Law of Debitors and Creditors

Law of Debtors and Creditors

Assignment 1

Ashley Graham

Facts

Josephine Jones always enjoyed cooking and even at a young age would feed her food to her brother who was three years older than her ,although most of the time he fed it to the family dog. He was proud of his sister though for making an effort in trying her hand at cooking. Shortly after her 17th birthday Jo Jo wanted to pursue her lifelong dream of owning a restaurant she found a great spot and went to Helpful Bank for a loan. Unfortunately she did not have any credit so she went to her older brother for help. he agreed to co­sign as a surety, the bank agreed to lend Josephine 30,000 dollars if she could get her parents to sign separate guarantee agreement as well. Josephine then executed all of the paperwork. 10 months later Josephine's restaurant is not doing very well and just received a bad review and she has barely been able to break even. Her brother Tommy met a girl and moved to Ohio where he is living, jobless, in her parents’ trailer. He claims that he intends to raise Alpaca, once he can save up “a few bucks.” When Jo­Jo fails to make her payment to Helpful Bank, they want to collect the money owed. Knowing that Jo­Jo’s business is broke and her brother is insolvent, Helpful Bank decides to just go after the Joneses directly.

Issue

Is this proper of Helpful bank to collect their loan payment by going pass the debtor and pursuing the guarantor ? Does this follow procedure?

Applicable Law

General Electric Capital Corp. v. Cohen, 1991 U.S. Dist. LEXIS 11130, 1991 WL 157297 (E.D. Pa. Aug. 9, 1991)

The guarantors guaranteed a $ 5.3 million loan to a related shopping center partnership, which defaulted on the loan. The guarantors argued that the credit corporation first had to proceed against the property before it could utilize the unconditional guarantee to collect on the loan. The court held that when a guarantee was absolute or unconditional, the creditor need not proceed against the security upon the default of the principal debtor, but could sue the guarantors. The guarantors also argued that the credit corporation did not extend the entire $ 6.8 million loan. The court held that the extension of $ 5.3 million in credit and the consideration recited in the guarantee agreement were sufficient consideration to support the guarantees. Moreover, the guarantee, signed by the guarantors, stated that their guarantee was required as a condition to making the loan or any part thereof. Thus, neither the terms of the note nor the language of the guarantee supported the guarantors' assertion that the credit corporation was required to advance the partnership the full amount of the loan before the guarantors' obligation matured.