Question 1

Bertram,Chaka,and Dougal are co-sureties of Erica's debt to Finance Loan Company. Bertram pays Erica's entire debt. Bertram's right to seek proportionate pay-ments from Chaka and Dougal is the right of
A)contribution.
B)exemption.
C)reimbursement.
D)subrogation.

Accepted Answer

Bertram's right to seek proportionate payments from Chaka and Dougal is the right of contribution. Contribution is a right of a surety who has paid more than his or her fair share of the debt, and seeks reimbursement from other co-sureties for their proportionate share of the debt. Option B, exemption, is not applicable in this scenario, as it refers to a right of a surety to be relieved from the obligation to pay the debt altogether. Option C, reimbursement, refers to the right of a surety who has paid the entire debt to seek reimbursement from the principal debtor. Finally, option D, subrogation, refers to the right of a surety who has paid the debt to step into the shoes of the creditor and seek repayment directly from the principal debtor. While subrogation may also be available to Bertram, the question specifically asks for the right to seek proportionate payments from other co-sureties, which is a right of contribution.

Question 2

Petro Oil Refinery asks Quality Bank for a loan to increase its oil inventory. Quality requires Robin,Petro's president,sign a personal guaranty to pay the debt if Petro defaults. Meanwhile,to sell fifty barrels of refined oil to Slick Lubricants,Inc.,Petro asks its outside accountant Tina to co-sign a credit application.
-Refer to Fact Pattern 25-1.If Robin is a guarantor,then the guaranty is required to be in writing because of
A)the debtor's right of redemption.
B)the co-signer's right of contribution.
C)the creditor's transfer of possession.
D)the Statute of Frauds.

Accepted Answer

The Statute of Frauds requires that certain contracts, including contracts of guaranty, be in writing to be enforceable. Therefore, if Robin is a guarantor, the guaranty is required to be in writing.

Question 3

Sara needs $1,500 to buy textbooks and other school supplies. Tomas agrees to loan Sara $1,500,accepting as collateral Sara's car. They put their agreement in writing and sign it. Sara keeps possession of the car. Does Tomas have an enforceable security interest? How can Tomas let other creditors know of his interest in the car?

Accepted Answer

The answer of Sara needs $1,500 to buy textbooks and...

Question 4

Elvin fraudulently induces Franz,a consumer,to sign a promissory note to buy a speedboat. Elvin sells the note to Gaston,who takes it for value,in good faith,and without knowledge of the fraud. With respect to the defense against payment on the note to Elvin,Franz can
A)assert this defense against Gaston.
B)file for a property exemption.
C)exercise the right of subrogation.
D)obtain a deficiency judgment.

Accepted Answer

Franz can assert the defense of fraud against Elvin and also against any subsequent holder of the promissory note. The defense of fraud is a personal defense that follows the note, and it can be asserted by Franz against anyone who takes it from Elvin, even a holder in due course like Gaston. Therefore, Franz can assert this defense against Gaston and avoid payment on the note. Options B, C, and D are not applicable in this scenario.

Question 5

Petro Oil Refinery asks Quality Bank for a loan to increase its oil inventory. Quality requires Robin,Petro's president,sign a personal guaranty to pay the debt if Petro defaults. Meanwhile,to sell fifty barrels of refined oil to Slick Lubricants,Inc.,Petro asks its outside accountant Tina to co-sign a credit application.
-Refer to Fact Pattern 25-1. If,after the loan agreement is signed,Slick agrees to a higher rate of interest without telling Tina,then Tina is
A)discharged from the agreement.
B)liable at the higher rate of interest.
C)liable at the lower rate of interest.
D)liable for the principal only.

Accepted Answer

If the terms of the agreement are changed without the co-signer's knowledge or consent, the co-signer can be discharged from their obligation.

Question 6

Raoul is a surety for Suzu's loan from Turnkey Credit,Inc. Raoul's right to "step into the shoes" of Turnkey,after paying Suzu's debt,and exer-cise any of the Turnkey's rights against Suzu is the right of
A)contribution.
B)redemption.
C)reimbursement.
D)subrogation.

Accepted Answer

The right to "step into the shoes" of the creditor and exercise any of their rights against the debtor is called subrogation. Thus, the correct choice is D. Contribution is the right of a co-surety to recover their share of the debt from other co-sureties. Redemption is the right of a debtor to reclaim their property by paying off the debt. Reimbursement is the right of a surety to be reimbursed by the debtor for any payments made to the creditor. None of these rights apply to Raoul's situation.

Question 7

Smartt Software Company borrows $10,000 from Term 'N All Loans,Inc.,but cannot repay the loan when it comes due. Term 'N All refuses to ex-tend the time for repayment unless Smartt can provide an acceptable surety. Uno Venture Corporation agrees to act as a surety for the loan af-ter Smartt offers the firm a discount on software and shows Uno financial statements,compiled with Term 'N All's assistance,that misrepresent Smartt's financial situation. Later,after Uno uses the discount to buy software,Smartt again defaults on repayment of the loan,and Term 'N All files a suit against Uno to collect the amount of the debt. Is Uno liable? Why or why not?

