Question

Bob Areebob is a recognized french horn player. Bob has played as a freelance musician for several major symphonies. Last year Bob went through bankruptcy and in order to pay his rent for a couple of months took out loans from a small savings institution - Avarice Bank - and pledged his french horn as collateral. He was unable to make the first payment on the loan so the bank was getting ready to take the french horn for non-payment. Bob approached the director of the Gilroy Philarmonic International Symphony - Joe Dogooder - for help - asking him to guarantee payment so he does not lose his french horn. Joe agreed to guarantee the payment - partially because Bob is scheduled as the featured performer at the Classic Polka Festival in Gilroy which Joe manages.

Joe called Avarice Bank and said if Bob could not pay, he would, and Avarice accepted his guaranty by phone. Bob played for the Polka Festival; it was a big hit and very successful, but immediately after, left town with Sally Swansong, the well-known international Polka singer/dancer, and their whereabouts are unknown. Avarice has contacted Joe and indicated they have not collected from Bob and they expect him to pay the debt. Joe told Avarice they did not have anything in writing from him (though there are witnesses who heard Joe guarantee payment) and he believes he will not be liable for Bob's debt. Avarice has indicated it will file suit for payment against Joe.

Discuss both sides of this case, indicating who should prevail and why. Use the

Issue: what is the legal issue/dispute?

Decision: who should prevail?

Support: support for your decision

Dissent: the strongest arguments the losing party can/will make

Answer 1

If we look at both the sides of the case, Joe do-gooder who is the director of Gilroy philharmonic international symphony holds a decent position in the society. Hence for his level, it is his duty to keep up the promise of acting as the guarantor of bob. Even though there has not been any written agreement on this he must fulfill the promise of making the payment in case of default by bob to the bank.

If we analyze the bank’s position, though guarantee has been made by Joe, it is the duty of the bank to proceed legally & sign a written agreement with Joe mentioning that the payment would be made by him in case of default by Joe. Bank being a financial institution serving the needs of many people & on whom the economic development of a country depends can’t act casually & rely on the word of mouth guarantee given by Joe.

The legal issue or dispute is the recovery of loan amount that has been taken by bob in order to meet his bankruptcy. Bob in this case is the principal debtor who borrowed the amount. The dispute here lies between Joe & the bank for recovering the amount defaulted by bob.

When we consider the contract act, it says that the contract of guarantee need not be in writing alone it can be oral or in implied basis or it may be inferred from the course of the concerned parties. When deciding these kinds of cases, the court has to consider all the surrounding circumstances & evidences & cant adopt an attitude that the guarantor hasn’t signed the agreement & so can’t be saddled with the liability.

If we consider the above facts, I would say that the bank would prevail because it is difficult for them to trace bob whose whereabouts are not known, the next person from whom the amount can be recovered is the guarantor. As the show performed by bob was very much successful & also a big hit, Joe would have huge profits & revenue from the show which he could use for settling the debt with the bank. I would support this decision because if bob had been there, anyways he would have taken the entire revenue that has been earned by him from the show. As he is not there, Joe can assume that some portion of revenue has been paid to bob & in that way he can settle the debt with the bank.

The argument that Joe here will make that he has not written & signed any agreement with the bank in making the payment of debt. Moreover he can claim the revenue from the show saying that he had spend huge amounts in conducting the show & he would require the revenue for the purpose of meeting all the expenses.