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52. Jill owns and operates a donut shop. Under the Code, the flour, sugar, and other goods used by Jill to make donuts
are classified as:
a. farm products.
b. fixtures.
c. consumer goods.
d. inventory.
53. Dr. Wells purchased a refrigerator for use in his home. The refrigerator will be classified as:
a. consumer goods.
b. equipment.
c. farm products.
d. inventory.
54. A perfected security interest has priority over:
a. only an unperfected security interest.
b. only a lien creditor who acquires a lien after perfection.
c. a previously filed security interest.
d. both an inperfected security interest and a lien creditor who acquires a lien after perfection.
55. A dealer sells goods on credit to a buyer who uses the goods as equipment. The dealer keeps a purchase money
security interest in the goods. The dealer then borrows against the security agreement of the buyer along with the
dealer’s security interest in the collateral. The collateral provided by the dealer to his lender in this type of
transaction is:
a. investment property.
b. chattel paper.
c. a document of title.
d. negotiable instruments.
56. Dr. Wells purchased a refrigerator to use for storing medications at his office. The refrigerator will be classified as:
a. consumer goods.
b. equipment.
c. a fixture.
d. inventory.
57. The delivery of personal property to a creditor as security for the payment of a debt is:
a. perfection.
b. a pledge.
c. attachment.
d. a general intangible.
58. Bill lends Harvey $500 and the loan is secured by Harvey's furniture. If Bill files a financing statement on January
30, 2010, how long will he keep his security interest?
a. Until July 30, 2015
b. Until January 30, 2013
c. Until July 30, 2015, unless a continuation statement is filed
d. Until January 30, 2020, if a continuation statement is filed
59. Automatic perfection would occur in which situation (assuming a written security agreement)?
a. Mary buys a refrigerator for her apartment on credit.
b. Carl buys a computer for his office on credit.
c. Carl buys a computer for his office by borrowing the money for the purchase.
d. Mary buys inventory for her home-based sewing business.
60. Indispensable paper includes:
a. documents of title.
b. accounts receivable for a business.
c. patents.
d. a contract evidencing literary rights.
61. Inventory includes:
a. goods held for sale or lease.
b. farm products.
c. equipment.
d. intangible products.
62. Which of the following is NOT a method by which a security interest be perfected in collateral?
a. By the secured party's filing a financing statement in the designated public office
b. By the secured party's taking or retaining possession of the collateral
c. Automatically, on the attachment of the security interest
d. By the secured party having a signed agreement describing the collateral in detail.
63. An undertaking by a surety to protect an employer against the dishonesty of an employee is a(n) bond.
a. performance
b. fidelity
c. judicial
d. official
64. A bond which guarantees the performance of the terms of a contract is a(n) bond.
a. judicial
b. official
c. performance
d. fidelity
65. A bond is provided on behalf of a party to a proceeding to cover losses caused by delay or deprivation of the
use of property resulting from the institution of the action.
a. judicial
b. fidelity
c. performance
d. bail
66. A defense that can only be asserted by the principal debtor is called a defense.
a. real
b. subrogated
c. personal
d. joint
67. Because of the , the contractual promise of a surety to the creditor must be in writing to be enforceable.
a. main purpose doctrine
b. Uniform Commercial Code
c. Bankruptcy Act
d. statute of frauds
68. Dayton Hardware Store and Leighton Bank enter a loan agreement in which Leighton agrees to lend $10,000 on the
security of Dayton’s existing store equipment. A security agreement is executed and a financing statement is filed,
but no funds are advanced. A week later, Dayton enters a loan agreement with Ramos Bank in which Ramos
agrees to lend $10,000 on the security of the same store equipment. The funds are advanced, a security agreement is
executed, and a financing statement is filed. A week later, Leighton Bank advances the agreed $10,000. Dayton
defaults on both loans. In this case:
a. between Leighton Bank and Ramos Bank, Ramos has priority because it advanced the funds before Leighton
Bank did.
b. between Leighton Bank and Ramos Bank, Leighton Bank has priority because it was the first to deal with
Dayton in the matter.
c. between Leighton Bank and Ramos Bank, Leighton Bank has priority because priority among security
interests perfected by filing is determined by the order in which the financing statements were filed.
d. neither bank needed to check filings of financing statements because the filings had no impact on which bank
had priority.
