Zlotnik incorporated a company shortly after graduation. The company bought a truck and a computer. The company was short of operating capital so, 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 security agreement on its truck and computer. The company made its payment each month without incident. Then 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. On these facts, which of the following is true?
A) 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.
B) Zlotnik's promise to guarantee the debt is unenforceable because it is not supported by any consideration flowing from the bank to Zlotnik.
C) Zlotnik's promise to guarantee the debt is ultra vires.
D) 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the debt is enforceable wholly on the grounds that the Statute of Frauds with its writing requirement has been repealed.
E) All guarantees and indemnities must be in writing and under seal to be binding.

Question

Quizplus · Accepted Answer

Zlotnik's promise to guarantee the debt lacks consideration from the bank to Zlotnik, making it unenforceable. Consideration is a fundamental requirement for a contract to be valid, and in this scenario, the bank did not provide any new benefit or suffer a detriment in return for Zlotnik's promise to guarantee the debt.

Zlotnik Incorporated a Company Shortly After Graduation