Question

Jim wants to start his own business and needs $10,000 for working capital. He applies for a business loan at FirstBank. The banker tells Jim that the Bank will make the loan if Jim's father will personally guarantee repayment of the loan. Jim assures the banker that his father will do this. The banker calls Jim's father to confirm that he will guarantee Jim's $10,000 loan. Jim's father says: "Sure thing, I'd do anything for that boy." The bank makes the loan to Jim. Jim's new business is not successful and Jim is unable to repay the loan. Jim has no money. Jim's father has buckets of money. The bank sues Jim's father to recover the unpaid amount of the loan plus interest plus attorneys' fees and costs of collecting the debt.

Which of the following is true?

A.Jim's father can make a strong argument that he is not liable to pay his son's debt because the Bank did not have him sign a written guaranty agreement.

B.The oral agreement to guaranty the loan is not enforceable because it is contrary to public policy.

C.Jim’s father is liable to pay his son’s debt because the Bank partially performed under the loan agreement.

D.If it can be proven in a court of law that Jim's father orally agreed to guarantee the loan, Jim's father will be held liable for the repayment of the loanbecause 'a deal is a deal'.

Answer 1

Ans: C- Jim’s father is liable to pay his son’s debt because the Bank partially performed under the loan agreement.

Jim’s father is liable for the repayment of debt of Jim since, bank had performed loan agreement with Jim partially as if his father agreed to repayment of loan. As Jim’s father made an oral promise to pay the loan and there was exchange of valuable thing which was money in agreement, thus making an enforceable legal agreement between them. Also there was offer and acceptance between both parties, moreover there was consideration principle in this agreement.