ASSIGNMENT
1. Pamela Darden owed Clark $5,000 on an unsecured loan. On May 1, Pamela approached Clark for an additional loan of $3,000. Clark agreed to make the loan only if Pamela could obtain a surety. On May 5, Simpson agreed to be a surety on the $3,000 loan, which was granted that day. Both loans were due on October 1. On June 15, Pamela sent $1,000 to Clark but did not provide any instructions.
a. What are Clark’s rights?
b. What are Simpson’s rights?
2. Patrick Dillon applied for a $10,000 loan from Carlton Savings & Loan. Carlton required him to obtain a surety. Patrick approached Sinclair Surety Co., which insisted that Patrick provide it with a financial statement. Patrick did so, but the statement was materially false. In reliance upon the financial statement and in return for a premium, Sinclair agreed to act as surety. Upon Sinclair’s commitment to act as surety, Carlton loaned Patrick the $10,000. After one payment of $400, Patrick defaulted. He then filed a voluntary petition in bankruptcy.
Does Sinclair have any valid defense against Carlton? Explain.
3. On June 1, Smith contracted with Martin doing business as Martin Publishing Company to distribute Martin’s newspapers and to account for the proceeds. As part of the contract, Smith agreed to furnish Martin a bond in the amount of $10,000 guaranteeing the payment of the proceeds. At the time the contract was executed and the credit extended, the bond was not furnished, and no mention was made as to the prospective sureties. On July 1, Smith signed the bond with Black and Blue signing as sureties. The bond recited the awarding of the contract for distribution of the newspapers as consideration for the bond.
On December 1, payment was due from Smith to Martin for the sum of $3,600 under the distributor’s contract. Demand for payment was made, but Smith failed to make payment. As a result, Martin brought an appropriate action against Black and Blue to recover the $3,600. What result?
4. Diggitt Construction Company was the low bidder on a well-digging job for the Village of Drytown. On April 15, Diggitt signed a contract with Drytown for the job at a price of $40,000. At the same time, pursuant to the notice of bidding, Diggitt prevailed upon Ace Surety Company to execute a performance bond indemnifying Drytown on the contract. On May 1, after Diggitt had put in three days on the job, the president of the company refigured his bid and realized that if his company were to complete the job, it would lose $10,000. Accordingly, Diggitt notified Drytown that it was canceling the contract, effective immediately. What are the rights and duties of Ace Surety Company?
