Deck 28: Introduction to Credit and Secured Transactions

Question 1

A surety has a right of exoneration.

Answer 1

True
Explanation: A surety also has what is known as a right of exoneration,which is the right of the surety or guarantor to require the debtor to make good on his commitment to the creditor when he (1)is able to do so and (2)does not have a valid defense against payment.

Question 2

Artisans liens were created by statute to provide additional protection for artists in recovering unpaid funds for services.

Answer 2

False
Explanation: Artisans liens are common law liens which entitle artisans,innkeepers,and common carriers to liens to secure the reasonable value of services performed.

Question 3

A mortgage is a security interest in real property.

Answer 3

True
Explanation: A mortgage is a security interest in real property or a deed to real property that is given by the owner as security for a debt owed to the creditor.

Question 4

The principal debtor's lack of capacity is a defense for both the principal debtor and the surety if they are sued by the creditor.

Question 5

Chica,a women's fashion retailer,buys merchandise from Tammy,a fashion designer,promising to pay for the merchandise within 30 days after receipt.This is an example of an unsecured credit transaction.

Question 6

In the case of foreclosure by action and sale,the creditor has no right to a deficiency and the debtor has no right to any surplus.

Question 7

Under the Pennsylvania system,the general contractor's failure to perform his contract or his abandonment of the work has a direct effect on the lien rights of subcontractors and materialmen.

Question 8

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

Question 9

Generally,purchases of farm property are financed through the use of land contracts.

Question 10

The right of a lienholder to possess goods does not automatically give the lienholder the right to sell the goods or to claim ownership if his charges are not paid.

Question 11

A surety who pays a debtor's debt to the creditor gets all the rights the creditor had against the debtor.This is called surety's right of subrogation.

Question 12

Because the real estate mortgage conveys an interest in real property,it must be executed with the same formality as a deed.

Question 13

A surety is not primarily liable for the debtor's obligation and the debtor can demand performance from the surety only if the debtor refuses to pay.

Question 14

Possession of the goods must have been entrusted to the artisan for the artisan lien to come into play.

Question 15

A subcontractor is a person who contracts with the owner of a property to build or remodel.

Question 16

An unsecured credit transaction involves the lowest risk to the creditor.

Question 17

A submaterialman is not entitled to a lien,unless specifically stated by the statute of the state which is applicable to him.

Question 18

Foreclosure is the process by which any rights of the mortgagor or the current property owner are cut off.

Question 19

The key difference between secured and unsecured credit is that unsecured credit transactions are permissible only in a commercial context.

Question 20

Most state laws say that a valid mechanic's lien has priority over all other liens that attach after the first work is performed or the first materials are furnished.

Question 21

The most common kind of change affecting a surety is ________.

A)a change in interest rate
B)an extension of time to perform the contract
C)a change from a compensated surety to an accommodation surety
D)a change from a surety to a guarantor

Question 22

Why is a guaranty contract similar to a suretyship contract?

A)Both a guarantor and a surety join the principal in making a promise.
B)Both a surety and a guarantor are primarily liable for the performance of another's debt.
C)Both a guarantor and a surety are secondarily liable for the performance of another's debt.
D)Both a guarantor and a surety agree to answer for the obligations of a debtor.

Question 23

Payne borrowed $500 from Long Bank.At the time the loan was made to Payne,Gem orally agreed with Long that Gem would repay the loan if Payne failed to do so.Gem received no personal benefit as a result of the loan to Payne.Which of the following is most likely to be true,under the circumstances?

A)Gem must provide a collateral to Long.
B)Both Gem and Payne are primarily liable to repay the loan.
C)Gem is free from liability concerning the loan.
D)Payne must provide a lien to Gem for the amount of the debt.

Question 24

What does the term "judgment-proof" imply about a debtor?

A)He/she has defaulted on a mortgage.
B)He/she has paid the full amount for the transaction.
C)He/she has provided a security interest for the debt.
D)He/she has no property subject to execution.

