Question 1

A guarantor is a person who:
A) joins with the person who is primarily liable in promising to make the payment or to perform the duty.
B) does not join in making a promise, but makes a separate promise and agrees to be liable on the happening of a certain event.
C) is paid for serving as a surety, such as a bonding company.
D) acts as a surety without compensation, such as a friend who cosigns a note as a favor.

Accepted Answer

A guarantor does not join in making a promise; rather, a guarantor makes a separate promise and agrees to be liable on the happening of a certain event. A guarantor's promise must be made in writing to be enforceable under the statute of frauds.

Question 2

Forbearance is the method by which a court authorizes the sale of personal property subject to a lien so that the creditor can obtain the money to which he is entitled.

Accepted Answer

Forbearance refers to the temporary postponement of debt repayment, and is not related to the sale of personal property subject to a lien. The term that would apply to the described situation is "execution."

Question 3

Under strict foreclosure, the creditor has the right to a deficiency, and the debtor has the right to a surplus.

Accepted Answer

Under strict foreclosure, if the value of the property being foreclosed is not enough to cover the debt owed by the debtor, the creditor may not seek a deficiency judgment against the debtor. Similarly, if the amount bid at the foreclosure sale exceeds the amount owed by the debtor, the debtor does not have the right to a surplus. Therefore, both the creditor and debtor do not have a right to a deficiency or surplus under strict foreclosure.

Question 4

There are only two parties to a deed of trust: (1) the owner of the property who borrows the money and (2) the trustee who holds legal title to the property put up as security.

Accepted Answer

A deed of trust typically involves three parties: (1) the trustor (borrower), who transfers the property, (2) the beneficiary (lender), to whom the property is transferred as security for the loan, and (3) the trustee, who holds legal title to the property in trust for the beneficiary.

Question 5

The basic rules of strict liability apply in determining the existence and nature of the relationship of principal and surety.

Accepted Answer

The basic rules of strict liability do not apply in determining the existence and nature of the relationship of principal and surety. The relationship of principal and surety is based on contract law and the intentions of the parties involved.

Question 6

Which of the following statements best defines a surety?
A) A person who is liable for the performance of another person's duty
B) A person who is not liable for the payment of a principal's debts
C) A person who makes a separate promise to be liable for the payment of a principal's debts
D) A person who is not entitled to be reimbursed by the principal

Accepted Answer

A surety is a person who is liable for the payment of another person's debt or for the performance of another person's duty. The surety joins with the person who is primarily liable in promising to make the payment or to perform the duty.

Question 7

Zahra agreed to act as surety for a loan taken by her son, Rudo, from the Third National Bank. The terms of the loan provided that Rudo would pay the loan off in 12 monthly installments at 10 percent. If Rudo renegotiates the terms of the loan with the bank without Zahra's knowledge and is now obligated to pay the loan off in 12 monthly installments at 9 percent, which of the following statements is true?
A) Renegotiation of the note by Rudo does not relieve Zahra of liability as surety because the new terms are more favorable than the original terms.
B) Zahra must notify the bank in writing that she no longer wishes to act as surety in order to avoid liability under the new terms.
C) Zahra must notify Rudo in writing that she no longer wishes to act as surety in order to avoid liability under the new terms.
D) Zahra is no longer obligated because her responsibilities as a surety cannot be changed without her consent.

Accepted Answer

A surety contracts to be responsible for the performance of the principal's obligation. If the principal and the creditor change that obligation by agreement, the surety is relieved of responsibility unless the surety agrees to the change. This is because the surety's obligation cannot be changed without his or her consent. In this scenario, Zahra is no longer obligated because her responsibilities as a surety cannot be changed without her consent.

Question 8

The surety joins with the person who is primarily liable in promising to make the payment or to perform the duty.

Accepted Answer

This statement is true. A surety is a person who guarantees the performance of another person's obligation, and they join with the primary obligor to promise payment or performance of the duty in case the primary obligor fails to do so.

