Elizabeth Gave a Guarantee to the Bank in Support of a Loan

question 92

Multiple Choice

Elizabeth gave a guarantee to the Bank in support of a loan to Tomasz. Over the next few years, the Bank and Tomasz made a number of alterations to the loan agreement. The effect of these changes was to significantly increase the amount owing to the Bank. Elizabeth had no notice or knowledge of these changes, nor did she consent to any such changes. What is the likely result?

• A) Elizabeth is bound by the changes to the loan because guarantees are, by their nature, continuing.
• B) Guarantees are a mere formality; only Tomasz has obligations to the Bank.
• C) The guarantees are likely to be invalid and unenforceable against Elizabeth.
• D) A guarantee is executed under seal, therefore it will be presumed valid regardless of defect.
• E) The failure to notify Elizabeth would release both Elizabeth and Tomasz from their obligations.

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Definitions:

Accounts Payable

Short-term liabilities representing amounts owed to suppliers or creditors for goods and services received.

Non-Interest-Bearing Note

A promissory note with no interest charged on the principal; repaid at its face value at maturity.

Discount on Note Payable

The difference between the face value of a note payable and its issue price when the note is sold for less than its face value, effectively acting as an interest expense over time.

Interest Expense

Money that an entity has to pay over time for the privilege of borrowing funds.