Question 25

Carrie promises to pay her cousin Joe's debt,but only if Joe does not pay.Carrie is a:

A)Guarantor
B)Surety
C)Co-signer
D)Primary debtor

Question 26

If a commercial contractor specifies parties to the contract are jointly and severally liable,this creates what type of relationship?

A)A grantor relationship
B)A surety relationship
C)A secondary liability relationship
D)A principal relationship

Question 27

The riskiest transaction for a creditor is a(n)________.

A)unsecured credit transaction
B)secured credit transaction
C)mortgage
D)credit transaction involving a surety

Question 28

A(n)________ is secondarily liable for the debt of the principal debtor.

A)surety
B)guarantor
C)beneficiary
D)executor

Question 29

Jose purchases a refrigerator on credit with a one-year guarantee,but it is defective and the dealer refuses to repair it.His fiancé is a surety on his promise to pay.If Jose refuses to make further payments and the dealer tries to collect from Jose's fiancé,what defense can his fiancé use for not paying the creditor?

A)None.A surety cannot use any defenses.
B)Inducement of the contract by fraud or duress.
C)Lack of capacity.
D)Breach of warranty.

Question 30

A(n)"________" is a person who is liable for the payment of another person's debt or for the performance of another person's duty.

A)beneficiary
B)trustee
C)surety
D)executor

Question 31

Tracy contracted with Stanley to pay 2 installments of $1000 over a two-month period to buy a new laptop from Stanley.Juan co-signed the note for Tracy.Tracy could not make the second payment on time and Stanley extended the repayment period to three months.Is Juan still responsible as a surety?

A)Yes because sureties never have to consent to a change in a principal's obligation.
B)Yes,because the extension of time was for less than one month.
C)Yes,because if the creditor merely allows the principal more time without the surety's consent,this does not relieve the surety of responsibility.
D)No,because a change was made to the principal's obligation without the consent of the surety.

Question 32

Sarah,age 17,buys a car on credit from Lora.Sarah signs a promissory note,agreeing to pay $1000 a month on the note until the note is paid in full.Lora has Sarah's father cosign the note.Under these circumstances,Sarah's father is:

A)a surety.
B)secondarily liable on this contract.
C)a guarantor of payment on this contract.
D)not liable on this contract because Sarah is a minor.

Question 33

Joe Smith obtains a credit card from First National Bank.The credit card is what type of credit?

A)Secured credit
B)Unsecured credit
C)Mortgage
D)Subsidized loan

Question 34

John receives certain goods from Tom.He promises to pay Tom later.This transaction is based on a(n)________.

A)deed of trust
B)unsecured credit
C)mortgage
D)subrogation

Question 35

Which of the following is the oldest and also the simplest security device?

A)Pledge
B)Chattel mortgage
C)Deed of trust
D)Surety

Question 36

Robert cosigns a note for his friend Amelia,which she has given to Credit Union to secure a loan.Suppose the note was originally for $5,000 and payable in 12 months with interest at 10 percent a year.Credit Union and Amelia later agree that Amelia will have 24 months to repay the note but that the interest will be 13 percent per year.Robert is not aware of this change of terms.In the event of Amelia defaulting on the loan,will Robert have to repay the debt?

A)Robert will have to pay the debt because he is the surety.
B)Robert will not have to pay the debt because he has not received any compensation from Amelia for being a surety.
C)Robert will have to pay the debt because he is the guarantor.
D)Robert will not have to pay the debt because he has not accepted the changed terms of the loan.

Question 37

Which of the following statements is true regarding a guarantor?

A)In order to be a guarantor,a person must enter into a deed of trust with the principal debtor.
B)A guarantor is primarily liable for the debt along with the principal debtor.
C)Generally,a guarantor's promise must be made in writing to be enforceable under the statute of frauds.
D)A guarantor joins the principal debtor in making a promise.

Question 38

A difference between a surety and a guarantor is that the guarantors:

A)must be paid for their services.
B)should enter into a deed of trust with the creditors.
C)should keep a collateral with the creditors.
D)become liable only if the principal debtor first defaults.

Question 39

A ________ is a type of contractual security device by which real estate may be used as a security

A)surety contract
B)conditional sales contract
C)trust deed
D)trust receipt

Question 40

Jimmy co-signed for his friend Fred for the purchase of a motorcycle.Fred is refusing to pay for the motorcycle despite not having a valid defense against payment and despite having the money to do so.Jimmy,who has paid nothing towards the motorcycle yet,should exercise the ________ to require Fred to make good on his obligation to pay for the motorcycle.

A)Right of subrogation
B)Right to contribution
C)Right to reimbursement
D)Right of exoneration

Question 41

________ is the method by which the rights of the property owner are cut off so that the lienholder can realize her security interest.

A)Reimbursement
B)Garnishment
C)Foreclosure
D)Subrogation

Question 42

Which of the following statements is true regarding an accommodation surety?

A)An accommodation surety must provide adequate collateral to the creditor.
B)An accommodation surety is usually a professional such as a bonding company,who is paid for serving as a surety.
C)An accommodation surety receives relatively more protection from courts.
D)An accommodation surety is secondarily liable for the payment of the debt.

Question 43

Tina cosigns a promissory note at Globe Bank for $500 for her friend Tom.Tom defaults on the loan,and Globe Bank collects $500 from Tina.Tina then collects $500 from Tom.Tina could collect money from Tom because of her right of ________.

A)subrogation
B)reimbursement
C)contribution
D)attachment

Question 44

Mike operates an upholstering business.He goes to Hans' house to reupholster a sofa for Hans.After the work was complete,Hans refused to pay the agreed price.Mike wants to assert a lien against the sofa in order to collect the money due to him.Is Mike entitled to a lien under these circumstances?

A)Yes,because he is an artisan who improved personal property.
B)Yes,because Hans owes a debt to Mike.
C)No,because there is no surety involved in the transaction.
D)No,because Hans did not give up the possession of the sofa.

Question 45

A surety has a right of ________,which is the right of the surety or guarantor to require the debtor to make good on his commitment to the creditor when he (1)is able to do so and (2)does not have a valid defense against payment.

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

Question 46

Which of the following is an essential element of a lien?

A)Presence of a written deed of trust.
B)Presence of guarantor for the payment of an artisan's service.
C)Creation of a debt by the improvement or the provision of services concerning the goods.
D)Presence of an accommodation surety who voluntarily accepts the duty of the surety.

Question 47

A(n)________ surety is a person who acts as a surety without compensation,such as a friend who cosigns a note as a favor.

A)obligatory
B)benefactor
C)accommodation
D)subrogated

Question 48

An artisan who makes an improvement on a personal property is given a ________ on it until he is paid.

A)lien
B)warranty
C)guaranty
D)credit

Question 49

Miguel has been complaining to his neighbor Robert that his lawn mower is broken.Robert fixes the lawn mower for Miguel and asks Miguel for $50 for the parts he used to make the repairs.Miguel refuses to pay and Robert takes the lawn mower,threatening not to return it until Miguel pays.Is Miguel acting legally?

A)Yes because he made improvements for which he was not paid.
B)Yes,as long as the cost for repairs is reasonable.
C)No,because Robert is not an innkeeper or an artisan.
D)No,because Robert did not make repairs at the request of Miguel

Question 50

When a rug repairer fixes a damaged rug and keeps the rug until a reasonable charge for rug repairs has been made,the rug repairer has this right because of a ________.

A)surety lien.
B)guarantor lien.
C)possessory lien.
D)foreclosure liens.

Question 51

Why did common law give an innkeeper the right to claim a lien on property a guest brought into the hotel to secure payment on food and lodging?

A)Because the innkeeper was required by law to provide service to anyone seeking it.
B)Because the innkeeper was considered to be an artist.
C)Because of statutory lien laws.
D)Because of a contract signed by guests when staying in an inn.

Question 52

Kim goes to Tanya's house to tune her guitar for a reasonable fee.Tanya does not pay.Does Kim have a possessory lien on the guitar?

A)Yes,because Kim provided a service to Tanya which Tanya did not pay for.
B)Only if Kim and Tanya entered into a contract where the guitar acted as collateral.
C)No,because Kim is not an artisan or an innkeeper.
D)No,because Kim was not in possession of the guitar.

