Question 1

If a debtor is about to leave the state,the surety may call on the creditor to take action against the debtor.

Accepted Answer

A) True 
 B)False  True

Question 2

Howard bought goods from Williams.Howard sent Williams a draft covered by a letter of credit issued by First National Bank.Is the bank required to investigate to determine whether the goods sent by Williams conform to the contract?

Accepted Answer

No.The issuer of a letter of credit has no duty to verify that the papers are supported by the facts or that the underlying transaction has been performed.It is thus immaterial whether the goods sold by the seller conform to the contract as long as the seller tenders the documents specified by the letter of credit.

Question 3

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 D

Question 4

A surety may not raise the defense of mistake.

Accepted Answer

A) True 
 B)False

Question 5

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.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Letter of credit transactions involve ______ contract(s).

Accepted Answer

A)  one (1) 
B)  two (2) 
C)  three (3) 
D)  four (4) 
A)  one (1) 
B)  two (2) 
C)  three (3) 
D)  four (4)

Question 8

An agreement or provision in an agreement that one party shall not be held liable for loss is:

Accepted Answer

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

Question 9

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 10

Suretyship is a pledge to pay one's own debts and obligations.

Accepted Answer

A) True 
 B)False

Question 11

A surety is never discharged if the creditor substitutes a different debtor.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Which of the following contract defenses cannot be raised as a defense against suretyship obligations?

Accepted Answer

A)  Lack of capacity 
B)  Absence of consideration 
C)  Mistake 
D)  All of the above defenses may be raised. 
A)  Lack of capacity 
B)  Absence of consideration 
C)  Mistake 
D)  All of the above defenses may be raised.

Question 14

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 15

Which of the following is correct concerning suretyship and guaranty?

Accepted Answer

A)  A surety is always liable from the moment the principal is in default. 
B)  A guarantor is always liable from the moment the principal is in default 
C)  Both a.and b. 
D)  None of the above. 
A)  A surety is always liable from the moment the principal is in default. 
B)  A guarantor is always liable from the moment the principal is in default 
C)  Both a.and b. 
D)  None of the above.

Question 16

Under an indemnity contract,one person pays another consideration in return for a promise to pay a specified sum of money in the event that a specified loss is suffered.

Accepted Answer

A) True 
 B)False

Question 17

Suretyship and guaranty transactions have the common feature of a promise to answer for the debt or default of another.

Accepted Answer

A) True 
 B)False

Question 18

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 19

The bank that tells the beneficiary that a letter of credit has been issued is known as the correspondent bank.

Accepted Answer

A) True 
 B)False

Question 20

Standby letters of credit are used only in international trade situations.

Accepted Answer

A) True 
 B)False

Exam 32: Nature of the Debtor-Creditor Relationship

If a debtor is about to leave the state,the surety may call on the creditor to take action against the debtor.

Howard bought goods from Williams.Howard sent Williams a draft covered by a letter of credit issued by First National Bank.Is the bank required to investigate to determine whether the goods sent by Williams conform to the contract?

Which of the following is not a suretyship defense?

A surety may not raise the defense of mistake.

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

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

Letter of credit transactions involve ______ contract(s).

An agreement or provision in an agreement that one party shall not be held liable for loss is:

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.

Suretyship is a pledge to pay one's own debts and obligations.

A surety is never discharged if the creditor substitutes a different debtor.

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 contract defenses cannot be raised as a defense against suretyship obligations?

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

Which of the following is correct concerning suretyship and guaranty?

Under an indemnity contract,one person pays another consideration in return for a promise to pay a specified sum of money in the event that a specified loss is suffered.

Suretyship and guaranty transactions have the common feature of a promise to answer for the debt or default of another.

The issuer of a letter of credit:

The bank that tells the beneficiary that a letter of credit has been issued is known as the correspondent bank.

Standby letters of credit are used only in international trade situations.

The Nature and Sources of Law

The Court System and Dispute Resolution

Business Ethics, Social Forces, and the Law

The Constitution As the Foundation of the Legal Environment

Government Regulation of Competition and Prices

Administrative Agencies

The Legal Environment of International Trade

Crimes

Torts

Intellectual Property Rights

Cyberlaw

Nature and Classes of Contracts: Contracting on the Internet

Formation of Contracts: Offer and Acceptance

Capacity and Genuine Assent

Consideration

Legality and Public Policy

Writing, Electronic Forms, and Interpretation of Contracts

Third Persons and Contracts

Discharge of Contracts

Breach of Contract and Remedies

Personal Property and Bailments

Legal Aspects of Supply Chain Management

Nature and Form of Sales

Title and Risk of Loss

Product Liability: Warranties and Torts

Obligations and Performance

Remedies for Breach of Sales Contracts

Kinds of Instruments, parties, and Negotiability

Transfers of Negotiable Instruments and Warranties of Parties

Liability of the Parties Under Negotiable Instruments

Checks and Funds Transfers

Consumer Protection

Secured Transactions in Personal Property

Bankruptcy

Insurance

Agency

Third Persons in Agency

Regulation of Employment

Equal Employment Opportunity Law

Types of Business Organizations

Partnerships

LPs, LLCs, and LLPs

Corporate Formation

Shareholder Rights in Corporations

Securities Regulation

Accountants Liability and Malpractice

Management of Corporations

Real Property

Environmental Law and Land Use Controls

Leases

Decedents Estates and Trusts

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