Question 1

A security interest in electronic chattel paper is perfected by automatic perfection.

Accepted Answer

A) True 
 B)False

Question 2

Subrogation includes:

Accepted Answer

A)  creditor's rights against the principal debtor, but not including the creditor's priorities in a bankruptcy proceeding. 
B)  no rights against cosureties. 
C)  no rights against co-makers. 
D)  creditor's rights in security of the principal debtor. 
A)  creditor's rights against the principal debtor, but not including the creditor's priorities in a bankruptcy proceeding. 
B)  no rights against cosureties. 
C)  no rights against co-makers. 
D)  creditor's rights in security of the principal debtor.

Question 3

A security interest:

Accepted Answer

A)  is an interest only in personal property to secure payment or performance of an obligation. 
B)  is effective against third parties, but not the debtor, when it "attaches." 
C)  may arise in fixtures under UCC Article 9. 
D)  in fixtures, even if perfected, will not have priority over a mortgage in the real property to which the goods are attached. 
A)  is an interest only in personal property to secure payment or performance of an obligation. 
B)  is effective against third parties, but not the debtor, when it "attaches." 
C)  may arise in fixtures under UCC Article 9. 
D)  in fixtures, even if perfected, will not have priority over a mortgage in the real property to which the goods are attached.

Question 4

A surety may set off his claims against the creditor if the creditor is solvent.

Accepted Answer

A) True 
 B)False

Question 5

Monica owes a debt to Patricia, and Andrew is a surety for Monica.   If Monica properly tenders full payment and Patricia refuses it, both Monica and Andrew are discharged from the debt.

Accepted Answer

A) True 
 B)False

Question 6

First Bank loaned $100,000 to Central Office Supply Store to purchase computers for its inventory. Central signed a financing agreement, which First Bank duly filed in the appropriate public office. Lynn came into Central's store and purchased a computer that was subject to the security interest held by First Bank. Assuming that Lynn is a buyer in the ordinary course of business, whose interest in the computer has priority?

Accepted Answer

Lynn is a buyer in the ordinary course o

Question 7

The Code's classifications of collateral according to nature are:
(a) goods;
(b) tangibles; and
(c) dispensable paper.

Accepted Answer

A) True 
 B)False

Question 8

Upon the surety's payment of the principal debtor's entire obligation, the surety gets no rights.

Accepted Answer

A) True 
 B)False

Question 9

With the exception of pledges, a security agreement must:

Accepted Answer

A)  be in an authenticated record. 
B)  be signed by the debtor with his personal, not business, name. 
C)  contain at least a generic description of the collateral, such as "all my personal property." 
D)  All of these. 
A)  be in an authenticated record. 
B)  be signed by the debtor with his personal, not business, name. 
C)  contain at least a generic description of the collateral, such as "all my personal property." 
D)  All of these.

Question 10

Karl loaned Linda $100,000. Madeline agreed to act as surety for $100,000. Nora agreed to act as surety for $75,000 and Orville agreed to act as surety for $25,000. Linda later defaulted on the loan, and Karl is now demanding payment from Nora and Orville. What amount do Nora and Orville have to pay? If Nora and Orville pay, does Madeline have any obligation? Explain.

Accepted Answer

Nora must pay $75,000 and Orville must p

Question 11

Dr. Wells purchased a refrigerator for use in storing medications at his office. The refrigerator will be classified as:

Accepted Answer

A)  consumer goods. 
B)  equipment. 
C)  a fixture. 
D)  inventory. 
A)  consumer goods. 
B)  equipment. 
C)  a fixture. 
D)  inventory.

Question 12

A field warehouse, under Article 9 of the UCC, is:

Accepted Answer

A)  one kind of a pledge. 
B)  a common arrangement for financing inventory. 
C)  an agreement that allows the debtor access to the pledged goods and simultaneously gives the secured party control over the pledged property. 
D)  All of these are true of a field warehouse. 
A)  one kind of a pledge. 
B)  a common arrangement for financing inventory. 
C)  an agreement that allows the debtor access to the pledged goods and simultaneously gives the secured party control over the pledged property. 
D)  All of these are true of a field warehouse.

