Jackson Software Company borrows $10,000 from Tidy Term Loans, Inc., but cannot repay the loan when it comes due. Tidy Term refuses to extend the time for repayment unless Jackson can provide an acceptable surety. Fourth Investments Corporation agrees to act as a surety for the loan after Jackson offers the firm a discount on software and shows Fourth Investments financial statements, compiled with Tidy Term’s assistance, that misrepresent Jackson’s financial situation. Later, after Fourth Investments uses the discount to buy software, Jackson again defaults on repayment of the loan, and Tidy Term files a suit against Fourth Investments to collect the amount of the debt. Is Fourth Investments liable? Why or why not?
Once Fourth investment gives surety to Tidy Term loans on behalf of Jackson software, a contract of guarantee is created but it requires correct representation of the facts and figures to make it enforceable in the court of law.
In the given case, there are misrepresentation of the facts, created by Jackson software with assistance of Tidy Term loans. It causes the contract of guarantee to be invalid and unenforceable in the court of law. As a result, Fourth investment cannot be held liable for the payment of debt.