Accepted Answer

The answer of Smartt Software Company borrows $10,000 from Term...

Question 8

Consumer Credit,Inc. (CCI),lends $1,000 to Joe. Kay acts as Joe's surety. If Kay pays the loan,she gets
A)any right that CCI had against Joe,but not a right to be repaid by Joe.
B)a right to be repaid by Joe,but not any right that CCI had against Joe.
C)any right that CCI had against Joe and a right to be repaid by Joe.
D)none of the choices.

Accepted Answer

As the surety for Joe's loan, Kay assumes responsibility for repayment if Joe defaults. Therefore, if Kay pays the loan, she obtains the same rights that CCI had against Joe and is entitled to be repaid by Joe. Option C is the only choice that accurately describes both of these rights.

Question 9

Jay is a surety for Karen's loan from Little Bank. Jay's right to be reim-bursed by Karen after having paid her debt is the right of
A)contribution.
B)redemption.
C)reimbursement.
D)subrogation.

Accepted Answer

The answer of Jay is a surety for Karen's loan...

Question 10

Fleet Trucking,LLC,buys a white van from Go Motors,Inc.,on credit under a guaranty signed by Herbie,Fleet's president,making him personally liable if the company does not pay. Herbie is
A)a surety.
B)a lienor.
C)a guarantor.
D)a creditor.

Accepted Answer

Herbie, as the president of Fleet Trucking, signed a guaranty making him personally liable if the company does not pay for the white van from Go Motors, Inc. Therefore, he is a guarantor. A surety would be someone who becomes secondarily liable for a debt or obligation of another, like a co-signer, but Herbie did not become liable at the same time as the company. A lienor is someone who has a lien, which is a legal right to someone else's property until a debt is discharged, but that is not the case here. A creditor is someone who is owed money, but Herbie is not the one owed money, rather he is assuming liability in case his company does not pay.

Question 11

Nell's debt to Olsen is past due. Olsen obtains an order of garnishment to require Nell's employer Pro Transmission Service,Inc.,to pay part of Nell's paycheck to Olsen. The law
A)limits the amount that can be taken from Nell's take-home pay.
B)permits Olsen to dismiss Nell because her wages are garnished.
C)practically does not allow Olsen to collect the awarded amount.
D)requires Pro to retain Nell as an employee until the debt is paid.

Accepted Answer

The law limits the amount that can be taken from an employee's take-home pay in order to prevent excessive hardship on the employee. This limit varies by state and depends on factors such as the employee's income and the type of debt being garnished.

Question 12

Lenders Loan Company and Mortgage Service Corporation-Nadya's creditors-contract with Nadya for the discharge of her liquidated debts on payment of a lesser sum. This is
A)a composition agreement.
B)a subrogation.
C)a suretyship agreement.
D)in violation of most states' laws.

Accepted Answer

A composition agreement is a legal contract between a debtor and their creditors in which the creditors agree to accept a lesser amount than the total debt owed in exchange for the debtor's promise to pay the reduced amount within a certain time frame. This type of agreement is a common way for debtors to avoid bankruptcy and settle their debts.

Quiz 25: Security Interests and Creditors Rights

Bertram,Chaka,and Dougal are co-sureties of Erica's debt to Finance Loan Company. Bertram pays Erica's entire debt. Bertram's right to seek proportionate pay-ments from Chaka and Dougal is the right of

Elvin fraudulently induces Franz,a consumer,to sign a promissory note to buy a speedboat. Elvin sells the note to Gaston,who takes it for value,in good faith,and without knowledge of the fraud. With respect to the defense against payment on the note to Elvin,Franz can

Raoul is a surety for Suzu's loan from Turnkey Credit,Inc. Raoul's right to "step into the shoes" of Turnkey,after paying Suzu's debt,and exer-cise any of the Turnkey's rights against Suzu is the right of

Consumer Credit,Inc. (CCI) ,lends $1,000 to Joe. Kay acts as Joe's surety. If Kay pays the loan,she gets

Jay is a surety for Karen's loan from Little Bank. Jay's right to be reim-bursed by Karen after having paid her debt is the right of

Fleet Trucking,LLC,buys a white van from Go Motors,Inc.,on credit under a guaranty signed by Herbie,Fleet's president,making him personally liable if the company does not pay. Herbie is

Nell's debt to Olsen is past due. Olsen obtains an order of garnishment to require Nell's employer Pro Transmission Service,Inc.,to pay part of Nell's paycheck to Olsen. The law

Lenders Loan Company and Mortgage Service Corporation-Nadya's creditors-contract with Nadya for the discharge of her liquidated debts on payment of a lesser sum. This is