Question 13

What term is used to describe the creation of a security interest that is enforceable against the debtor?

Accepted Answer

A)  Attachment. 
B)  Pledge. 
C)  Perfection. 
D)  Lien. 
A)  Attachment. 
B)  Pledge. 
C)  Perfection. 
D)  Lien.

Question 14

Generally, when may a security interest be perfected in collateral?

Accepted Answer

A)  By the secured party's filing a financing statement in the designated public office. 
B)  By the secured party's taking or retaining possession of the collateral. 
C)  Automatically, on the attachment of the security interest. 
D)  All of these, depending on the type of collateral. 
A)  By the secured party's filing a financing statement in the designated public office. 
B)  By the secured party's taking or retaining possession of the collateral. 
C)  Automatically, on the attachment of the security interest. 
D)  All of these, depending on the type of collateral.

Question 15

Gary decided to borrow from Jones Bank since it promised that his loan interest rate would be systematically reduced every year when the board met. The loan rate was never reduced, but actually increased monthly. Gary refused to pay the interest demanded and sued for rescission of the contract. The bank attempted to collect from Lewis, a surety under the loan. Does Lewis have to pay?

Accepted Answer

A)  Yes, because there is no defense. 
B)  No, because a fraud perpetrated upon Gary will be a defense. 
C)  Yes, since the surety obligation is separate from the underlying contract. 
D)  No, because the surety stands in the shoes of the debtor for all purposes. 
A)  Yes, because there is no defense. 
B)  No, because a fraud perpetrated upon Gary will be a defense. 
C)  Yes, since the surety obligation is separate from the underlying contract. 
D)  No, because the surety stands in the shoes of the debtor for all purposes.

Question 16

Possession is available as a means of perfecting a security interest in accounts and letter-of-credit rights.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

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

Question 18

The creditor's rights against the principal debtor are determined by the contract between them.

Accepted Answer

A) True 
 B)False

Question 19

Darlene uses her computer 75 percent of its usage time for her business and 25 percent of its usage time for personal and family purposes. Under Article 9, the computer would be classified as equipment.

Accepted Answer

A) True 
 B)False

Question 20

"Value" under Article 9 of the UCC is defined as including:

Accepted Answer

A)  consideration under contract law. 
B)  a binding commitment to extend credit. 
C)  antecedent debt. 
D)  All of these. 
A)  consideration under contract law. 
B)  a binding commitment to extend credit. 
C)  antecedent debt. 
D)  All of these.

Exam 37: Secured Transactions and Suretyship

A security interest in electronic chattel paper is perfected by automatic perfection.

Subrogation includes:

A security interest:

A surety may set off his claims against the creditor if the creditor is solvent.

Monica owes a debt to Patricia, and Andrew is a surety for Monica. If Monica properly tenders full payment and Patricia refuses it, both Monica and Andrew are discharged from the debt.

The Code's classifications of collateral according to nature are: (a) goods; (b) tangibles; and (c) dispensable paper.

Upon the surety's payment of the principal debtor's entire obligation, the surety gets no rights.

With the exception of pledges, a security agreement must:

Dr. Wells purchased a refrigerator for use in storing medications at his office. The refrigerator will be classified as:

A field warehouse, under Article 9 of the UCC, is:

What term is used to describe the creation of a security interest that is enforceable against the debtor?

Generally, when may a security interest be perfected in collateral?

Possession is available as a means of perfecting a security interest in accounts and letter-of-credit rights.

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

The creditor's rights against the principal debtor are determined by the contract between them.

Darlene uses her computer 75 percent of its usage time for her business and 25 percent of its usage time for personal and family purposes. Under Article 9, the computer would be classified as equipment.

"Value" under Article 9 of the UCC is defined as including:

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