Question 1

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?

Accepted Answer

The "main purpose" exception to the statute of frauds applies when the primary motive for entering into the contract is to benefit oneself, rather than acting as a guarantor for another party. In this case, Alice's primary motive for agreeing to pay for the computer system was to benefit her own company, ACI, and its productivity. Therefore, the "main purpose" exception may apply and Alice may be liable to Computer Store for the cost of the new system.

Question 2

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.

Accepted Answer

The answer of George bought a washing machine from Sears,...

Question 3

What are the three different types of suretyship?

Accepted Answer

The answer of What are the three different types of...

Question 4

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?

Accepted Answer

Mechanic has a mechanic's lien, which generally takes priority over a previously perfected security interest when it comes to repairs made to the collateral.

Question 5

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.

Accepted Answer

A fidelity bond is a type of insurance protection that covers the employer in case an employee engages in dishonest or fraudulent acts. It is commonly used in industries where employees handle money or sensitive financial information, such as accounting firms.

Question 6

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

Accepted Answer

The answer of The surety has certain defenses to paying....

Question 7

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

Accepted Answer

The fraud on Surety has no effect on Surety's obligation to Creditor because the surety is not a party to the Creditor-Apex contract.

Question 8

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

Accepted Answer

The answer of Bond Co. is a surety on a...

Question 9

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. ___________.

Accepted Answer

Bond Co. has performed to Smalltown, meaning they have fulfilled their obligation to Smalltown under the performance bond. Bond Co. can now seek compensation from the distracted driver through subrogation, which allows them to step into the shoes of Smalltown and pursue any rights or claims Smalltown may have had against the driver.

Question 10

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

Accepted Answer

A buyer of consumer goods who purchases them for value and has no knowledge of any security interest takes free of any PMSI that is perfected automatically. This is stated in Section 9-324(a).

Question 11

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

Accepted Answer

The substitution of one person for another who has a legal claim or right is known as subrogation. This commonly occurs in insurance claims where the insurer pays for damages that are caused by a third party and then seeks to recover the cost from the responsible party.

Question 12

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

Accepted Answer

Buying a computer from a roommate is not considered as a transaction in the ordinary course of business as it involves personal dealings amongst individuals who are not engaged in the business of selling computers.

Question 13

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:

Accepted Answer

Exoneration is the right of the surety to be released from the obligation to pay if the principal can satisfy the obligation, but refuses to do so. The surety can seek a court order requiring the principal to perform, thereby releasing the surety from further liability. Contribution is the right of a co-surety to recover from other co-sureties their proportionate share of an obligation that has been paid. Perfection refers to the process of establishing and recording a security interest in collateral to give the creditor the right to take possession or sell the collateral in case of default. Foreclosure is the process of enforcing a security interest in real property through a judicial sale or auction. Subrogation is the right of the surety who has paid the debt to step into the shoes of the creditor and recover the amount paid from the principal or any other person who may be liable.

Quiz 28: Secured Transactions and Suretyship