Question 53

To be relieved of obligations as surety,a compensated surety must show that:

A)he is secondarily liable for the payment of the debt.
B)a change in the contract was material and prejudicial to him.
C)he lacks the capacity to fulfill his promise.
D)he has provided adequate collateral to the creditor.

Question 54

George has signed a promissory note,and Huber,Nick,and Jeffery are cosureties of their friend George.When George defaults,Jeffery pays the whole obligation.Jeffery is entitled to collect one third from both Nick and Huber.This is known as the:

A)right to contribution.
B)right of exoneration.
C)right of redemption.
D)right of collection.

Question 55

Abby borrows money from Cain Bank and Baker cosigns on the loan contract.Abby fails to repay this loan and Cain Bank collects the debt from Baker.Baker is entitled to recover the amount he paid to the bank from Abby.This is known as the:

A)right of subrogation.
B)right of return.
C)right of reimbursement.
D)right of garnishment.

Question 56

Today,most artisans' liens:

A)have been repealed by statute.
B)are handled by Article 7 of the UCC.
C)require that the artisan have possession of the debtor's property.
D)apply whether or not the owner consented to the work performed by the artisan.

Question 57

A software engineer installs new software in Dick's computer and returns the computer to Dick.Dick defaults in his payments for the new software.The software engineer loses his right of lien because:

A)this kind of service is not covered under statutory liens.
B)there is no surety or guarantor involved in the transaction.
C)he has given the computer voluntarily without asking for any consideration.
D)the computer rightfully belongs to Dick.

Question 58

A distinction between a surety and a cosurety is that only a cosurety is entitled to the right of/to:

A)contribution.
B)exoneration.
C)subrogation.
D)reimbursement.

Question 59

If a debtor defaults and the debtor's surety satisfies the obligation,the surety acquires the right of:

A)subrogation.
B)primary lien.
C)indemnification.
D)chattel mortgage.

Question 60

When can a lienholder sell goods or claim ownership if he possesses goods because his charges are not paid?

A)After two months
B)It depends upon the value of the goods.
C)After following state procedure or filing a lawsuit.
D)After posting a public notice of the sale.

Question 61

A party who borrows money to buy a home and signs an agreement giving the bank the right to repossess the home in case of default is called a:

A)mortgagor.
B)guarantor.
C)creditor.
D)trustee.

Question 62

Under the ________ system,the subcontractors or materialmen have direct liens and are entitled to liens for the value of labor and materials furnished,irrespective of the amount due from the owner to the contractor.

A)strict foreclosure
B)New York
C)conditional foreclosure
D)Pennsylvania

Question 63

In the case of ________,after the foreclosure,the proceeds of the sale are applied to the payment of the mortgage debt,and any surplus is paid over to the mortgagor.

A)strict foreclosure
B)foreclosure by action and sale
C)accommodative foreclosure
D)foreclosure by redemption

Question 64

When a borrower deeds property that is to be put up as security to a trustee,this is called a ________.

A)mortgage
B)land contract
C)strict foreclosure
D)deed of trust

Question 65

Jerry wants to purchase a flat.So he borrows $50,000 from XYZ bank.He signs a note for $50,000 and gives the bank a $50,000 mortgage on the flat as security for his repayment of loan.Within a year and a half,Jerry repays the entire loan.After repayment of the loan,which of the following rights does Jerry have against XYZ bank?

A)Right to foreclosure
B)Right to reimbursement
C)Right of subrogation
D)Right of redemption

Question 66

A ________ is a security interest in real property or a deed to real property that is given by the owner as security for a debt owed to the creditor.

A)bill of sale
B)note of trust
C)mortgage
D)quasi-contract

Question 67

Xavier deeds to Peter,a trustee,his property in the form of security for the loan,which is lent by Smith,the beneficiary of the trust.The nature of this transaction renders it as a deed of trust.Under these circumstances,if Xavier defaults to pay the loan,which of the following is the appropriate way in which Smith can recover his loan?

