Question 1

If a principal debtor defaults on a loan, an absolute surety will have to pay upon demand of the creditor.

Accepted Answer

A) True 
 B)False

Question 2

Max pressured Madeline to cosign his car loan, telling her he would otherwise reveal secrets about her that would taint her reputation for honesty. When Max defaults and the creditor tries to collect from Madeline, she:

Accepted Answer

A)  must pay since duress will not be a defense. 
B)  must pay because she voluntarily agreed to pay. 
C)  does not have to pay since she did not really assent. 
D)  does not have to pay because there was no consideration. 
A)  must pay since duress will not be a defense. 
B)  must pay because she voluntarily agreed to pay. 
C)  does not have to pay since she did not really assent. 
D)  does not have to pay because there was no consideration.

Question 3

A creditor will have to exhaust all the possible legal procedures to try to collect from the principal debtor before he can collect from a conditional guarantor of collection.

Accepted Answer

A) True 
 B)False

Question 4

A security interest in consumer goods, except motor vehicles, is automatically perfected upon attachment.

Accepted Answer

A) True 
 B)False

Question 5

If Sharpe Finance Co. has a secured interest in Jeff's car and Jeff is in default, in most states Sharpe may take the car from in front of Jeff's house without getting a court order.

Accepted Answer

A) True 
 B)False

Question 6

Melissa signs a suretyship agreement that contains both her name and that of her friend Gayle as intended cosureties. Gayle did not sign the agreement. Melissa is liable since she signed the agreement.

Accepted Answer

A) True 
 B)False

Question 7

Dayton Hardware Store and Leighton Bank enter a loan agreement in which Leighton agrees to lend $10,000 on the security of Dayton's existing store equipment. A security agreement is executed and a financing statement is filed, but no funds are advanced. A week later, Dayton enters a loan agreement with Ramos Bank in which Ramos agrees to lend $10,000 on the security of the same store equipment. The funds are advanced, a security agreement is executed, and a financing statement is filed. A week later, Leighton Bank advances the agreed $10,000. Dayton defaults on both loans. In this case:

Accepted Answer

A)  between Leighton Bank and Ramos Bank, Ramos has priority because it advanced the funds before Leighton Bank did. 
B)  between Leighton Bank and Ramos Bank, Leighton Bank has priority because it was the first to deal with Dayton in the matter. 
C)  between Leighton Bank and Ramos Bank, Leighton Bank has priority because priority among security interests perfected by filing is determined by the order in which the financing statements were filed. 
D)  neither bank needed to check filings of financing statements because the filings had no impact on which bank had priority. 
A)  between Leighton Bank and Ramos Bank, Ramos has priority because it advanced the funds before Leighton Bank did. 
B)  between Leighton Bank and Ramos Bank, Leighton Bank has priority because it was the first to deal with Dayton in the matter. 
C)  between Leighton Bank and Ramos Bank, Leighton Bank has priority because priority among security interests perfected by filing is determined by the order in which the financing statements were filed. 
D)  neither bank needed to check filings of financing statements because the filings had no impact on which bank had priority.

Question 8

"Perfection" is required in order for the secured party to enforce rights against the debtor.

Accepted Answer

A) True 
 B)False

Question 9

Upon the surety's payment of the principal debtor's entire obligation, the surety obtains all of the rights the creditor has against or through the principal debtor. The term for the surety's "stepping into the shoes" of the creditor is known as:

Accepted Answer

A)  contribution. 
B)  subrogation. 
C)  reimbursement. 
D)  exoneration. 
A)  contribution. 
B)  subrogation. 
C)  reimbursement. 
D)  exoneration.

Question 10

A security interest in fixtures, such as furnaces, central air-conditioning units, and plumbing fixtures, may not arise under UCC Article 9 since fixtures have become so related to real property that an interest in them arises under real estate law.

Accepted Answer

A) True 
 B)False

Question 11

First Bank loans Lila $1,500 so that she may purchase a computer for her office secretary. Lila signs a financing statement, which First Bank duly files within twenty days. After Lila purchases the computer, she takes out a loan at Valley Bank, gives the computer as collateral, and signs a financing statement, which Valley Bank then duly files. Her secretary never uses the computer, so Lila puts an ad in the paper and sells the computer to Angie. If Lila defaults on the loans, whose interest in the computer has priority? Explain, using correct terminology.

Accepted Answer

First Bank has priority, because it was

Question 12

An automobile buyer in the ordinary course of business will take free and clear of a security interest created by the
buyer's seller.

Accepted Answer

A) True 
 B)False

Question 13

Revised Article 9 of the Code greatly complicates the provisions regarding the place(s) for filing a financing statement.

Accepted Answer

A) True 
 B)False

Question 14

"Attachment" occurs when a secured party has given value, the debtor acquires rights in the collateral, and the:

Accepted Answer

A)  debtor has paid one installment of his obligation. 
B)  collateral is delivered to the borrower. 
C)  debtor and secured party have an agreement. 
D)  debtor has completed his obligation to pay. 
A)  debtor has paid one installment of his obligation. 
B)  collateral is delivered to the borrower. 
C)  debtor and secured party have an agreement. 
D)  debtor has completed his obligation to pay.

