Solomon Ltd Carried on a Boat Building Business

Essay

Solomon Ltd carried on a boat building business. In July, as security for a loan in the amount of $15 000 from the Royal Bank, Solomon Ltd had given the Bank a security interest in all its present and future assets. The loan provided that the interest rate would be 10 percent per year. Aaron Solomon is the sole shareholder and the president of Solomon Ltd. He gave the Bank a personal guarantee of the corporation's indebtedness. In September, the corporation, acting through Aaron Solomon, agreed that the interest rate on its loan would be increased to 11 percent, if it was given the right to prepay the loan any time it wanted to. In November, Solomon Ltd defaulted on its obligations to the Bank. The Bank seized the assets of the corporation, but these were insufficient to satisfy the corporation's obligations to the Bank. The Bank demands payment of the shortfall from Aaron Solomon under the guarantee. Is Aaron Solomon liable to pay the shortfall to the Bank?