In the case Murphy Oil V Armstrong, Armstrong was the guarantor on a contract si

Question

In the case Murphy Oil V Armstrong, Armstrong was the guarantor on a contract signed between Murphy Oil and Price Oil. Murphy provided oil in the amount of $259,585.75 to Price. Price did not pay this and filed bankruptcy. In the bankruptcy proceedings Murphy received $66,246.28. Murphy filed a suit against Armstrong for the unpaid balance. Determine how your business will protect itself from a discharge of debt like this. Please identify the issues and provide an arguments for both sides of the issue.

Explanation / Answer

In a guaranty arrangement, a third person, the guarantor, agrees to pay the debt of the principle debtor if the debtor defaults and does not pay the debt when it is due.In most cases, a creditor refuses to extend credit to a debtor unless a third person agrees to become liable on the debt.A surety contract is a legally binding agreement that the signee will accept responsibility for another individual’s contractual obligations if the principle borrower falls behind or defaults.The person who signs this type of contract is commonly referred to as the accommodation party or the cosigner.Surety arrangements are intended to minimize the risk to the lender, who would rather not spend money on collection agencies or lawyers to secure the repayment of a loan if the borrower defaults.If you have cosigners or guarantors on any of your debts, your decision to file bankruptcy may also affect them.If you do file for bankruptcy, however, there are ways to protect your cosigners (Cheeseman, 2013).

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