Zlotnik incorporated a company shortly after graduation. The company bought a truck and a computer. Short of operating capital, the company, through its agent Zlotnik, borrowed $10,000 from the bank. In consideration for its loan, the bank took, in addition to the company's promise to pay the bank both principal and interest, a mortgage of its truck and computer. The company made its payment each month without incident. For reasons still unknown, the stock market took a tremendous fall, which caused the officer of the bank to call Zlotnik and ask him to guarantee the company's debt. The company was doing very well, so Zlotnik agreed to be guarantor of the debt. His oral assurances were sufficient for the bank officer. On these facts, which of the following is true?
A) Zlotnik's promise to guarantee the debt is void because the guarantee itself is not in writing.
B) All guarantees and indemnities must be in writing and under seal to be binding.
C) Zlotnik's promise to guarantee the debt is enforceable wholly on the grounds that the Statute of Frauds with its writing requirement has been repealed.
D) Zlotnik's promise to guarantee the debt is unenforceable because it is not supported by any consideration flowing from the bank to Zlotnik.
E) Because Zlotnik's promise is a guarantee and not an indemnity, he automatically becomes the legal person primarily liable on the debt; the company becomes secondarily liable.

Question

Quizplus · Accepted Answer

Zlotnik's promise to guarantee the debt is not supported by any consideration flowing from the bank to Zlotnik. In order for a contract to be enforceable, it must have consideration from both parties. In this case, the bank did not provide any consideration to Zlotnik for his promise to act as guarantor, so his promise is not legally binding.

Zlotnik Incorporated a Company Shortly After Graduation