East Mississippi Community College

ECON 2123

Chapter 32-NATURE OF THE DEBTOR-CREDITOR RELATIONSHIP

TRUE/FALSE

1)Suretyship is governed by the UCC.

 

                                           

 

2. Suretyship, guaranty, and indemnity contracts all create a relationship by which one party becomes responsible for the debt or undertaking of another party.

 

                                           

 

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

 

                                           

 

4. A surety primarily is liable; ordinarily, a guarantor is only secondarily liable.

 

                                           

 

5. The creditor first must proceed against the debtor before suing the surety.

 

                                           

 

6. An absolute guaranty creates the same obligation as a suretyship.

 

                                           

 

7. 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.

 

                                           

 

8. In most states, the statute of frauds requires that contracts of guaranty be in writing to be enforceable.

 

                                           

 

9. 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.

 

                                           

 

10. Sound business practice dictates the use of written contracts for both suretyships and indemnities.

 

                                           

 

11. 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.

 

                                           

 

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

 

                                           

 

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

 

                                           

 

14. When a surety pays a claim that it is obligated to pay, it automatically acquires the claim and the rights of the creditor; this is known as subrogation.

 

                                           

 

15. A surety may raise the defense of lack of capacity of parties, absence of consideration, fraud, or mistake.

 

                                           

 

16. The creditor’s failure to give the surety notice of default is not a defense.

 

                                           

 

17. 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.

 

                                           

 

18. A surety may be discharged if the creditor substitutes a different debtor.

 

                                           

 

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

 

                                           

 

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

 

                                           

 

21. The use of letters of credit arose in international trade.

 

                                           

 

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