Deck 28: Secured Transactions and Suretyship

Question 1

A buyer in the ordinary course of business takes free of all security interests in the collateral.

Answer 1

False

Question 2

Accessions are goods that are physically united with other goods in such a manner that the identity of the original good is lost.

Answer 2

True

Question 3

A person who owes money to another is known as an obligee.

Answer 3

False

Question 4

A chattel mortgage refers to a debt secured against land, buildings, and fixtures.

Question 5

A judicial bond is an assurance, generally purchased by an employer, to cover employees who are entrusted with valuable property or funds.

Question 6

After-acquired property refers to the proceeds received from the disposition of the collateral.

Question 7

A creditor who first files a financing statement will usually not have to attach its interest in collateral.

Question 8

A written security agreement is not needed when the debtor pledges collateral to the creditor.

Question 9

A surety is a person who promises to pay or perform an obligation owed by the guarantor.

Question 10

A financing statement requires the debtor's signature, unless the creditor is authorized to make the filing without a signature.

Question 11

"Perfection" is required before the secured party can repossess the collateral.

Question 12

A creditor holding a promissory note with only a signature loan will get nothing if the debtor is insolvent.

Question 13

If two creditors have a security interest in the same goods, the most recent perfection prevails.

Question 14

The financing statement is effective for ten years from the date of filing.

Question 15

The debtor's rights in collateral must be immediate rights to the possession but need not necessarily be rights that can be conveyed.

Question 16

If a security interest was not perfected at the time of filing for bankruptcy, a bankruptcy trustee cannot take the collateral.

Question 17

In strict foreclosure, a secured creditor can accept the collateral in full satisfaction or partial satisfaction of the debt.

Question 18

A lien creditor is a creditor whose claim is based on operation of law as opposed to a creditor whose claim is based on agreement.

Question 19

Attachment is the process by which a security interest becomes enforceable against the debtor with respect to the collateral.

Question 20

A lien is security obtained through operation of law.

Question 21

Colleen agrees, for nothing, to stand as surety for her brother's purchase of an automobile. If she is called on to perform, she may use lack of consideration as a defense to having to pay.

Question 22

Able induced Baker to stand as surety on a debt to Carr. When Able defaulted and Carr demanded performance from Baker, Baker raised as a defense that he had been defrauded by Able. The defense is good against Carr.

Question 23

A defense for a surety is the principal debtor's infancy.

Question 24

A security interest in consumer goods may be perfected without filing a financing statement.

Question 25

Which of the following is a type of loan for which no collateral is pledged?

A) Commercial loan
B) Signature loan
C) Character loan
D) Unsecured loan
E) Guaranteed loan

Question 26

Goods, other than farm products, held by a person for sale or lease or consisting of raw materials, works in progress, or material consumed in a business are known as:

A) inventories.
B) consumer goods.
C) equipment.
D) fixtures.
E) accessions.

Question 27

A surety has a right to reimbursement from the principal debtor, or from any entity that caused the principal debtor's default.

Question 28

Colleen agrees to co-sign a note with her brother so he can buy an automobile. She is a surety.

Question 29

A surety agreement must always be written to be valid.

Question 30

Dorothy bought a computer for home use, from Computer Store, signed a security agreement and agreed to make monthly payments on the machine. Computer Store filed nothing. Dorothy decided she didn't like the computer so she sold it to her neighbor Charles for his home use, and stopped making payments. Computer Store can repossess the machine from Charles.

Question 31

A person who promises to act or pay upon the default of another is known as a(n):

A) surety.
B) debtor.
C) payee.
D) obligor.
E) pledger.

Question 32

Able and Baker agree to stand as sureties for Construction Co. Inc. on its obligation to Bank. Construction Co. failed to pay Bank, Bank demanded performance from Able and Baker, but Baker did not pay. Able may sue Baker to get payment from Baker.

Question 33

If a debtor removes collateral to another state, the original filing remains valid for its original duration.

Question 34

An assurance, generally purchased by an employer, to cover employees who are entrusted with valuable property or funds is known as a _____ bond.

A) codicil
B) fidelity
C) judicial
D) performance
E) chattel

Question 35

The process by which a security interest becomes enforceable against the debtor with respect to the collateral is known as:

A) foreclosure.
B) attachment.
C) perfection.
D) exoneration.
E) subrogation.

Question 36

Which of the following is true of the rule of priorities regarding the disposal of a debtor's property when the debtor defaults?

A) Persons who become lien creditors before or after the security interest is perfected win.
B) If the security interest was perfected at the time of filing for bankruptcy, the bankruptcy trustee can take the collateral.
C) The Bankruptcy Act provides that a bankruptcy trustee can avoid a transfer of an interest of the debtor in property to or for the benefit of a creditor.
D) A perfected purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security interest in the same goods.
E) A mortgage has priority over a perfected security in fixtures, even if the security interest is a purchase-money security interest.

Question 37

The property given to a creditor as security for a debt is known as:

A) a mortgage.
B) collateral.
C) a pledge.
D) a lien.
E) ademption.

