Question 1

Marty is a builder who has borrowed money from Large Bank many times over the past 20 years. He needed to borrow $50,000 for his latest project and this is bigger than the previous loans. The Bank needs 2 guarantors to approve the loan.

Marty pressures his elderly parents into guaranteeing this loan but lies and says that the loan is only for $50,000 when in actual fact the guarantee is for all amounts borrowed. Marty had taken over his building business from his father some years ago and his father still retains a 25% interest in the business. Large Bank is happy to accept a guarantee from Marty's parents. Marty's parents are immigrants and do not have a good command of English. They trusted Marty and signed the guarantee.

Marty got them to sign the guarantee but the Bank did not send a representative and did not inform the parents to seek independent advice.

Large Bank's standard form contract of guarantee has the following provisions:

"The Bank reserves the right to make changes in the principal contract (i.e., the contract being guaranteed).

The guarantee is initially for $50,000 but may be extended to any larger amount that the Bank lends to Marty."

Large Bank decides to grant Marty a further $20,000 loan without informing the guarantors. Also, Large Bank realises that Marty's mother may not be liable on the guarantee and releases her from the guarantee.

On August 14th, Marty did not meet his repayments on the loan. All in there is $65,000 still owing. On that same day the Bank made a demand against Marty's father under the contract of guarantee.

Advise Marty's father as to his position relative to Large Bank and Marty.