Question

David, a debtor, owes debts to creditors Paul, Mark, and Gary. Paul, Mark, and Gary agree with each other and with David to release him from his debts, in exchange for his promise to pay Paul, Mark, and Gary 75 percent of the amount he owes each of them. This is called a composition agreement, and such agreements generally are binding contracts.

a. true
b. false

Answer 1

A composition agreement like the one David has with his creditors Paul, Mark, and Gary, where he promises to pay 75 percent of the amount he owes each to release him from his debts, is generally a valid and binding contract. This type of arrangement differs from systems such as debt bondage and should not be confused with metaphorical contracts like the social contract theory. Option a is the correct answer.

Step-by-step explanation:

Contractual Agreements and Debt

Within the context of law, the question pertains to a specific type of agreement known as a composition agreement. This is when multiple creditors agree to accept a reduced payment from a debtor to fully settle existing debts. In the scenario described, David is a debtor who owes money to creditors Paul, Mark, and Gary. They have agreed to accept 75 percent of the amount owed to each of them from David as full payment of his debts. Such an agreement is indeed a binding contract if it meets the requirements of contract formation, including offer, acceptance, consideration, mutual intent to be bound, and legality of purpose.

Contrasting this with systems such as debt bondage, we can see that they are quite different. Debt bondage involves a debtor working for the creditor until the debt is repaid, potentially for indefinite periods, which often leads to a cycle of indebtedness. This concept is vastly different from the composition agreement, which intends to settle the debt for an agreed percentage in a definitive act.

Hobbes's idea of a social contract is another type of theoretical agreement where individuals in a society collectively give up some freedoms to create order and are governed by a state or authority. This is a metaphorical contract, unlike the practical financial arrangements between David and his creditors.

In summation, the answer to whether a composition agreement is generally a binding contract is: a. true. Such arrangements are recognized by law as valid contracts when they satisfy the legal criteria for contract formation.