Asked by Angelica Renata on May 19, 2024
Verified
Gary decided to borrow from Jones Bank since it promised that his loan interest rate would be systematically reduced every year when the board met. The loan rate was never reduced, but actually increased monthly. Gary refused to pay the interest demanded and sued for rescission of the contract. The bank attempted to collect from Lewis, a surety under the loan. Does Lewis have to pay?
A) Yes, because there is no defense.
B) No, because a fraud perpetrated upon Gary will be a defense.
C) Yes, since the surety obligation is separate from the underlying contract.
D) No, because the surety stands in the shoes of the debtor for all purposes.
Rescission
The legal action of cancelling, terminating, or annulling a contract, restoring the parties to their original positions prior to the agreement.
Surety
A person or entity that takes responsibility for another's performance of an undertaking, such as fulfilling the terms of a contract.
Fraud
A deliberate deception practiced to secure unfair or unlawful gain.
- Identify and describe the process of contract rescission and its impact on surety obligations.
- Acquire knowledge about the tasks and liabilities in a suretyship link, inclusive of the rights and duties of sureties.
Verified Answer
RL
Raven LindseyMay 24, 2024
Final Answer :
B
Explanation :
A fraud perpetrated upon Gary, the principal debtor, can be a valid defense for the surety if the surety's obligation was predicated on the terms of the original agreement which were fraudulently misrepresented.
Learning Objectives
- Identify and describe the process of contract rescission and its impact on surety obligations.
- Acquire knowledge about the tasks and liabilities in a suretyship link, inclusive of the rights and duties of sureties.