Question 1

The act of forbearance of some deed at the request of the guarantor is usually consideration to the guarantor in a contract of guarantee.

Accepted Answer

Forbearance of some deed at the request of the guarantor can be considered as a benefit or consideration given to the guarantor in exchange for their guarantee in a contract. Therefore, option A is correct.

Question 2

Co-insurance is a technique used by insurance companies to

Accepted Answer

Co-insurance requires policy holders to share a percentage of the cost of their medical care, which helps prevent them from abusing their insurance coverage and overusing medical services. It also helps to keep premiums lower for everyone in the insurance pool.

Question 3

A tenant carelessly drops a candle,and the resulting fire destroys the landlord's premises.The landlord's loss is fully covered under the landlord's fire insurance policy,and the insurance company compensates the landlord for the loss.In these circumstances,

Accepted Answer

The tenant is liable to compensate the insurer for the loss caused by their negligence. The landlord's insurance policy only covers the landlord's loss and does not affect the tenant's liability for causing the fire. The tenant may also be held responsible for any increase in the landlord's insurance premiums.

Question 4

Exemption clauses in insurance contracts are strictly interpreted by the courts.

Accepted Answer

Exemption clauses in insurance contracts are often viewed as unfair and courts have developed strict rules for their interpretation in order to ensure that consumers are protected. Courts will generally interpret such clauses narrowly and will not allow them to exclude liability where it would be unreasonable to do so.

Question 5

James was the guarantor for a loan Edward had at the bank.Edward had also pledged a coin collection as security for the loan.The loan came in default,so James made the remaining payments.Who gets the coin collection?

Accepted Answer

James has the right of subrogation which means that he steps into the shoes of the lender and has the same rights as the lender. This includes the right to the pledged coin collection since it was pledged as security for the loan.

Question 6

Subrogation allows an insurance company to recover its loss from the person(s)responsible without having to pay the insurance proceeds to the insured.

Accepted Answer

Subrogation allows an insurance company to step into the shoes of the insured to recover the amount of a claim paid by the insurance company to the insured from the person(s) responsible for causing the loss. The insurance proceeds are paid to the insured first, and then the insurance company seeks reimbursement.

Question 7

While Stella was in Hong Kong,a loan came due that she had guaranteed.The creditor,a kindly old man,extended the due date on the loan for thirty days,interest free.Did this action by the creditor discharge Stella from her obligation?

Accepted Answer

The creditor's extension of the due date on the loan, interest-free, did not materially alter the risk to Stella's detriment, and therefore does not discharge her from her obligation as a guarantor. While Stella was not consulted on the change and her position as a guarantor was not clearly prejudiced, her consent was not required as the change was ultimately to her benefit.

Question 8

Nancy missed a payment on her signature loan to Pacific Bank.The bank threatened to bring her to court unless she could pledge some assets or find someone to be a guarantor.Nancy's friend Lynn agreed to sign as guarantor provided Nancy wouldn't tell Lynn's husband.In response to Lynn's promise,what is the necessary consideration for the guarantee?

Accepted Answer

The necessary consideration for Lynn's promise to act as guarantor is the bank's act of forbearance, meaning their agreement not to take legal action against Nancy if Lynn signs as guarantor. Nancy's promise not to tell Lynn's husband is not a form of consideration, as it does not involve any benefit or detriment to Lynn. Signing the contract under seal is not relevant in this case, and Nancy's endearment to a friend is not a legally recognized form of consideration.

Question 9

A building owned by X Company is insured for $100 000,but the insurance contract contains an 80 percent co-insurance clause.The building is damaged by fire to the amount of $20 000.The depreciated replacement value of the insured property is $250 000.The insurance company will then pay

Accepted Answer

The answer of A building owned by X Company is...

Question 10

An insurance contract is one that is usually said to require utmost good faith on the part of the parties.

Accepted Answer

Insurance contracts are based on the principle of utmost good faith. Both the insurer and the insured must disclose all relevant information to each other before entering into the contract. This principle is essential for the insurance contract to be valid and enforceable.

Question 11

Which of the following does NOT affect the enforceability of a guarantee?

Accepted Answer

The death of the primary debtor does not affect the enforceability of a guarantee. Guarantees are designed to be enforceable even if the primary debtor can no longer fulfill their obligations, including due to death.

Question 12

Which of the following is NOT a defence available to a guarantor when an action is brought by the creditor to have the guarantor held liable for the debt of the principal debtor?

Accepted Answer

Res ipsa loquitur is not a defence available to a guarantor in a debt recovery action. It is a legal concept used in tort law where the plaintiff must prove negligence on the part of the defendant by showing that the harm caused could only have occurred through the defendant's negligence. This defence is not applicable in contract law, which governs the relationship between a guarantor and a creditor.

Question 13

A comprehensive general insurance policy is one that covers most types of damage or loss to an insured's property as well as providing third party liability.

Accepted Answer

A comprehensive general insurance policy typically covers a wide range of risks associated with property damage or loss, as well as liability claims from third parties. It may vary depending on the specific policy, but generally provides broader coverage than other types of insurance policies.

Question 14

Where certain terms are changed in a policy,the document that records the changes is not an endorsement.

Accepted Answer

An endorsement is the document that records changes, amendments, or additions to the existing terms and conditions of an insurance policy.

Question 15

Key Bank would not give Tony a business loan without a suitable guarantor.So Tony's father signed as a guarantor.He must make the loan payments when

Accepted Answer

A guarantor is responsible for making loan payments when the primary borrower (in this case, Tony) defaults on the loan. This means if Tony fails to make the payments as agreed, his father, as the guarantor, must step in to fulfill the loan obligations.

Question 16

The concept of subrogation applies to the liability of a guarantor under a loan guarantee.Under the concept of subrogation,

Accepted Answer

Subrogation refers to the right of a guarantor who has compensated a lender to take over the lender's rights in order to sue the borrower for reimbursement. This allows the guarantor to recover the money that they paid to the lender on behalf of the borrower. Option A refers to the lender's duty to mitigate losses and is not directly related to subrogation. Option C is the lender's right, not the guarantor's right, to sue the guarantor for payment of the loan. Option D refers to the lender's attempt to collect from the borrower before pursuing the guarantor.

Question 17

Uncle Ralph told Jody's parents,"Supply Jody with what she needs to get off to a good start at university and I'll take care of all the bills." Legally,we identify Uncle Ralph as

Accepted Answer

Uncle Ralph is making a promise of indemnity, which means he is agreeing to financially protect or compensate Jody in case of any loss or damage related to her university education expenses. He is not necessarily an educational guarantor or sponsor, and he is not providing a guaranteed education.

Question 18

A guarantee occurs when a third party agrees to pay off a loan made to another.

Accepted Answer

The answer of A guarantee occurs when a third party...

Question 19

In May,farmer Smith sold one of his tractors to farmer Jones for $26 000.Smith received $6000 down and a 7 percent note payable (for $20 000)to be paid on October 15th.In need of cash,farmer Smith brought the note to his bank for discounting.The bank gave cash less 5 percent for the note,whereas farmer Smith endorsed the note in favour of the bank.Farmer Smith performed an act of

Accepted Answer

The answer of In May,farmer Smith sold one of his...

Question 20

An offer to purchase life insurance is accepted when the agent provides the applicant with an insurance binder.

Accepted Answer

An insurance binder is a temporary proof of insurance coverage and does not signify acceptance of the offer to purchase life insurance. Acceptance occurs when the insurer issues a policy or a written acceptance of the application.

Quiz 16: Insurance and Guarantee