Rusty Jones, a used car dealer, applied to First Financial Federal Savings and Loan Association for a $50,000 line of credit to purchase an inventory of used cars. First Financial refused to make the loan to Jones alone but agreed to do so if Worth Camp, an attorney and friend of Jones, would cosign the note. Camp agreed to cosign as an accommodation maker or surety. The expectation of the parties was that the loans cosigned by Camp would be repaid from the proceeds of the car inventory. The original note for $25,000 was signed on August 2, 1994, and renewals were executed on January 25, 1995, September 11, 1995, and March 15, 1996, and the amount was eventually increased to $50,000. In August 1995, as Camp was considering whether to sign the September renewal note, he was advised by First Financial's loan officer that the interest on the loan had not been paid. In fact, interest payments were four months delinquent. In addition, unknown to Camp, as the $50,000 credit limit was approached First Financial began making side, or personal, loans to Jones totaling about $25,000, which were also payable out of the used car inventory. Camp knew nothing of these loans and thought that Jones's used car business was making payments only on the loans he had cosigned.
Jones defaulted on the $50,000 note cosigned by Camp, and First Financial brought suit against Camp on his obligation as surety on the note. Was Camp relieved of his obligation as surety by First Financial's failure to disclose material facts to him?

  • CreatedJuly 16, 2014
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