Tuan is president and sole shareholder of Entertainment,Inc.Entertainment,Inc.wishes to borrow money,but to do so,the bank requires Tuan to orally agree to personally pay the debt of the corporation if Entertainment,Inc.cannot.Tuan's guarantee to repay is
A)enforceable under the parol evidence rule.
B)unenforceable because there is no insurable interest.
C)enforceable because of the leading object rule.
D)unenforceable because it is a collateral promise.

Question

Quizplus · Accepted Answer

The guarantee made by Tuan to personally pay the debt of Entertainment, Inc. can be enforced because of the leading object rule. This rule states that if the main purpose of a transaction is to benefit the guarantor (in this case, Tuan), then the guarantee is valid even if there is no insurable interest. In this case, Tuan's personal guarantee allows Entertainment, Inc. to obtain financing that it may not have been able to secure otherwise, and therefore benefits Tuan as the sole shareholder and president of the corporation.

Tuan Is President and Sole Shareholder of Entertainment,Inc