69. Revised Article 9 removes the requirement of from the financing statement.
a. notice filing
b. the debtor's signature
c. the name of the secured party
d. an indication of the collateral covered by the financing statement
70. Upon the surety's payment of the principal debtor's entire obligation, the surety obtains all of the rights the creditor
has against or through the principal debtor. The term for the surety's "stepping into the shoes" of the creditor is
known as:
a. contribution.
b. subrogation.
c. reimbursement.
d. exoneration.
71. Fred agreed to loan George $10,000 for his retail store for which George signed a promissory note. Two months later,
Fred heard that George's business was in trouble and that he might not be able to repay the loan. As a result of
hearing this information, Fred asked Herman to guarantee the loan. Herman gave a glowing oral endorsement of
George and of George's business and then orally promised to pay the $10,000 if George did not. Herman has done
business with George for 10 years and George buys his entire inventory from Herman's wholesale outlet. Herman
adds that George is his major customer. Is Herman's agreement to pay the $10,000 if George does not pay it
enforceable?
a. No, because the statute of frauds requires that the suretyship agreement be in writing
b. Yes, because even though the statute of frauds applies, the main purpose rule exception will probably make
the agreement enforceable
c. No, because there is a personal defense available
d. Yes, because Herman's is a conditional guaranty of collection
72. Alice loans George $500 and Sue acts as surety under the loan agreement. When George defaults, Alice comes to
Sue to collect the $500. Sue reaches a settlement to pay $400 to Alice in complete satisfaction of the loan. What
recourse does Sue have against George?
a. She can require reimbursement of $400.
b. She can require payment of $500.
c. She can require payment of $100.
d. She cannot require him to pay her, since she accepted the risk of liability.
73. Dale defaults on a car loan secured by his car and guaranteed by both Sam and Dave. Subrogation would allow
Sam, who paid Dale's full obligation, to:
a. repossess the car.
b. collect from Dave.
c. collect from Dale.
d. All of these.
74. Max pressured Madeline to cosign his car loan, telling her he would otherwise reveal secrets about her that would
taint her reputation for honesty. When Max defaults and the creditor tries to collect from Madeline, she:
a. must pay since duress will not be a defense.
b. must pay because she voluntarily agreed to pay.
c. does not have to pay since she did not really assent.
d. does not have to pay because there was no consideration.
75. Which of the following would not help a surety defend himself from payment of a debt?
a. There was no consideration for the surety agreement.
b. There was a modification of the underlying contract.
c. The creditor knew the loan was risky and did not dissolve it.
d. There was fraud in the execution of the surety agreement.
76. Kay borrowed $200,000 for her business. First Bank loaned the money but required a surety and collateral. Kay put
up her boat, valued at $110,000, and Anson agreed to guarantee the entire loan. After Kay had paid $50,000 of the
loan, she asked First Bank to release the collateral since she wanted to sell it to her brother. The bank looked at her
perfect payment record and agreed. Two weeks later, she sold the business, took the boat to Brazil, and never was
heard from again. Can First Bank collect from Anson?
a. No, since they released the collateral
b. Yes, but only $40,000
c. Yes, but only $90,000
d. Yes, and they can get the whole remaining obligation
77. Glenn decided to borrow from Jones Bank since it promised that his loan interest rate would be systematically
reduced every year when the board met. The loan rate was never reduced, but actually increased monthly. Glenn
refused to pay the interest demanded and sued for rescission of the contract; thereupon, the bank attempted to
collect from Lewis, a surety under the loan. Does Lewis have to pay?
a. Yes, because fraud is no defense
b. No, because a fraud perpetrated upon Glenn will be a defense
c. Yes, since the surety obligation is separate from the underlying contract
d. No, because the surety stands in the shoes of the debtor for all purposes
78. As a general rule, for purposes of attachment of a security interest, a debtor is deemed to have rights in collateral
that she:
a. owns.
b. has in her possession.
c. is in the process of acquiring from a seller.
d. All of these.
