Exam 31: Nature of the Debtor Creditor Relationship

A letter of credit usually sets a:

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

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

The use of letters of credit arose in international trade.

Sureties have no rights or remedies to protect them from loss or breach of contract.

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

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

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

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

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

Indemnity is the right of a co-obligator to demand that other obligators pay their fair share of the debt.

Which of the following is correct concerning suretyship and guaranty?

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.

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

A guaranty of collection allows the creditor to firstproceed against the debtor before suing the guarantor.

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.

If the creditor does not enforce the suretyship agreement within the statute of limitations, the obligation is forever discharged.

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.

Letter of credit transactions involve ______ contract(s).

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