Question 1

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 2

Thomas borrowed $100,000 from First Bank, which asked that he both put up collateral and provide a surety. Consequently Thomas provided the bank with a security interest in his antique car collection and asked Victor to act as a surety. Victor agreed to do so and signed a surety agreement with the bank. Thomas made several payments on the loan and then asked First Bank for permission to sell three of his cars. First Bank agreed, but it never notified Victor of the sale of the collateral. Thomas then defaults on the loan. First Bank now wants Victor to pay the remainder of the loan. Must Victor pay? Explain.

Accepted Answer

Thomas, who is the principal debtor, and

Question 3

Which of the following is true?

Accepted Answer

A)  A security agreement may create or provide for a security interest in property that the debtor presently does not own or have rights to. 
B)  Obligations covered by a security agreement may not include future advances. 
C)  Federal regulation allows a credit seller or lender to obtain a nonpossessory security interest in a consumer's household goods, such as furniture, appliances, and clothing, whether as a purchase money security interest or otherwise. 
D)  Encryption of a record cannot serve as a debtor's authentication of a security agreement. 
A)  A security agreement may create or provide for a security interest in property that the debtor presently does not own or have rights to. 
B)  Obligations covered by a security agreement may not include future advances. 
C)  Federal regulation allows a credit seller or lender to obtain a nonpossessory security interest in a consumer's household goods, such as furniture, appliances, and clothing, whether as a purchase money security interest or otherwise. 
D)  Encryption of a record cannot serve as a debtor's authentication of a security agreement.

Question 4

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 5

A PMSI is created in goods when a seller retains a security interest in the goods sold on credit by a security agreement.

Accepted Answer

A) True 
 B)False

Question 6

A tangible or electronic record that evidences both a monetary interest and security interest in or a lease of specific goods is known as:

Accepted Answer

A)  a negotiable instrument. 
B)  a document of title. 
C)  a promissory note. 
D)  chattel paper. 
A)  a negotiable instrument. 
B)  a document of title. 
C)  a promissory note. 
D)  chattel paper.

Question 7

According to the UCC, a computer purchased by a CPA for use in her office will be classified as inventory.

Accepted Answer

A) True 
 B)False

Question 8

Mary financed her 72" high-definition TV with a bank, but is now delinquent on her payments. The bank holds a security interest in the TV. In most states, when Mary is not at home and without her knowledge, bank personnel may enter Mary's home to repossess the TV.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Steve defaults on a car loan secured by his car and guaranteed by both Sam and Dave. Subrogation would allow Sam, who paid Steve's full obligation to:

Accepted Answer

A)  repossess the car. 
B)  collect from Dave. 
C)  collect from Steve. 
D)  All of these. 
A)  repossess the car. 
B)  collect from Dave. 
C)  collect from Steve. 
D)  All of these.

Question 11

If the main purpose of the promisor (surety) is to obtain an economic benefit that he did not previously enjoy, the promise is not within the statute of frauds.

Accepted Answer

A) True 
 B)False

Question 12

Willton Bros. obtains from Marbowe Manufacturing a line of credit of $100,000, of which Willton initially uses $27,000 for purchase of inventory. Marbowe may only have a security interest in the inventory that covers the initial $27,000 advance.

Accepted Answer

A) True 
 B)False

Question 13

Upon paying the principal debtor's entire obligation, the surety is __________ the rights of the creditor.

Accepted Answer

A)  subject to 
B)  subrogated to 
C)  exonerated by 
D)  set off by 
A)  subject to 
B)  subrogated to 
C)  exonerated by 
D)  set off by

Question 14

What contractual defenses are available to those parties involved in surety relationships?

Accepted Answer

A)  The nonexistence of the principal debtor's obligation. 
B)  Discharge of the principal debtor's obligation. 
C)  Modification of the principal debtor's contract. 
D)  All of these. 
A)  The nonexistence of the principal debtor's obligation. 
B)  Discharge of the principal debtor's obligation. 
C)  Modification of the principal debtor's contract. 
D)  All of these.

Question 15

The types of indispensable paper include:

Accepted Answer

A)  chattel paper. 
B)  instruments. 
C)  documents. 
D)  All of these. 
A)  chattel paper. 
B)  instruments. 
C)  documents. 
D)  All of these.

Question 16

A bankruptcy trustee may invalidate a granting of a security interest from the debtor if it was made on the date of or within 90 days before the filing of the bankruptcy petition and it was for the benefit of a creditor for an antecedent debt and was made before the debtor became insolvent.

Accepted Answer

A) True 
 B)False

Question 17

Attachment must occur in order to make a security interest enforceable against the debtor and against third parties.

Accepted Answer

A) True 
 B)False

Question 18

A security interest in consumer goods is always automatically perfected upon attachment.

Accepted Answer

A) True 
 B)False

Question 19

A primary reason for requiring a surety is to reduce the creditor's risk of loss.

Accepted Answer

A) True 
 B)False

Question 20

If the principal debtor defaults, the surety has rights against the principal debtor, third parties, and cosureties. These rights would include:

Accepted Answer

A)  exoneration. 
B)  reimbursement. 
C)  subrogation. 
D)  contribution. 
E)  All of these. 
A)  exoneration. 
B)  reimbursement. 
C)  subrogation. 
D)  contribution. 
E)  All of these.

Exam 37: Secured Transactions and Suretyship

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

Which of the following is true?

A security interest:

A PMSI is created in goods when a seller retains a security interest in the goods sold on credit by a security agreement.

A tangible or electronic record that evidences both a monetary interest and security interest in or a lease of specific goods is known as:

According to the UCC, a computer purchased by a CPA for use in her office will be classified as inventory.

Mary financed her 72" high-definition TV with a bank, but is now delinquent on her payments. The bank holds a security interest in the TV. In most states, when Mary is not at home and without her knowledge, bank personnel may enter Mary's home to repossess the TV.

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

Steve defaults on a car loan secured by his car and guaranteed by both Sam and Dave. Subrogation would allow Sam, who paid Steve's full obligation to:

If the main purpose of the promisor (surety) is to obtain an economic benefit that he did not previously enjoy, the promise is not within the statute of frauds.

Willton Bros. obtains from Marbowe Manufacturing a line of credit of $100,000, of which Willton initially uses $27,000 for purchase of inventory. Marbowe may only have a security interest in the inventory that covers the initial $27,000 advance.

Upon paying the principal debtor's entire obligation, the surety is __________ the rights of the creditor.

What contractual defenses are available to those parties involved in surety relationships?

The types of indispensable paper include:

A bankruptcy trustee may invalidate a granting of a security interest from the debtor if it was made on the date of or within 90 days before the filing of the bankruptcy petition and it was for the benefit of a creditor for an antecedent debt and was made before the debtor became insolvent.

Attachment must occur in order to make a security interest enforceable against the debtor and against third parties.

A security interest in consumer goods is always automatically perfected upon attachment.

A primary reason for requiring a surety is to reduce the creditor's risk of loss.

If the principal debtor defaults, the surety has rights against the principal debtor, third parties, and cosureties. These rights would include:

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