Question 1

Which of the following is an example of an improper payment?

Accepted Answer

A) A payment made after a letter of credit has expired. 
B) A payment made in excess of the amount authorized by the letter of credit. 
C) Both a.and b.are improper payments. 
D) Neither a.nor b.are improper payments. 
A) A payment made after a letter of credit has expired. 
B) A payment made in excess of the amount authorized by the letter of credit. 
C) Both a.and b.are improper payments. 
D) Neither a.nor b.are improper payments. C

Question 2

A surety may not raise the defense of mistake.

Accepted Answer

A) True 
 B)False  False

Question 3

A guaranty of payment creates a(n):

Accepted Answer

A) contract of surety. 
B) contract of credit. 
C) letter of credit. 
D) absolute guaranty. 
A) contract of surety. 
B) contract of credit. 
C) letter of credit. 
D) absolute guaranty. D

Question 4

An agreement under which one party agrees to pay drafts drawn by a creditor is called a:

Accepted Answer

A) contract of surety. 
B) guaranty contract. 
C) letter of credit. 
D) debtor's agreement. 
A) contract of surety. 
B) guaranty contract. 
C) letter of credit. 
D) debtor's agreement.

Question 5

Exoneration is an agreement that a party shall not be liable for loss.

Accepted Answer

A) True 
 B)False

Question 6

The issuer of a letter of credit is in effect the obligor on a third-party beneficiary contract made for the benefit of the beneficiary of the letter.

Accepted Answer

A) True 
 B)False

Question 7

A third party arrangement occurs when a corporate officer agrees to be personally liable for a corporate note.

Accepted Answer

A) True 
 B)False

Question 8

A surety that has made payment of a claim for which it was liable as a surety is entitled to which of the following from the principal?

Accepted Answer

A) Indemnity 
B) Exoneration 
C) Assignment 
D) Subrogation 
A) Indemnity 
B) Exoneration 
C) Assignment 
D) Subrogation

Question 9

Which of the following is not a suretyship defense?

Accepted Answer

A) statute of limitations 
B) performance of the obligation by the principal debtor 
C) creditor substitution of the original debtor with a new one 
D) insolvency of bankruptcy of the principal debtor 
A) statute of limitations 
B) performance of the obligation by the principal debtor 
C) creditor substitution of the original debtor with a new one 
D) insolvency of bankruptcy of the principal debtor

Question 10

A letter of credit:

Accepted Answer

A) is an advance arrangement for financing. 
B) is used only in domestic sales. 
C) involves only two parties. 
D) all of the above. 
A) is an advance arrangement for financing. 
B) is used only in domestic sales. 
C) involves only two parties. 
D) all of the above.

Question 11

An issuer has an obligation to honor drafts under a letter of credit if the conditions specified in the letter have been satisfied.This obligation includes the bank's obligation to assure that the goods sold by the seller in fact conform to the contract.

Accepted Answer

A) True 
 B)False

Question 12

If the creditor does not enforce the suretyship agreement within the time limits provided for such contract enforcement in the surety's jurisdiction,the obligation is forever discharged.

Accepted Answer

A) True 
 B)False

Question 13

Deirdre read that bids were being solicited for the construction of an apartment tower.Deirdre submitted the lowest bid and was offered the contract contingent on her providing acceptable sureties in the amount of $1 million.Because Deirdre never had done work on this scale,it was virtually impossible for her to obtain the appropriate sureties.She convinced Reassuring Sureties,Inc.to issue the necessary commitment by misrepresenting that she was a famous builder in Canada.As the work progressed,it seemed to be going well and Deirdre was asked to make the project 52 stories instead of 50 stories,which was the original contract height.She agreed to this change.
After the work was completed,many breaches of contract on the part of Deirdre became evident.Reassuring Sureties was sued for a $500,000 loss.Reassuring Sureties defended on the grounds of fraud and material change in the contract.Decide.

Accepted Answer

Fraud will not be an effective defense b

Question 14

Consideration is not required to establish or modify a letter of credit.

Accepted Answer

A) True 
 B)False

Question 15

The creditor first must proceed against the debtor before suing the surety.

Accepted Answer

A) True 
 B)False

Question 16

The issuer of a letter of credit can revoke or modify the letter at any time without the consent of the beneficiary,even if that right is not expressly reserved in the letter.

Accepted Answer

A) True 
 B)False

Question 17

If there are two or more sureties and one pays more than its proportionate share of the debt,such surety has the right against the co-sureties known as:

Accepted Answer

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

Question 18

A letter of credit usually sets a:

Accepted Answer

A) minimum money amount. 
B) maximum money amount. 
C) both of the above. 
D) none of the above. 
A) minimum money amount. 
B) maximum money amount. 
C) both of the above. 
D) none of the above.

Question 19

The issuer of a letter of credit:

Accepted Answer

A) is obligated to honor drafts drawn under the letter if the conditions specified in the letter have been met. 
B) has no duty to verify that the papers are properly supported by facts. 
C) has no duty to verify that the underlying transaction has been performed. 
D) all of the above. 
A) is obligated to honor drafts drawn under the letter if the conditions specified in the letter have been met. 
B) has no duty to verify that the papers are properly supported by facts. 
C) has no duty to verify that the underlying transaction has been performed. 
D) all of the above.

Question 20

In a guaranty contract,the obligor is called a:

Accepted Answer

A) surety. 
B) principal. 
C) guarantor. 
D) creditor. 
A) surety. 
B) principal. 
C) guarantor. 
D) creditor.

Exam 32: Nature of the Debtor-Creditor Relationship

Which of the following is an example of an improper payment?

A surety may not raise the defense of mistake.

A guaranty of payment creates a(n):

An agreement under which one party agrees to pay drafts drawn by a creditor is called a:

Exoneration is an agreement that a party shall not be liable for loss.

The issuer of a letter of credit is in effect the obligor on a third-party beneficiary contract made for the benefit of the beneficiary of the letter.

A third party arrangement occurs when a corporate officer agrees to be personally liable for a corporate note.

A surety that has made payment of a claim for which it was liable as a surety is entitled to which of the following from the principal?

Which of the following is not a suretyship defense?

A letter of credit:

An issuer has an obligation to honor drafts under a letter of credit if the conditions specified in the letter have been satisfied.This obligation includes the bank's obligation to assure that the goods sold by the seller in fact conform to the contract.

If the creditor does not enforce the suretyship agreement within the time limits provided for such contract enforcement in the surety's jurisdiction,the obligation is forever discharged.

Consideration is not required to establish or modify a letter of credit.

The creditor first must proceed against the debtor before suing the surety.

The issuer of a letter of credit can revoke or modify the letter at any time without the consent of the beneficiary,even if that right is not expressly reserved in the letter.

If there are two or more sureties and one pays more than its proportionate share of the debt,such surety has the right against the co-sureties known as:

A letter of credit usually sets a:

The issuer of a letter of credit:

In a guaranty contract,the obligor is called a:

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