Multiple Choice Question Issuer corporations owe creditors a duty of good faith

Question

Multiple Choice Question

Issuer corporations owe creditors a duty of good faith and fair dealing that is a free floating, standalone duty similar to the duty owed to shareholders, and thus the issuer corporation cannot take action that unfairly harms the creditor's economic interest. This statement is: True, because good faith and fair dealing are essential to promote trust and honesty in the markets and thus courts should liberally impose these duties on corporations that borrow money from creditors. A. True, because creditors stand in equal position to shareholders in terms of duties that the issuer corporation owes. B. Uncertain, true or false, because the credit contract must explicitly state that there is an implied covenant of good faith and fair dealing and the question does not reveal whether the contract states this. C. False, because the obligations owed to creditors must be found in the contract between the creditor and the issuer corporation. D. E.False, because terms such as good faith and fair dealing are too ambiguous to be useful in commercial contracts.

Explanation / Answer

The issuer corporation primary responsibility is towards its shareholders but it cannot act in a manner which is explicitly against the interests of its other stakeholders including the creditors. However, since the creditors have access to specific remedy under their respective contractual agreements, the correct option should be option C

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