Exam 31: Nature of the Debtor Creditor Relationship

Under the ______, the respective parties are protected by a careful description of the documents that will trigger payment.

An issuer in a letter of credit transaction has an obligation to assure that the goods sold by the seller in fact conform to the contract.

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.

A surety is discharged if the creditor substitutes a different debtor.

In a letter or credit, the _______ will be the drawer of the drafts that will be drawn under a letter of credit.

Suretyship is a pledge to pay one's own debts and obligations.

Howard bought goods from Williams. Howard sent Williams a draft covered by a letter of credit issued by First National Bank. Is the bank required to investigate to determine whether the goods sent by Williams conform to the contract?

A debtor-creditor relationship is essentially a bi-lateral contract with enforceable rights and duties for both parties.

Under the independence rule banks cannot, except in limited circumstances, delve into the underlying contract issues and must only focus on the terms of the letter of credit.

A letter of credit: ______.

An agreement or provision in an agreement that one party shall not be held liable for loss is:

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.

A letter of credit:

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

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?

A guaranty of payment creates a(n):

In a guaranty contract, the obligor is called a:

In most states contracts of guaranty do not have to be in writing to be enforceable.

A surety that has made payment of a claim for which it was liable as a surety is entitled to which of the following from the principal?

All of the following contract defenses can be raised as a defense against suretyship obligations except: ________.