Question 38

A lien that is expanded to cover any additional property that is acquired by the debtor while the debt is outstanding is known as a:

A) tax lien.
B) possessory lien.
C) floating lien.
D) blanket lien.
E) judgment lien.

Question 39

A person who owes money or a duty of performance to another is known as a(n):

A) obligor.
B) creditor.
C) pledger.
D) bailer.
E) debtor.

Question 40

A surety bond that ensures a property owner of the completion of a construction contract or payment of actual damages to the extent of the bond in the event that the contractor fails to complete it is called a _____ bond:

A) judicial
B) fidelity
C) chattel
D) codicil
E) performance

Question 41

Alice Ace was the owner of Ace Construction, Inc., (ACI). Her income was, of course, tied to the productivity of her company. When the firm's computer system needed replacing, she went to Computer Store and orally agreed to pay the $25,000 cost of the new system if ACI did not. Indeed ACI did not pay, but when Computer Store tapped Alice, she raised the statute of frauds as a defense: her agreement to pay if ACI did not was not in writing. Now what?

A) The statute of frauds is a good defense for Alice.
B) Alice is not liable to Computer Store because ACI gave her no consideration for her promise.
C) Alice is not liable because she was a conditional guarantor.
D) Probably Alice will have to pay based on the "main purpose" exception to the statute of frauds.
E) Alice won't have to pay because she is insulated from personal liability by the corporation, ACI.

Question 42

George bought a washing machine from Sears, which financed the purchase and which filed a financing statement. George couldn't make the payments, so he sold the machine to his neighbor, Nancy, for her home use.

A) Sears must pursue George for payment, Nancy takes free of its interest.
B) Sears can repossess the machine from Nancy.
C) Nancy can keep the machine, but only if she paid a reasonable amount for it.
D) Nancy can keep the machine, but she must pay Sears what is owing on it.
E) two of the above

Question 43

What are the three different types of suretyship?

Question 44

Butch bought a bulldozer for his construction business from Construction Supply (CS), which properly perfected its security interest in the machine. The bulldozer required repairs; Butch took it to Mike Mechanic who performed $1100 worth of repair work on it. Butch then failed to pay either CS or Mechanic, and CS appeared at Mechanic's shop to repossess the machine. As between Mechanic and CS, who gets paid first?

A) CS because it perfected its security interest.
B) CS because the bulldozer is not "consumer goods."
C) CS because it has a purchase-money security interest in the bulldozer.
D) Mechanic because he has a mechanic's lien which takes priority over the CS's security interest.
E) It is not possible to determine who wins on the facts here.

Question 45

Alice hired Robert as an associate accountant in Alice's accounting firm. To protect herself against the possibility that Robert might be dishonest, Alice obtained a ¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬__________ bond.

A) bail
B) judicial
C) performance
D) fidelity
E) official

Question 46

The surety has certain defenses to paying. What are they?

Question 47

Creditor required that Apex Co. obtain a performance bond for contracting work Apex agreed to perform. The bond issued by Surety contained forged signatures of Apex's principals. The fraud on Surety

A) discharges the surety
B) exonerates the surety
C) renders the Creditor-Apex contract void
D) has no effect on Surety's obligation to Credito
E) discharges Apex

Question 48

Bond Co. is a surety on a debt Debtor owes to Creditor. Debtor, apparently solvent, refused to pay Creditor, and Creditor turned to Bond Co. Bond Co. now has a right of

A) contribution
B) subrogation
C) exoneration
D) reimbursement
E) determinability

Question 49

Smalltown contracted with Construction Co. (CC) to repave a street. CC was required to obtain a performance bond, which it did, from Bond Co. While the crew was paving, a distracted driver whizzed by the flagger and crashed into the paving machinery. All three CC employees were injured and hospitalized. Bond Co. performed to Smalltown, and now seeks compensation from the distracted driver. ___________.

A) reimbursement
B) contribution
C) restitution
D) subrogation
E) exoneration

Question 50

A buyer of consumer goods, for value, who has no knowledge of any security interest, takes

A) subject to any purchase-money security interest perfected automatically.
B) subject to any security interest in the goods.
C) free of any pmsi perfected automatically.
D) free of any security interest perfected by filing a financing statement.
E) free of any security interest perfected by a pledge of the collateral.

Question 51

The substitution of one person for another who has a legal claim or right is known as:

A) subrogation.
B) exoneration.
C) foreclosure.
D) contribution.
E) perfection.

Question 52

In which situation would a buyer not be one "in the ordinary course of business"?

A) Alice buys a computer from her roommate.
B) Bob buys cardboard boxes from an on-line store.
C) Carleen buys cutlery from her friend Janine's home-goods store.
D) Delores buys liquor from Supermarket.
E) none of these are "in the ordinary course of business."

Question 53

If, at a time a surety's obligation has matured, the principal can satisfy the obligation but refuses to do so, the surety is entitled to a court order requiring the principal to perform. This is known as:

A) contribution.
B) perfection.
C) foreclosure.
D) exoneration.
E) subrogation.