Question 15

A debtor must sign a written security agreement for a pledge used to secure a loan.

Accepted Answer

A) True 
 B)False

Question 16

Generally, if the creditor releases the principal debtor, then the surety is also discharged.

Accepted Answer

A) True 
 B)False

Question 17

A buyer of goods who buys without knowledge of a security interest, for value, and primarily for personal, family, or household purposes takes the goods:

Accepted Answer

A)  subject to any purchase money security interest automatically perfected. 
B)  subject to all security interests in the goods. 
C)  free of any purchase money security interest automatically perfected. 
D)  free of a security interest perfected by filing. 
A)  subject to any purchase money security interest automatically perfected. 
B)  subject to all security interests in the goods. 
C)  free of any purchase money security interest automatically perfected. 
D)  free of a security interest perfected by filing.

Question 18

Alice loans George $500 and Sue acts as surety under the loan agreement. When George defaults, Alice comes to Sue to collect the $500. Sue reaches a settlement to pay $400 to Alice in complete satisfaction of the loan. What recourse does Sue have against George?

Accepted Answer

A)  She can require reimbursement of $400. 
B)  She can require payment of $500. 
C)  She can require payment of $100. 
D)  She cannot require him to pay her, since she accepted the risk of liability. 
A)  She can require reimbursement of $400. 
B)  She can require payment of $500. 
C)  She can require payment of $100. 
D)  She cannot require him to pay her, since she accepted the risk of liability.

Question 19

Specialized suretyships would include:

Accepted Answer

A)  fidelity. 
B)  incorporate. 
C)  non-official. 
D)  legislative. 
A)  fidelity. 
B)  incorporate. 
C)  non-official. 
D)  legislative.

Question 20

Which of the following is NOT included in the rules of priority established by Article 9?

Accepted Answer

A)  A creditor with a perfected security interest has superior rights in the collateral over a creditor with an unperfected security interest 
B)  Conflicting perfected security interests rank according to priority in time of filing or perfection 
C)  As long as conflicting security interests are unperfected, the first to attach has priority 
D)  Security interests are ranked in order by date of obligation (oldest debts have first priority.) 
A)  A creditor with a perfected security interest has superior rights in the collateral over a creditor with an unperfected security interest 
B)  Conflicting perfected security interests rank according to priority in time of filing or perfection 
C)  As long as conflicting security interests are unperfected, the first to attach has priority 
D)  Security interests are ranked in order by date of obligation (oldest debts have first priority.)

Exam 37: Secured Transactions and Suretyship

If a principal debtor defaults on a loan, an absolute surety will have to pay upon demand of the creditor.

Max pressured Madeline to cosign his car loan, telling her he would otherwise reveal secrets about her that would taint her reputation for honesty. When Max defaults and the creditor tries to collect from Madeline, she:

A creditor will have to exhaust all the possible legal procedures to try to collect from the principal debtor before he can collect from a conditional guarantor of collection.

A security interest in consumer goods, except motor vehicles, is automatically perfected upon attachment.

If Sharpe Finance Co. has a secured interest in Jeff's car and Jeff is in default, in most states Sharpe may take the car from in front of Jeff's house without getting a court order.

Melissa signs a suretyship agreement that contains both her name and that of her friend Gayle as intended cosureties. Gayle did not sign the agreement. Melissa is liable since she signed the agreement.

"Perfection" is required in order for the secured party to enforce rights against the debtor.

Upon the surety's payment of the principal debtor's entire obligation, the surety obtains all of the rights the creditor has against or through the principal debtor. The term for the surety's "stepping into the shoes" of the creditor is known as:

A security interest in fixtures, such as furnaces, central air-conditioning units, and plumbing fixtures, may not arise under UCC Article 9 since fixtures have become so related to real property that an interest in them arises under real estate law.

An automobile buyer in the ordinary course of business will take free and clear of a security interest created by the buyer's seller.

Revised Article 9 of the Code greatly complicates the provisions regarding the place(s) for filing a financing statement.

"Attachment" occurs when a secured party has given value, the debtor acquires rights in the collateral, and the:

A debtor must sign a written security agreement for a pledge used to secure a loan.

Generally, if the creditor releases the principal debtor, then the surety is also discharged.

A buyer of goods who buys without knowledge of a security interest, for value, and primarily for personal, family, or household purposes takes the goods:

Alice loans George $500 and Sue acts as surety under the loan agreement. When George defaults, Alice comes to Sue to collect the $500. Sue reaches a settlement to pay $400 to Alice in complete satisfaction of the loan. What recourse does Sue have against George?

Specialized suretyships would include:

Which of the following is NOT included in the rules of priority established by Article 9?

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