warehouse, Inc. would not sell any more goods to Mardi Gras Madness LLC unless Lauren agreed to become a principal co-obligor on the loan. Lauren quickly agreed – if Commercial Warehouse Inc. stops selling goods to her business this close to Mardi Gras, she will lose substantial revenue this year. Lauren agreed to the arrangement over the phone, but never executed a written promissory note evidencing the agreement. If eventually neither Mardi Gras Madness LLC nor Lauren pays the debt, can Commercial Warehouse, Inc. seek payment from Lauren?
Question 5Answer
a. Yes; Lauren’s verbal promise to pay bound her as a surety of Mardi Gras Madness LLC.
b. Yes; Lauren’s verbal promise to pay bound her as a principal co-obligor of Mardi Gras Madness LLC.
c. No; Lauren’s verbal promise to pay did not bind her as either principal co-obligor of the debt or as a surety of Mardi Gras Madeness LLC.
b. Yes; Lauren’s verbal promise to pay bound her as a principal co-obligor of Mardi Gras Madness LLC.
Question 6
Hotels Inc. (Hotels) hired Cactus Contractors (Cactus) to renovate the pool area at one of its swanky New Orleans hotels. When Contractor submitted an order for materials to its supplier, Suppliers Inc. (Suppliers), Suppliers asked for some assurance from Hotels that Cactus would pay for the supplies it ordered. Suppliers asked Hotels to guarantee the debt in the event Cactus did not pay, and Hotels agreed. To memorialize this agreement, a duly authorized representative of Hotels Inc. signed a promissory note obligating Hotels as a “solidary co-obligor of the Cactus account.” Later, while the project was still underway, Cactus failed to pay Suppliers on time, and Suppliers began to consider initiating legal proceedings against Cactus and Hotels. Suppliers needs to know if its agreement with Hotels bound Hotels as a solidary co-obligor with Cactus, or whether Hotels is considered a surety of Cactus. Which of the following is true?
Question 6Answer
a. Hotels is considered a surety of Cactus because the principal cause of Hotels’ agreement with Suppliers was to guarantee the performance of Cactus’ obligations and Suppliers clearly knew of the true relationship between Hotels and Cactus.
b. Hotels is considered a principal obligor of Cactus because Hotels signed a written instrument binding itself as a principal obligor, which cannot be controverted through the use of parol evidence.
a. Hotels is considered a surety of Cactus because the principal cause of Hotels’ agreement with Suppliers was to guarantee the performance of Cactus’ obligations and Suppliers clearly knew of the true relationship between Hotels and Cactus.
Alexa owns Cupcakes and Castles LLC (Castles), a successful travel agency specializing in planning family trips to Walt Disney World in Orlando, Florida. Alexa has decided to expand her business and plans to hire three new travel agents this year. She decided that, to accommodate this growth, Castles should lease a larger office space. She asked her friend Conrad, who is a real estate agent specializing in commercial leases, to negotiate a lease for Castles in a swanky new shopping center downtown. Conrad told Alexa that he would need her written authority to contract the lease on Castles’ behalf, so she signed a written power of attorney in her capacity as Castles’ legal representative giving Conrad the authority to “transact any and all business affairs on Castles’ behalf, including the authority to negotiate and execute a lease on behalf of Castles.” When Conrad met with the landlord (Landlord) on Castles’ behalf, Landlord told Conrad that Landlord would not grant the lease to Castles unless Alexa agreed to guarantee Castles’ obligations under the lease. Conrad called Alexa on the phone and explained the situation. Alexa then told Conrad, over the phone, “you have my permission to sign anything on my behalf that Landlord puts in front of you. Just get the deal done!” Conrad returned to the meeting with Landlord and signed a written continuing guarantee agreement obligating Alexa to guarantee “any and all” obligations of Castles to Landlord under the lease. Which of the following statements regarding this state of affairs is correct?
Question 7Answer
a. Conrad lacked the authority to bind Alexa as a surety of Castles because the contract of suretyship can never be made by a mandatary for the surety.
b. Because Alexa explicitly told Conrad to execute a guarantee obligating her as Castles’ surety, Conrad had the requisite authority to bind Alexa as a surety of Castles, despite the fact that she granted this authority verbally rather than in writing.
c. Because Alexa signed a written power of attorney on Castles’ behalf and explicitly told him to execute a guarantee obligating her as Castles’ surety, Conrad had the requisite authority to bind Alexa as a surety of Castles.
d. Conrad lacked the authority to bind Alexa as a surety of Castles because Alexa did not confer that authority on him in writing.
d. Conrad lacked the authority to bind Alexa as a surety of Castles because Alexa did not confer that authority on him in writing.
Property Corp. sold an apartment complex to Lonegrass Management Inc. (LMI) in 2016 for a price of $500,000. LMI agreed to pay a $100,000 down payment and to pay the remainder of the price ($400,000) at a later time. On January 1, 2016, LMI signed a promissory note evidencing the agreement to repay the balance of the price, stating that the entire balance was due in full three years later or on January 1, 2019. It is now January of 2022. No payment has ever been made on the note. When did or will LMI’s obligation to pay the note prescribe?
