Gary Decided to Borrow from Jones Bank Since It Promised

question 7

Multiple Choice

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.

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Definitions:

Maturity Value

The sum of money an investor receives at the conclusion of a fixed-term investment, which encompasses both the original investment and the earned interest.

Inflation Rate

The speed at which the overall price level for products and services increases, diminishing the buying power.

Hourly Rate

The amount of money paid or charged for one hour of labor or service.

Compounded Semi-annually

The process of calculating interest on the principal balance and previously earned interest every six months.