A)By asking Xavier to enter into an action and sale contract
B)By exercising the right of exoneration
C)By exercising right of reimbursement
D)By notifying Peter to sell the property

Question 68

Marie wants to buy Ted's farm.She agrees to pay Ted a monthly payment towards the farm,to take possession and to insure the property.Ted retains the legal title while Marie is making payments.This arrangement is called a:

A)mortgage
B)land contract
C)strict foreclosure
D)deed of trust

Question 69

Bob borrowed $200,000 from ABC Bank to purchase his residential house.A mortgage was used as the financing vehicle.Several years later Bob encountered financial difficulties.He did not pay his mortgage payments for 4 months and the bank foreclosed.At that time,the remaining loan balance was $170,000.Bob had not maintained the property well,and the winning bid at the foreclosure auction sale was only $150,000.Is Bob liable for the $20,000 deficiency that has resulted (using the majority rule)?

A)No,because the property was his residence.
B)No,because there is no guarantor with secondary liability involved in this transaction.
C)Yes,because the proceeds of sale did not satisfy the remaining loan balance.
D)Yes,because there is no surety or guarantor involved in this transaction.

Question 70

A(n)________ is an installment contract for the purchase of land in which a buyer agrees to pay the purchase price over time and assumes many responsibilities of the owner,but the seller keeps legal title and does not turn over the deed until the purchase price is paid.

A)equity of redemption
B)deed of trust
C)land contract
D)possessory lien

Question 71

In the case of ________,the right must be expressly conferred on the mortgagee by the terms of the mortgage.

A)foreclosure by action and sale
B)strict foreclosure
C)accommodative foreclosure
D)foreclosure by power of sale

Question 72

What Article of the UCC deals with carriers' liens and warehousemen's liens?

A)Article 2
B)Article 7
C)Article 3
D)Article 1

Question 73

If a party in interest to a mortgage wishes to exercise his right of redemption in a foreclosure sale,he must ________.

A)attend the foreclosure sale and pay the purchaser an equity fee
B)act before the foreclosure sale
C)pay the purchaser the amount the purchaser paid plus interest up to the time of redemption if he exercises his right of redemption after the foreclosure sale
D)secure a co-signer to guarantee the mortgage loan

Question 74

Courts today view a mortgage as:

A)a lien on land.
B)conveyance of title to land.
C)assignment of property interest.
D)sublease.

Question 75

In a(n)________ transaction,the borrower keeps the title of his real property with a third party and in the event of default,the third party can sell the property so that the creditor can recover his loan.

A)strict foreclosure
B)land contract
C)deed of trust
D)equity of redemption

Question 76

Marie wants to buy Ted's farm.She agrees to pay Ted a monthly payment towards the farm,to take possession and to insure the property.Ted retains the legal title while Marie is making payments.What happens if Marie misses a payment?

A)Ted can increase Marie's monthly payments.
B)Ted can declare a forfeiture and take possession.
C)Ted can exercise his rights under strict foreclosure.
D)Ted must sue Marie for the missed payment.

Question 77

When a creditor keeps property in satisfaction of debt and the owner's rights are cut off,this is called ________.

A)strict foreclosure
B)power of sale
C)action and sale
D)artisan's lien sale

Question 78

Under which of the following systems of foreclosure does the creditor have no right to recover any deficiency between the value of the property and the amount of the debt?

A)Strict foreclosure
B)Conditional foreclosure
C)Accommodative foreclosure
D)Compensated foreclosure

Question 79

Nancy is the mortgagor of a property subject to a mortgage.Can she sell the property?

A)Yes,but only with the consent of the mortgagor.
B)Yes,but the sale does not affect the mortgagee's interest in the property or the mortgagee's claim against the mortgagor.
C)Yes,but the sale will affect the mortgagee's claim against the mortgagor.
D)No,not until the mortgage is satisfied.

Question 80

A clause in a mortgage specifies that "if the mortgaged property is sold,then the remaining balance becomes immediately due and payable." This clause is called:

A)action and sale clause.
B)strict foreclosure clause.
C)due on sale clause.
D)subrogation clause.