Patrick Dillon applied for a $100,000 loan from Carlton Savings & Loan. Carlton
ID: 2423598 • Letter: P
Question
Patrick Dillon applied for a $100,000 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 $100,000. After one payment of $4,000, Patrick defaulted. He then filed a voluntary petition in bankruptcy. Does Sinclair have any valid defense against Carlton?
Explanation / Answer
P applied for a $100,000 loan from C savings and loan.
S surety Co. relied on the false financial statement provided by P and committed to provide surety.
Later on, P defaulted the payment. Now, S doesn't have a valid defence against C. He should have well verified the financial statements of P before agreeing to act as surety. And thus, S will be held liable to C for compensation.
However, S can sue P for the false statements disclosed by him in order to obtain surety and loan thereof