DBCR Flashcards
Jane wishes to obtain a loan of $90,000 from Silver Corp. At the request of Silver, Jane has entered into an agreement with Bing, Piper, and Long to act as cosureties on the loan. The agreement between Jane and the cosureties stated that the maximum liability of each cosurety is: Bing $60,000, Piper $30,000, and Long $90,000. Based upon the surety relationship, Silver agreed to make the loan. After paying three installments totaling $30,000, Jane defaulted. Prior to making payment, the cosureties may seek the remedy of
Exoneration.
State Bank loaned Barr $80,000 and received securities valued at $20,000 from Barr as collateral. At the request of State, Barr entered into an agreement with Rice and Noll to act as cosureties on the loan. The agreement provided that Rice and Noll’s maximum liability would be $30,000 each. Which of the following defenses asserted by Rice will completely release Rice from liability to State?
a. State and Barr entered into a binding agreement to extend the time for payment that increased the sureties’ risk and was agreed to without the sureties’ consent.
b. Release of aarr’s obligation by State without Rice’s or Noll’s consent but with State’s reservation of its rights against Rice.
c. Return of the collateral to Sarr by State without Rice’s or Noll’s consent.
d. Fraud by aarr which induced Rice to enter into the surety contract and which was unknown to State.
State and Barr entered into a binding agreement to extend the time for payment that increased the sureties’ risk and was agreed to without the sureties’ consent.
The Martin Corporation was a small family-owned corporation whose owners were also the directors and officers. The corporation’s bankers insisted that if any further credit were to be extended to the corporation the owners must guaranty payment by the corporation. This guaranty was agreed to by the owners in writing, and an additional $50,000 loan was granted to Martin Corporation. Which of the following best describes the legal significance of these events?
a. Since the owners each participated equally in the guaranty, each can be held liable by the bank, but only to the extent of his proportionate share in relation to the others.
b. In the absence of specific provisions to the contrary, the owners are immediately liable on the debt in the event of the corporation’s default.
c. The guaranty by the owners need not have been in writing since it was primarily for their own benefit.
d. Once the owners agreed to the undertaking they automatically assumed responsibility for all of the corporation’s prior debts.
In the absence of specific provisions to the contrary, the owners are immediately liable on the debt in the event of the corporation’s default.
Camp orally guaranteed payment of a loan Camp’s cousin Wilcox had obtained from Camp’s friend Main. The loan was repaid in 10 months payments. After making six payments, Wilcox defaulted on the loan and Main demanded that Camp honor the guaranty. Regarding Camp’s liability to Main, Camp is
Not liable under the oral guaranty because Camp’s guaranty must be in writing to be enforceable.
Which of the following defenses will release surety from liability?
a. Insanity of the principal debtor at the time the contract was entered into.
b. Refusal by the creditor, with knowledge of the surety relationship, to accept the principal debtor’s unconditional tender of payment in full.
c. Failure by the creditor to promptly notify the surety of the principal debtor’s default.
d. Release by the creditor of the principal debtor’s obligation without the surety’s consent but with the creditor’s reservation of his rights against the surety.
Refusal by the creditor, with knowledge of the surety relationship, to accept the principal debtor’s unconditional tender of payment in full.
Which of the following methods will allow creditor to collect money from debtor’s wages?
a. Order of receivership.
b. Mechanic’s lien.
c. Writ of garnishment.
d. Arrest
Writ of garnishment.
Ford was unable to repay a loan from City Bank when due. City refused to renew the loan to Ford unless an acceptable surety could be provided. Ford asked Owens, a friend, to act as surety on the loan. To induce Owens to agree to become a surety, Ford made fraudulent representations about Ford’s financial condition and promised Owens discounts on merchandise sold at Ford’s store. Owens agreed to act as surety and the loan was made to Ford. Subsequently, Ford’s obligation to City was discharged in Ford’s bankruptcy and City wishes to hold Owens liable. Owens may avoid liability
If Owens can show that City Bank was aware of the fraudulent representations.
