Law of Accountants

30-10. A Question of EthicsPriorities. Mark Denton cosigned a $101,250 loan issued by the First Inter- state Bank (FIB) in Missoula, Montana, to Denton's friend Eric Anderson. Denton's business assets-a mini-warehouse operation-secured the loan. On his own, Anderson obtained a $260,000 U.S. Small Business Administration (SBA) loan from FIB at the same time. The pur- pose of both loans was to buy logging equipment so that Anderson could start a business. Two years after the loan was made, the business failed. As a consequence, FIB repossessed and sold the equipment and applied the proceeds to the SBA loan. FIB then asked Denton to pay the other loan's outstanding balance ($98,460), plus interest. When Denton refused, FIB initiated proceedings to obtain his business assets. Denton filed a suit in a Montana state court against FIB. He claimed, in part, that Anderson's equipment was the collateral for the loan that FIB was attempting to collect from Denton. /Denton v. First Interstate Bank of Commerce, 2006 MT 193, 333 Mont. 169, 142 P3d 797 (2006] (See Priorities.) (a) Denton's assets served as the security for Anderson's loan because Anderson had nothing to offer. When the loan was obtained, Dean Gillmore, FIB's loan officer, explained to them that if Anderson defaulted, the proceeds from the sale of the logging equipment would be applied to the SBA loan first. Under these circumstances, is it fair to hold Denton liable for the unpaid balance of Anderson's loan? Why or why not? (b) Denton argued that the loan contract was unconscionable and constituted a "contract of adhesion." What makes a contract unconscionable? Did the transaction between the parties in this case qualify? What is a "contract of adhe- sion"? Was this deal unenforceable on that basis? Explain