Question 9

Rita cosigned a promissory note for $500 at the Federal Credit Union for her friend Sue. Sue defaults on the note, and the credit union collects $500 from Rita on her suretyship obligation. Rita then not only gets the right to collect $500 from her but also gets the Federal Credit Union's rights against Sue.

Accepted Answer

When a cosigner pays on a defaulted promissory note, they acquire the right to collect from the borrower (Sue) and also acquire the creditor's (Federal Credit Union's) rights against the borrower (Sue). This is known as subrogation.

Question 10

Foreclosure proceedings are regulated by statute in the state in which the property is located.

Accepted Answer

Foreclosure proceedings vary by state and are regulated by the laws of the state in which the property is located.

Question 11

A guarantor does not join with the person who is primarily liable in making a promise; rather, a guarantor makes a separate promise and agrees to be liable on the happening of a certain event.

Accepted Answer

A guarantor makes a separate promise and agrees to be liable on the happening of a certain event, and does not join the person who is primarily liable in making a promise.

Question 12

If the creditor allows the principal more time to perform the contract without the surety's consent, this relieves the surety of responsibility.

Accepted Answer

The answer of If the creditor allows the principal more...

Question 13

A surety is a person who is liable for the payment of another person's debt or for the performance of another person's duty.

Accepted Answer

A surety is a person who agrees to be responsible for paying back a loan or fulfilling a contractual obligation if the original borrower or contractor fails to do so.

Question 14

Which of the following statements is true for unsecured credit?
A) Only consumers use unsecured credit for their personal transactions.
B) The creditor may require the debtor to convey to the creditor a lien on the debtor's property.
C) When goods are delivered on unsecured credit, the creditor retains all rights in the goods.
D) The unsecured credit transaction involves maximum risk to the creditor.

Accepted Answer

The unsecured credit transaction involves a maximum of risk to the creditor (the person who extends the credit). When goods are delivered, services rendered, or money loaned on unsecured credit, the creditor gives up all rights in the goods, services, or money.

Question 15

Most states treat the deed of trust different from a mortgage in giving the borrower a relatively short period of time to redeem the property.

Accepted Answer

The answer of Most states treat the deed of trust...

Question 16

If you go to a dentist to have a cavity in a tooth filled and she sends you a bill payable by the end of the month, services have been rendered on the basis of secured credit.

Accepted Answer

Services have been rendered on the basis of unsecured credit as no collateral was given and no interest rate or repayment period was agreed upon at the time of the service.

Question 17

Each state has a statute that permits persons who contract to furnish labor or materials to improve real estate to claim a lien on the property until they are paid.

Accepted Answer

This is known as a mechanic's lien, and each state has its own specific statutes governing this process.

Question 18

Under the common law, the innkeeper was allowed to claim a lien on the guest's property brought to the hotel or inn to secure payment for the innkeeper's reasonable charges for food and lodging.

Accepted Answer

This is true. The common law recognized an innkeeper's lien as a means of securing payment for the cost of providing lodging and other services to the guest.

Question 19

The rights and liabilities of the surety and the guarantor are substantially different.

Accepted Answer

The terms "surety" and "guarantor" are often used interchangeably in the context of guaranteeing another's debt or obligation, and their rights and liabilities are substantially similar, primarily differing in the degree of responsibility and the conditions under which they are obligated to fulfill the principal's debt.

Question 20

Which of the following defenses goes to the merits of a primary contract and can be used by a surety?
A) Lack of consideration
B) Lack of capacity
C) Insanity
D) Bankruptcy

Accepted Answer

Surety defenses that go to the merits of the primary contract include (1) lack or failure of consideration, (2) inducement of the contract by fraud or duress, and (3) breach of contract by the other party. The personal defenses of the principal cannot be used by the surety.

Quiz 42: Introduction to Security

A guarantor is a person who: