Question 1

Elmer agreed to act as the conditional guarantor of collection on a debt of $50,000 that Fred owed to Gloria.Fred paid Elmer a premium to serve as surety.If Fred defaults on the debt,what are Gloria's rights against Elmer?

Accepted Answer

The answer of Elmer agreed to act as the conditional...

Question 2

"Value" under Article 9 of the UCC is defined as including:
A)consideration under contract law.
B)a binding commitment to extend credit.
C)antecedent debt.
D)All of the above.

Accepted Answer

According to Article 9 of the UCC, "value" is a broad term that includes not only consideration under contract law, but also a binding commitment to extend credit and antecedent debt. Therefore, all of the choices listed in A, B, and C are included in the definition of "value" under Article 9 of the UCC.

Question 3

Every consensual secured transaction involves:
A)a debtor, a secured party, and collateral.
B)value and a surety.
C)a security agreement and a security interest.
D)All of the above.
E)Both (a) and (c).

Accepted Answer

Both (a) and (c) are necessary for a consensual secured transaction. The parties involved are the debtor who owns collateral, the secured party who wants to secure their interest in the collateral, and a security agreement that shows the intention of both parties to create a security interest. Therefore, the answer is (E) both (a) and (c).

Question 4

Under the Code,collateral is classified according to:
A)its nature and use.
B)the fundamental rights of the secured party.
C)the fundamental rights of the debtor.
D)None of the above.

Accepted Answer

The Code classifies collateral based on its nature and use, such as consumer goods, equipment, inventory, and real property. This classification helps determine the priority of claims in case of default or bankruptcy. The Code also provides rules for securing and releasing collateral, as well as protecting the rights of both the secured party and the debtor. The fundamental rights of both parties are considered, but they are not the primary basis for classifying collateral.

Question 5

With the exception of pledges,a security agreement must:
A)be in an authenticated record.
B)be signed by the debtor with his personal, not business, name.
C)contain at least a generic description of the collateral, such as "all my personal property."
D)(a) and (b) are correct.
E)(b) and (c) are correct.

Accepted Answer

A security agreement must be in an authenticated record, which means it must be in writing and signed or otherwise marked to identify the person who created the record. This can include electronic signatures or markings.

Question 6

A field warehouse,under Article 9 of the UCC,is:
A)one kind of a pledge.
B)a common arrangement for financing inventory.
C)an agreement that allows the debtor access to the pledged goods and simultaneously gives the secured party control over the pledged property.
D)All of the above.
E)None of the above.

Accepted Answer

A field warehouse under Article 9 of the UCC is a type of secured transaction that involves a pledge, is commonly used for financing inventory, and allows the debtor access to the goods while giving the secured party control over them.

Question 7

Generally,when may a security interest be perfected in 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.

Accepted Answer

The method of perfecting a security interest in collateral may vary depending on the type of collateral. Generally, a security interest may be perfected by filing a financing statement in the designated public office (Choice A) or by taking or retaining possession of the collateral (Choice B). In some cases, the security interest may be automatically perfected upon attachment (Choice C). Additionally, the Code may specify a temporary period during which the security interest is perfected (Choice D). Therefore, depending on the type of collateral, any combination of the above methods may be used to perfect a security interest. Hence, the best answer is E, "All of the above, depending on the type of collateral."

Question 8

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?
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.

Accepted Answer

If there was fraud perpetrated upon Gary by the bank, that can be a valid defense for his refusal to pay. That defense can also be extended to the surety, Lewis, in this case. Therefore, Lewis may not have to pay if there was a fraud by the bank.

Question 9

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

The answer of Mr.Chickilini is a surety for Wayne on...

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

Accepted Answer

Subrogation is a legal principle that allows one party (in this case, Sam) to step into the shoes of another party (in this case, the lender) after the debt has been paid off. As a result, Sam would have the right to pursue all of the remedies available to the lender, including repossessing the car, collecting from Dave, and collecting from Steve. Therefore, the best choice is D, all of the above.

Question 11

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

Accepted Answer

All of the options listed are valid contractual defenses in surety relationships. The nonexistence of the principal debtor's obligation means that the surety can argue that there was never an obligation in the first place. Discharge of the principal debtor's obligation can occur if the debtor pays off their debt or if the debt is discharged through bankruptcy. Modification of the principal debtor's contract can occur if the surety is not informed of the changes and therefore not obligated to fulfill them.

Question 12

If the principal debtor defaults,the surety has rights against the principal debtor,third parties,and cosureties.These rights would include:
A)exoneration.
B)reimbursement.
C)subrogation.
D)contribution.
E)All of the above.

Accepted Answer

All of the above rights belong to the surety if the principal debtor defaults.

Exoneration means the surety is discharged from all obligations once the principal debtor has fulfilled their obligations.

Reimbursement means the surety can recover any expenses or payments made on behalf of the principal debtor.

Subrogation means the surety has the right to step into the shoes of the creditor and pursue any rights or remedies against the principal debtor.

Contribution means the surety can recover a portion of the debt from cosureties or other third parties who are also liable for the debt.

Question 13

Subrogation includes:
A)creditor's rights against the principal debtor, but not including the creditor's priorities in a bankruptcy proceeding.
B)no rights against cosureties.
C)no rights against co-makers.
D)creditor's rights in security of the principal debtor.

Accepted Answer

Subrogation refers to the transfer of one party's legal rights and claims to another party. In terms of a creditor and a debtor, subrogation allows the creditor to step into the shoes of the debtor and take over their legal rights and claims. This includes the creditor's rights in the security of the principal debtor, such as property or collateral that was put up as security for a loan. Therefore, choice D is the best answer as it accurately reflects the scope of subrogation in the context of a creditor and debtor relationship.

Question 14

Karl loaned Linda $100,000.Madeline agreed to act as surety for $100,000.Nora agreed to act as surety for $75,000 and Orville agreed to act as surety for $25,000.Linda later defaulted on the loan,and Karl is now demanding payment from Nora and Orville.What amount do Nora and Orville have to pay? If Nora and Orville pay,does Madeline have any obligation?

Accepted Answer

The answer of Karl loaned Linda $100,000.Madeline agreed to act...

Question 15

What party(ies)is/are involved in a suretyship relationship?
A)The principal debtor.
B)An ancillary bailee.
C)Principal bailee.
D)All of the above.

Accepted Answer

In a suretyship relationship, the party involved is the principal debtor who takes the loan and the surety who guarantees the repayment of the loan in case the debtor defaults. Neither ancillary bailee nor principal bailee are parties involved in a suretyship relationship.

Question 16

Diane,who is seventeen years old,purchased an auto from Elvira on credit.Florence agreed to act as surety and signed a written surety agreement.At the time of purchase,Diane specifically asked Elvira about the condition of the car's motor and was told that it had just been replaced with a new one and was in fine condition.This was blatantly untrue,because Elvira knew it was in terrible shape and would only last a short time.The auto has now stopped running and Diane refuses to make any more payments.Elvira is now proceeding against Diane and Florence.What defenses,if any,are available to (a)Diane and (b)Florence?

Accepted Answer

The answer of Diane,who is seventeen years old,purchased an auto...

Question 17

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?

Accepted Answer

The answer of Thomas borrowed $100,000 from First Bank,which asked...

Question 18

Assume you are the creditor in each of the following situations.Identify the kind of security agreement that is involved in each transaction and explain how you would perfect that agreement.
a.You are the creditor (Everby Bank), and you lend Brisco Gaines $5,000 for a sound system.
b.First Bank loans Doris $10,000 to purchase inventory for her store.
c.First Bank loans Brad $5,000 to purchase a computer network for use in his store office.
d.Kevin needs cash for gambling debts. He brings in his high-definition TV to secure a $500 loan.

Accepted Answer

The answer of Assume you are the creditor in each...

Question 19

First Bank loaned $100,000 to Central Office Supply Store to purchase computers for its inventory.Central signed a financing agreement,which First Bank duly filed in the appropriate public office.Lynn came into Central's store and purchased a computer that was subject to the security interest held by First Bank.Assuming that Lynn is a buyer in the ordinary course of business,whose interest in the computer has priority?

Accepted Answer

The answer of First Bank loaned $100,000 to Central Office...

Question 20

Explain how the 1998 Revisions to Article 9 facilitate electronic filing of a financing statement.

Accepted Answer

The answer of Explain how the 1998 Revisions to Article...

Quiz 37: Secured Transactions and Suretyship

Elmer agreed to act as the conditional guarantor of collection on a debt of $50,000 that Fred owed to Gloria.Fred paid Elmer a premium to serve as surety.If Fred defaults on the debt,what are Gloria's rights against Elmer?

"Value" under Article 9 of the UCC is defined as including:

Every consensual secured transaction involves:

Under the Code,collateral is classified according to:

With the exception of pledges,a security agreement must:

A field warehouse,under Article 9 of the UCC,is:

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

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?

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:

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

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

Subrogation includes:

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

Explain how the 1998 Revisions to Article 9 facilitate electronic filing of a financing statement.