Exam 32: Nature of the Debtor-Creditor Relationship

Bud is unable to obtain a loan without some form of additional reassurances.Bud comes to you for assistance.You are willing to help Bud,but you wish to protect yourself from liability as much as possible.Would you prefer a surety or a guaranty? The bank issuing the loan also wishes to protect itself as much as possible.Would the bank prefer a surety or guaranty? If your oral assurances are enough to solidify the loan,has a surety or guaranty been formed?

A surety is never discharged if the creditor substitutes a different debtor.

Which of the following is correct concerning suretyship and guaranty?

A letter of credit:

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?

The bank that tells the beneficiary that a letter of credit has been issued is known as the correspondent bank.

Sureties have no rights to protect them from loss,to obtain their discharge because of the conduct of others that would be harmful to them,or to recover money that they were required to pay because of the debtor's breach.

A surety is liable from the moment of default whereas a guarantor is ordinarily only liable if the creditor cannot collect from the principal debtor.

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.

A(n)__________ is an undertaking by one person,for consideration,to pay another person a sum of money in the event of a specified loss.

A letter of credit must be in writing and signed by the issuer.

Standby letters of credit are used only in international trade situations.

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

An absolute guaranty creates the same obligation as a suretyship.

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

A letter of credit cannot extend for a period of more than five (5)years.

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

Contribution is the right of a co-obligator to demand that other obligator(s)pay their fair share of the debt.

An agreement or provision in an agreement that one party shall not be held liable for loss is:

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