What does the Bank want to do to secure its loan to John?

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Question
John and Jay are college roommates. Jay is a finance officer with the Bank and earns $200,000 per
year. John has just finished training as a Real Estate agent and is about to take a test to become a
realtor. Jay and John decide that they would like to partner for purposes of starting a
business that will buy and sell real estate.
Jay approaches his bank and requests a loan for purposes of purchasing a building for the partnership. The
Bank president, who is a friend of Jay’s states it is a violation of bank
policy to lend money to an officer of the bank. Jay says, “That’s okay, you can just lend the money to John,
my partner and I will guarantee payment.” The bank President authorizes the Bank to forward $200,000 to
John and John buys a building in his name. Please discuss the following issues:
a) What does the Bank want to do to secure its loan to John?
b) What real and potential interest does Jay have in the Building and why?
c) If no-one pays back the loan to the bank, can the bank sue Jay for
the money?
d) If the Bank loan is not repaid and the Bank fires Jay as a result does Jay have any rights against the
Bank?

 

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