79. Specialized suretyships would include:
a. fidelity.
b. incorporate.
c. non-official.
d. legislative.
80. If the principal debtor defaults, the surety has rights against the principal debtor, third parties, and cosureties. These
rights would include:
a. exoneration.
b. reimbursement.
c. subrogation.
d. All of these.
81. Which of the following contractual defenses are not available to those parties involved in surety relationships?
a. The nonexistence of the principal debtor's obligation
b. Discharge of the principal debtor's obligation
c. Modification of the principal debtor's contract
d. Change in the surety's financial assets
82. Assume you are the creditor in each of the following situations. Identify the kind of security agreement that is
involved in each transaction and explain how you would perfect that agreement.
a. You are the creditor (Evergromby Bank), and you lend Brisco Baines $5,000 for a sound
system.
b. National Bank loans Donna $5,000 to purchase a computer for use in her store office.
c. Garth needs cash for gambling debts. He brings in his gold ring to secure a $500 loan.
83. First Bank loaned $100,000 to Marlin's Store to purchase computers for its inventory. Marlin signed a financing
agreement, which First Bank duly filed in the appropriate public office. Caroline came into Marlin's Store and
purchased a computer that was subject to the security interest held by First Bank. Assuming that Caroline is a buyer
in the ordinary course of business, whose interest in the computer has priority?
84. First Bank loans Lila $1,500 so that she may purchase a computer for her office secretary. Lila signs a financing
statement, which First Bank duly files within twenty days. After Lila purchases the computer, she takes out a loan at
Valley Bank, gives the computer as collateral, and signs a financing statement, which Valley Bank then duly files.
Her secretary never uses the computer, so Lila puts an ad in the paper and sells the computer to Angie. If Lila
defaults on the loans, whose interest in the computer has priority? Explain, using correct terminology.
85. Mr. Chickilini is a surety for Wayne on a debt owed to Melvin. If Wayne fails to pay, what defenses might Mr.
Chickilini have to avoid payment of the debt?
86. Karl loaned Linda $100,000. Madeline agreed to act as surety for $100,000. Nora agreed to act as surety for
$75,000, and Orville agreed to act as surety for $25,000. Linda later defaulted on the loan, and Karl is now
demanding payment from Nora and Orville. What amount do Nora and Orville have to pay? If Nora and Orville pay,
does Madeline have any obligation? Explain.
87. Thomas borrowed $100,000 from First Bank, which asked that he both put up collateral and provide a surety.
Consequently, Thomas provided the bank with a security interest in his antique car collection and asked Victor to act
as a surety. Victor agreed to do so and signed a surety agreement with the bank. Thomas made several payments on
the loan and then asked First Bank for permission to sell three of his cars. First Bank agreed, but it never notified
Victor of the sale of the collateral. Thomas then defaults on the loan. First Bank now wants Victor to pay the
remainder of the loan. Must Victor pay? Explain.
88. Elmer agreed to act as the conditional guarantor of collection on a debt of $50,000 that Fred owed to Gloria. Fred
paid Elmer a premium to serve as surety. If Fred defaults on the debt, what are Gloria's rights against Elmer?
89. Diane, who is seventeen years old, purchased an auto from Elvira on credit. Florence agreed to act as surety and
signed a written surety agreement. At the time of purchase, Diane specifically asked Elvira about the condition of
the car's motor and was told that it had just been replaced with a new one and was in fine condition. This was
blatantly untrue, because Elvira knew it was in terrible shape and would only last a short time. The auto has now
stopped running and Diane refuses to make any more payments. Elvira is now proceeding against Diane and
Florence. What defenses, if any are available to (a) Diane and (b) Florence?