Ott and Bane agreed to act as cosureties on an $30,000 loan that Cread Bank made to Dash. Ott and Bane are each liable for the entire $80,000 loan. Subsequently, Creed released Ott from liability without Bane’s consent and without reserving its rights against Bane. If Dash subsequently defaults, Creed will be entitled to collect a maximum of
$40,000 from Bane.
Maxwell was the head cashier of the Amalgamated Merchants Bank. The Excelsior Surety Company bonded Maxwell for $200,000. An internal audit revealed a $1,000 embezzlement by Maxwell. Maxwell persuaded the bank not to report him, and he promised to pay the money back within 10 days. The bank acquiesced and neither the police nor Excelsior was informed of the theft. Maxwell shortly thereafter embezzled $75,000 and fled. Excelsior refuses to pay. Is Excelsior liable? Why?
Excelsior is not liable since the failure to give notice of the first embezzlement is a valid defense.
Which of the following does not involve suretyship relationship?
a. A third-party beneficiary contract.
b. An accommodation endorser on a note.
c. An ordinary endorser on a negotiable note.
d. A cosigner on loan.
A third-party beneficiary contract.
Which of the following actions between debtor and its creditors will generally cause the debtor’s release from its debts?
a. Composition of creditors and Assignment for the benefit of creditors
b. Composition of creditors
c. Assignment for the benefit of creditors
d. Neither
Composition of creditors
Cornwith agreed to serve as a surety on a loan by Super Credit Corporation to Fairfax, one of Cornwith’s major customers. The relationship between Fairfax and Super deteriorated to a point of hatred as a result of several late payments on the loan. On the due date of the final payment, Fairfax appeared 15 minutes before closing and tendered payment of the entire amount owing to Super. The office manager of Super told Fairfax that he was too late and would have to pay the next day with additional interest and penalties. Fairfax again tendered the payment, which was again refused. It is now several months later and Super is seeking to collect from either Cornwith or Fairfax or both. What are Super’s rights under the circumstances?
he tender of performance released Cornwith from his obligation.
West promised to make Noll a loan of $180,000 if Noll obtained sureties to secure the loan. Noll entered into an agreement with Carr, Gray, and Pine to act as cosureties on his loan from West. The agreement between Noll and the cosureties provided for compensation to be paid to each of the cosureties. It further indicated that the maximum liability of each cosurety would be as follows: Carr $180,000, Gray $60,000, and Pine $120,000. West accepted the commitment of the sureties and made the loan to Noll. After paying nine installments totaling $90,000, Noll defaulted. Gray’s debts (including his surety obligation to West on the Noll loan) were discharged in bankruptcy. Subsequently, Carr properly paid the entire debt outstanding of $90,000. What amounts may Carr recover from the cosureties?
Gray Pine
a. $0 $30,000
b. $0 $36,000
c. $15,000 $30,000
d. $30,000 $30,000
$0 $36,000
A seller of goods on credit required the buyer to obtain surety to guarantee payment for the goods purchased. Which of the following defenses may the surety use to avoid payment?
I. The seller of the goods committed fraud against the buyer to induce him/her to buy the goods.
II. The seller of the goods committed fraud against the surety to induce the surety to guarantee payment.
Both I and II
Sklar borrowed $360,000 from Rich Bank. At Rich’s request, Sklar entered into an agreement with Aker, Burke, and Cey to act as cosureties on the loan. The agreement between Sklar and the cosureties provided that the maximum liability of each cosurety was: Aker $72,000, aurke $108,000, and Cey $180,000. After making several payments, Sklar defaulted on the loan. The balance was $240,000. If Cey pays $180,000 and Sklar subsequently pays $60,000, what amounts may Cey recover from Aker and Burke?
$36,000 from Aker and $54,000 from Burke.
