Question 1

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

Accepted Answer

A guarantor is a person who agrees to be responsible for the debt of another person, known as the principal debtor, if the principal debtor fails to make payments. The guarantor is secondarily liable, meaning they are responsible only if the principal debtor does not fulfill their obligations. A surety is also secondarily liable for the debt of the principal debtor, but a surety can take more active steps to ensure payment is made, such as seizing collateral. A beneficiary is a person who receives the benefits of a trust or insurance policy. An executor is a person appointed to carry out the will of a deceased person.

Question 2

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 Kato 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?

Accepted Answer

Robert is not aware of the change in terms between Credit Union and Amelia, so he cannot be held responsible for the debt under the new terms. As a cosigner, Robert's obligation is to the original terms of the note only.

Question 3

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:

Accepted Answer

The right of contribution allows a co-surety who has paid more than their share of the obligation to collect from the other co-sureties their proportionate shares of the amount paid. In this case, Jeffery paid the entire obligation, so he is entitled to collect one third from both Nick and Huber through the right of contribution. The right of exoneration is when the debtor is ultimately responsible for repaying the obligation, regardless of any contributions made by the co-sureties. The right of redemption allows the debtor to pay off the obligation and regain ownership of the collateral. The right of collection is not a common legal term in this context.

Question 4

A distinction between a surety and a co-surety is that only a co-surety is entitled to the right of:

Accepted Answer

A surety is a person who agrees to be responsible for the debt or obligation of another person. A co-surety is another person who also agrees to be responsible for the same debt or obligation of the principal debtor. One of the main differences between a surety and a co-surety is that a co-surety has the right of contribution, which means that if one co-surety pays more than their share of the debt or obligation, they are entitled to recover that excess amount from the other co-sureties. A surety does not have this right, as they are not in a situation where they are sharing the burden of responsibility with other co-sureties. Exoneration refers to the release of the surety or co-sureties from their obligation upon completion of the debtor's obligation. Subrogation refers to the ability of the surety or co-surety who has paid off the debt obligation to take over the rights of the creditor and pursue collection from the debtor. Reimbursement refers to the surety or co-surety being reimbursed for expenses they incurred while fulfilling their obligation.

Question 5

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

Accepted Answer

An accommodation surety is a person who acts as a surety without compensation or personal gain, often as a favor to the principal debtor. They are not legally obligated to pay the debt but do so as a voluntary act.

Question 6

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

Accepted Answer

A lien is a legal claim or right on a property or asset to secure the payment of a debt or obligation. In this case, the artisan has improved the personal property but has not been paid yet. Therefore, they have a lien on the property until they are paid for their work. This means that if the owner of the property sells or transfers it before paying the artisan, the artisan has the right to claim their payment from the sale proceeds.

Question 7

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

Accepted Answer

Foreclosure is the legal process by which the lender or lienholder seizes a property from the owner to realize their security interest. Through foreclosure, the lienholder can either sell the property and receive proceeds or take possession of the property themselves. This allows the lienholder to collect the debt owed to them by the property owner. Reimbursement is the act of repaying someone who has paid on behalf of the debtor, garnishment is a legal process that allows a creditor to take a portion of a debtor's wages or bank account, and subrogation is the process by which an insurance company steps into the shoes of their insured to collect compensation from a third party responsible for their losses.

Question 8

Which of the following statements is true regarding a guarantor?

Accepted Answer

In general,a guarantor's promise must be made in writing to be enforceable under the statute of frauds.A guarantor does not join the principal in making a promise;rather,a guarantor makes a separate promise and agrees to be liable upon the happening of a certain event.While a surety is primarily liable,a guarantor is secondarily liable for the debt.

Question 9

Tina cosigns a promissory note at Globe Bank for $500.00 for her friend Tom. Tom defaults on the loan, and Globe Bank collects $500.00 from Tina. Tina then collects $500.00 from Tom. Tina could collect money from Tom because of her right of _____.

Accepted Answer

Tina has the right of reimbursement, which allows her to recover the amount she paid on behalf of Tom from Tom himself.

Question 10

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

Accepted Answer

A compensated surety can be relieved of their obligations if there is a material and prejudicial change in the contract. This means that the original terms of the contract have been altered in a way that significantly affects the surety's risk or liability. Simply being secondarily liable (A), lacking capacity (C), or providing collateral (D) does not necessarily release the surety from their obligations.

Question 11

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.

Accepted Answer

Exoneration is the right of the surety to be relieved from his obligation to pay the creditor when the debtor fulfills his commitment or the creditor releases the debtor from the obligation. Reimbursement is the right of the surety to be reimbursed by the debtor for the amount paid to the creditor. Contribution is the right of the surety to recover a proportionate share of the debt from co-sureties. Subrogation is the right of the surety to stand in the shoes of the creditor and assert the creditor's rights against the debtor after paying the debt.

Question 12

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?

Accepted Answer

Mike is entitled to a lien because he is an artisan who improved personal property. Artisans, such as upholsterers, have the right to assert a lien against personal property that they have worked on to ensure payment for their services. In this case, Mike can assert a lien against the sofa that he reupholstered for Hans in order to collect the money owed to him. The other choices are incorrect because the presence of a surety or the possession of the chair are not relevant factors in determining whether an artisan is entitled to a lien.

Question 13

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

Accepted Answer

A surety is someone who guarantees the debt of another party and is jointly and severally liable for it. In contrast, a guarantor is only liable if the debtor defaults first. Unlike sureties, guarantors are not required to keep collateral or enter into a deed of trust with the creditors. Additionally, guarantors may or may not be compensated for their services depending on the terms of the agreement. Therefore, the best answer is D.

Question 14

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?

Accepted Answer

Generally,a guarantor's promise must be made in writing to be enforceable under the statute of frauds.Therefore,Gem's oral promise frees him from any liability.

Question 15

Today, most artisans' liens:

Accepted Answer

The common law lien and most of the statutory liens require that,for the lien to come into play,possession of the goods must have been entrusted to the artisan.

Question 16

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

Accepted Answer

When a surety satisfies the obligation of a defaulting debtor, they acquire the right of subrogation, which means they can step into the debtor's shoes and seek reimbursement or pursue legal action on the debtor's behalf. This allows the surety to protect their own interests and potentially recover some or all of the money they paid to satisfy the debt. The other choices (B, C, D) do not accurately describe the right acquired by the surety in this situation.

Question 17

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

Accepted Answer

An accommodation surety is a person who acts as a surety without compensation,such as a friend who cosigns a note as a favor.The courts are more protective of accommodation sureties than of compensated sureties.

Question 18

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

Accepted Answer

A lien is created when a debt arises from improvements made or services provided for goods, and the creditor has a security interest in the goods. A written deed of trust is not always required for a lien, and the presence of a guarantor or accommodation surety is not necessary for a lien to exist.

Question 19

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:

Accepted Answer

A lien can only be placed on an item if it is given as collateral for unpaid services or debts. Since the software engineer voluntarily returned the computer without receiving any consideration or collateral, he does not have the right to place a lien on it.

Question 20

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:

Accepted Answer

If the surety performs or pays the principal's obligation,she is entitled to recover her costs from the principal;this is known as the surety's right to reimbursement.

Quiz 28: Introduction to Credit and Secured Transactions