Question 1

Jill owns and operates a donut shop.Under the Code, the flour, sugar, and other goods used by Jill to make donuts are classified as:

Accepted Answer

A) farm products. 
B) fixtures. 
C) consumer goods. 
D) inventory. 
A) farm products. 
B) fixtures. 
C) consumer goods. 
D) inventory.

Question 2

The most common method of perfecting a security interest under Article 9 is filing a completed financing statement.

Accepted Answer

A) True 
 B)False

Question 3

The promise of a surety is binding even without consideration.

Accepted Answer

A) True 
 B)False

Question 4

A purchaser of a house who buys the property "subject to" the mortgage is not personally liable for the mortgage, nor is he a surety for the mortgage obligation.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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

Accepted Answer

A) True 
 B)False

Question 7

The Code provides:

Accepted Answer

A) parties to a security agreement have a great deal of freedom in drafting their agreement. 
B) security agreements may not contain a provision for acceleration, at the secured party's option, of all payments upon default in any payment by the debtor. 
C) that if the secured party becomes insecure about the prospects of future payments, the only recourse is to require the debtor to name a surety for the remaining debt. 
D) a security agreement may describe the collateral as "all my personal property." 
A) parties to a security agreement have a great deal of freedom in drafting their agreement. 
B) security agreements may not contain a provision for acceleration, at the secured party's option, of all payments upon default in any payment by the debtor. 
C) that if the secured party becomes insecure about the prospects of future payments, the only recourse is to require the debtor to name a surety for the remaining debt. 
D) a security agreement may describe the collateral as "all my personal property."

Question 8

To perfect a security interest in personal property, a financing statement may be filed, either before or after the security interest attaches.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

Mr.Chickilini is a surety for Wayne on a debt owed to Melvin.If Wayne fails to pay, what is Mr.Chickilini's defense to avoid payment of the debt?

Accepted Answer

Mr.Chickilini's defenses might include:

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Generally, how 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) Temporarily, for a period specified by the Code 
E) All of the above, 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) Temporarily, for a period specified by the Code 
E) All of the above, depending on the type of collateral.

Question 16

What party(ies) is/are involved in a suretyship relationship?

Accepted Answer

A) The principal debtor. 
B) An ancillary bailee. 
C) Principal bailee. 
D) All of the above. 
A) The principal debtor. 
B) An ancillary bailee. 
C) Principal bailee. 
D) All of the above.

Question 17

A car buyer in the ordinary course of business will take free and clear of a security interest created by any person who owned the automobile prior to the dealer.

Accepted Answer

A) True 
 B)False

Question 18

Two or more sureties bound for the same debt of a principal debtor are known as:

Accepted Answer

A) absolute sureties. 
B) cosureties. 
C) conditional guarantors of collection. 
D) co-creditors. 
A) absolute sureties. 
B) cosureties. 
C) conditional guarantors of collection. 
D) co-creditors.

Question 19

When Mark bought new office furniture on credit, Bartin's Office Supply Co.filed a financing statement.What would be required on the financing statement?

Accepted Answer

A) The trade name of Mark's business. 
B) Mark's signature. 
C) Mark's name and an indication of what collateral is covered by the agreement. 
D) All of the above. 
A) The trade name of Mark's business. 
B) Mark's signature. 
C) Mark's name and an indication of what collateral is covered by the agreement. 
D) All of the above.

Question 20

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 the above. 
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 the above.

Exam 38: Secured Transactions and Suretyship

Jill owns and operates a donut shop.Under the Code, the flour, sugar, and other goods used by Jill to make donuts are classified as:

The most common method of perfecting a security interest under Article 9 is filing a completed financing statement.

The promise of a surety is binding even without consideration.

A purchaser of a house who buys the property "subject to" the mortgage is not personally liable for the mortgage, nor is he a surety for the mortgage obligation.

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

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

The Code provides:

To perfect a security interest in personal property, a financing statement may be filed, either before or after the security interest attaches.

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

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

Mr.Chickilini is a surety for Wayne on a debt owed to Melvin.If Wayne fails to pay, what is Mr.Chickilini's defense to avoid payment of the debt?

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

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

What party(ies) is/are involved in a suretyship relationship?

A car buyer in the ordinary course of business will take free and clear of a security interest created by any person who owned the automobile prior to the dealer.

Two or more sureties bound for the same debt of a principal debtor are known as:

When Mark bought new office furniture on credit, Bartin's Office Supply Co.filed a financing statement.What would be required on the financing statement?

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

Introduction to Law

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