Gary decided to borrow from Jones Bank since it promised that his loan interest rate would be systematically reduced every year when the board met. The loan rate was never reduced, but actually increased monthly. Gary refused to pay the interest demanded and sued for rescission of the contract. The bank attempted to collect from Lewis, a surety under the loan. Does Lewis have to pay?
A) Yes, because there is no defense.
B) No, because a fraud perpetrated upon Gary will be a defense.
C) Yes, since the surety obligation is separate from the underlying contract.
D) No, because the surety stands in the shoes of the debtor for all purposes.

Question

Quizplus · Accepted Answer

A fraud perpetrated upon Gary, the principal debtor, can be a valid defense for the surety if the surety's obligation was predicated on the terms of the original agreement which were fraudulently misrepresented.

Gary Decided to Borrow from Jones Bank Since It Promised