Question 8Answer
a. January 1, 2021
b. January 1, 2026
c. January 1, 2024
d. January 1, 2022
c. January 1, 2024
Property Corp. sold an apartment complex to Lonegrass Management Inc. (LMI) in 2016 for a price of $500,000. LMI agreed to pay a $100,000 down payment and to pay the remainder ($400,000) at a later time. On January 1, 2016, LMI signed a promissory note evidencing the agreement to repay the balance of the price, stating that the entire amount was due “on demand.” It is now January of 2022. No payment has ever been made on the note and Property Cop. has not yet issued any demand for payment. When did or will LMI’s obligation to pay the note prescribe?
Question 9Answer
a. January 1, 2021
b. January 1, 2024
c. January 1, 2019
d. January 1, 2026
a. January 1, 2021
When Libby purchased her new car on credit, the lender (Auto Finance) required a guarantor as a condition of making loan. Libby asked her mother, Linda, to serve as her guarantor. Linda signed a written instrument agreeing to guarantee the loan made by Auto Finance to Libby for the price of the car plus interest, which at the time of the sale amounted to $12,500, payable in monthly installments over five years. Libby purchased the car for her personal use, and Linda was in no way compensated for serving as Libby’s surety. The written suretyship agreement limited Libby’s liability to the single car loan (that is, this was not a continuing guarantee). Soon after purchasing the car, Libby lost her job and fell behind on her payments. She contacted Auto Finance and arranged for a forbearance which allowed her to temporarily stop making payments in exchange for extending the term of the loan for an additional year. The extended term will result in overall increased interest payments of $2,500 over the life of the loan. Linda did not consent to this arrangement; in fact, she was never notified of it at all. Later, when the payments were scheduled to resume, Libby still did not pay on time. Auto Finance now wishes to enforce the suretyship agreement against Linda. Which of the following statements regarding this state of affairs is correct?
Question 10Answer
a. The suretyship is not extinguished either in whole or in part; i.e., Linda owes the entire amount due, including the additional $2,500 in interest resulting from the modification.
b. The suretyship is extinguished, but only to the extent the surety is prejudiced by the modification (i.e., Linda does not owe the additional $2,500 in interest resulting from the modification).
c. The suretyship is extinguished, and Linda owes nothing to Auto Finance.
c. The suretyship is extinguished, and Linda owes nothing to Auto Finance.
Start exit ticket 4 here
Debtor incurs a debt of $50,000 from Bank. Surety agrees to guarantee the debt. How much does Surety owe Bank?
Question 1Answer
a. $12,500
b. $0
c. $25,000
d. $50,000
d. $50,000
Debtor incurs a debt of $50,000 from Bank. Surety agrees to guarantee the debt up to a maximum amount of $12,500. How much does Surety owe Bank?
Question 2Answer
a. $25,000
b. $50,000
c. $12,500
d. $0
c. $12,500
Daniel incurs a debt of $50,000 to Bank. Sachi agrees to serve as surety, signing an unconditional continuing guarantee agreement for the debt. Which of the following is a defense that Sachi could not raise against Bank’s demand for payment? Assume for purposes of this question that sufficient facts exist to establish any of the defenses listed below.
Question 3Answer
a. Sachi’s error in the creation of the suretyship agreement
b. Sachi’s incapacity
c. Daniel’s insolvency
d. Daniel’s error in the creation of the principal obligation
c. Daniel’s insolvency
Daniel incurs a debt of $50,000 to Bank. Sachi agrees to serve as surety for the full amount. Bank remits Daniel. What does Sachi now owe Bank?
Question 4Answer
a. $50,000
b. $0
c. $25,000
b. $0
Daniel incurs a debt of $50,000 to Bank. Sachi agrees to serve as surety for the full amount. Bank remits Sachi. What does Daniel now owe Bank?
Question 5Answer
a. $0
b. $25,000
c. $50,000
c. $50,000
Daniel incurs a debt of $50,000 to Bank. Sachi and Sandra agree to serve as sureties for the full amount. Bank remits Sachi. Which of the following statements is correct?
Question 6Answer
a. Sandra owes Bank $25,000; Daniel owes Bank $25,000.
b. Sandra owes Bank $50,000; Daniel owes Bank $50,000.
c. Sandra owes Bank $0; Daniel owes Bank $25,000.
d. Sandra owes Bank $25,000; Daniel owes Bank $50,000.
d. Sandra owes Bank $25,000; Daniel owes Bank $50,000.
Daniel incurs a debt of $50,000 to Bank. Sachi agrees to serve as surety for the full amount. Sachi pays Bank $10,000 in return for Bank’s remission of Sachi’s obligation to Bank. What does Daniel now owe Bank?
Question 7Answer
a. $40,000
b. $0
c. $50,000
d. $25,000
a. $40,000
