Exam 32: Nature of the Debtor-Creditor Relationship

An American merchant who buys goods from a French merchant obtains a letter of credit from an American bank. A French bank, upon the request of the American bank, notifies the French seller that the letter of credit has been issued. In this case, the American buyer is the issuer, the American bank is the correspondent bank, and the French bank is the advising bank.

Under an indemnity contract, one person pays another consideration in return for a promise to pay a specified sum of money in the event that a specified loss is suffered.

Which of the following is not a suretyship defense?

The amount of credit specified in a letter of credit must be taken by the beneficiary in the form of a lump-sum payment.

If there are two or more sureties and one pays more than its proportionate share of the debt, such surety has the right against the cosureties known as:

Which of the following is correct concerning suretyship and guaranty?

The issuer of a letter of credit can revoke or modify the letter at any time without the consent of the beneficiary, even if that right is not expressly reserved in the letter.

Sound business practice dictates the use of written contracts for both suretyships and indemnities.

A surety primarily is liable; ordinarily, a guarantor is only secondarily liable.

Suretyship and guaranty transactions have the common feature of a promise to answer for the debt or default of another.

An agreement under which one party agrees to pay drafts drawn by a creditor is called a:

When a surety pays a debt that it is obligated to pay, it automatically acquires the claim and the rights of the creditor through:

Pasquale and Paul were sureties on the debt of Rose. Each had a $100,000 responsibility. Upon Rose's default, Pasquale paid $50,000 to the creditor. How much may Pasquale recover from Paul under the concept of contribution?

A surety may raise the defense of lack of capacity of parties, absence of consideration, fraud, or mistake.

An issuer has an obligation to honor drafts under a letter of credit if the conditions specified in the letter have been satisfied. This obligation includes the bank's obligation to assure that the goods sold by the seller in fact conform to the contract.

The issuer of a letter of credit is in effect the obligor on a third-party beneficiary contract made for the benefit of the beneficiary of the letter.

Suretyship is governed by the UCC.

Letters of credit are a form of advance arrangement for financing.

The issuer of a letter of credit:

Deirdre read that bids were being solicited for the construction of an apartment tower. Deirdre submitted the lowest bid and was offered the contract contingent on her providing acceptable sureties in the amount of $1 million. Because Deirdre never had done work on this scale, it was virtually impossible for her to obtain the appropriate sureties. She convinced Reassuring Sureties, Inc. to issue the necessary commitment by misrepresenting that she was a famous builder in Canada. As the work progressed, it seemed to be going well and Deirdre was asked to make the project 52 stories instead of 50 stories, which was the original contract height. She agreed to this change. After the work was completed, many breaches of contract on the part of Deirdre became evident. Reassuring Sureties was sued for a $500,000 loss. Reassuring Sureties defended on the grounds of fraud and material change in the contract. Decide.