Exam 32: Nature of the Debtor-Creditor Relationship

The use of letters of credit arose in international trade.

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.

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.

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 co-sureties known as:

Bailment given as security for the payment of a debt is a(n):

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

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.

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

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.

A letter of credit usually sets a:

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.

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

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

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.

The issuer of a letter of credit must verify that the underlying transaction has been performed.

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 letter of credit:

If the creditor does not enforce the suretyship agreement within the time limits provided for such contract enforcement in the surety's jurisdiction,the obligation is forever discharged.

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?