Exam 31: Nature of the Debtor-Creditor Relationship

Letters of credit are a two-party agreement used for financing.

Under the ______, the respective parties are protected by a careful description of the documents that will trigger payment.

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

Howard bought goods from Williams.Howard sent Williams a draft covered by a letter of credit issued by First National Bank.Is the bank required to investigate to determine whether the goods sent by Williams conform to the contract?

In a letter of credit the beneficiary is the drawer of the drafts that will be drawn under the letter of credit.

A surety that has made payment of a claim for which it was liable as a surety is entitled to which of the following from the principal?

An issuer in a letter of credit transaction has an obligation to assure that the goods sold by the seller in fact conform to the contract.

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.

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

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

When a suretyship or guaranty contract is entered into after and separate from the original transaction, there must be new consideration for the promise of the guarantor.

A guaranty of payment creates a(n):

Consideration is not required to establish or modify a letter of credit.

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.

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 surety may not raise the defense of mistake because it is not an ordinary contract defense.

A letter of credit: ______.

A surety that has made payment of a claim for which it was liable as surety is entitled to indemnity from the principal debtor.

When a surety pays a claim that it is obligated to pay, the surety is exonerated, and automatically acquires the claim and the rights of the creditor.

If a debtor is about to leave the state, the surety may call on the creditor to take action against the debtor.