Chapter 37. Secured Transactions and Suretyship
1. UCC Article 9 applies to secured transactions in which the debtor provides a security interest to secure payment of
a debt, such as pledging warehoused goods to a creditor or the creditor’s having a mechanic’s lien against the
debtor’s property.
a. True
b. False
2. A bond, which is an evidence of indebtedness, may serve as collateral.
a. True
b. False
3. Goods and other inventory items cannot be used as collateral.
a. True
b. False
4. If a security interest has attached, it is enforceable against the debtor.
a. True
b. False
5. “Perfection” is required in order for the secured party to enforce rights against the debtor.
a. True
b. False
6. Under most circumstances, a creditor who files a completed financing statement can be assured that the security
interest is perfected.
a. True
b. False
7. A debtor must sign a written security agreement for a pledge used to secure a loan.
a. True
b. False
8. A buyer in the ordinary course of business takes collateral free of a perfected security interest created by the
buyer’s seller.
a. True
b. False
9. If Sharpe Finance Co. has a secured interest in Jeff’s car and Jeff is in default, in most states Sharpe may take the
car from in front of Jeff‘s house without getting a court order.
a. True
b. False
10. First Bank repossessed Bob’s television after he missed his last two $50 payments on it. He came to the bank with
the $100 plus service charges and expenses of repossession. The bank will have to give him the television as long as
they have not disposed of the television or have not made a contract to sell it.
a. True
b. False
11. A security agreement may include only presently owned inventory, accounts, or equipment of the debtor, not
property that is subsequently acquired.
a. True
b. False
12. UCC Article 9 defines a secondary obligor as being a consignee.
a. True
b. False
13. Revised Article 9 of the Code greatly complicates the provisions regarding the place(s) for filing a financing
statement.
a. True
b. False
14. If a secured party moves within the state after filing the financing statement, the filing becomes ineffective.
a. True
b. False
15. First Finance Company perfected its security interest in Donald’s auto on March 1. Second Finance Company
perfected its security interest in the same auto on April 1. If both parties have properly filed their finance statements,
First Finance Company has a priority interest in the auto.
a. True
b. False
16. A purchase money security interest in equipment takes priority over a conflicting security interest if the purchase
money interest is perfected within thirty days of the debtor’s receipt of the goods.
a. True
b. False
17. An automobile buyer in the ordinary course of business will take free and clear of a security interest created by the
buyer’s seller.
a. True
b. False
18. If two parties have unperfected security interests in the same collateral, the first to attach has priority.
a. True
b. False
19. The same item may be classified as either equipment or consumer goods, depending on how it is used by the debtor.
a. True
b. False
20. Article 9 applies to secured transactions in both real and personal property.
a. True
b. False
21. Substantial compliance with Article 9′s financing statement requirements is sufficient for a valid perfection, despite
minor errors in the statement that are not seriously misleading.
a. True
b. False
22. If a financing statement in movable property is properly filed and the debtor moves to another state, the security
interest remains perfected if the financing statement is filed in the new state within four months of the move.
a. True
b. False
23. A security interest in consumer goods, except motor vehicles, is automatically perfected upon attachment.
a. True
b. False
24. Ted cosigns a note for his son Junior. Ted is a surety on the note.
a. True
b. False
25. If a principal debtor defaults on a loan, an absolute surety will have to pay upon demand of the creditor.
a. True
b. False
26. A conditional guarantor of collection differs from an absolute surety in that the surety is bound with the principal
debtor as a primary obligor.
a. True
b. False
27. A creditor will have to exhaust all the possible legal procedures to try to collect from the principal debtor before he
can collect from a conditional guarantor of collection.
a. True
b. False
28. A primary reason for requiring a surety is to reduce the creditor’s risk of loss.
a. True
b. False
29. A surety agreement must always be in writing to be effective.
a. True
b. False
30. Sureties have a right of exoneration against their cosureties.
a. True
b. False
31. Melissa signs a suretyship agreement that contains both her name and that of her friend Gayle as intended
cosureties. Gayle did not sign the agreement. Melissa is liable since she signed the agreement.
a. True
b. False
32. The surety, as defense to payment, may assert a principal debtor’s defense of minority.
a. True
b. False
33. If a minor principal disaffirms a contract and returns the consideration, the surety is discharged.
a. True
b. False
34. The purpose of bail bond in a criminal proceeding is to assure the appearance of the defendant in court.
a. True
b. False
35. A discharge of the principal debtor’s obligation in bankruptcy does not discharge the surety’s liability to the creditor
on that obligation.
a. True
b. False
36. A security interest in fixtures, such as furnaces, central air-conditioning units, and plumbing fixtures, may not arise
under UCC Article 9 since fixtures have become so related to real property that an interest in them arises under real
estate law.
a. True
b. False
37. Although in theory there is a distinction between a surety and a guarantor, in common usage the two terms are
almost synonymous.
a. True
b. False
38. Generally, if the creditor releases the principal debtor, then the surety is also discharged.
a. True
b. False
39. If the creditor refuses to accept tender of payment by the principal debtor, the surety remains liable until the creditor
wants payment.
a. True
b. False
40. Rodrigo lends money to Isaac on Linda‘s promise to act as a surety. Rodrigo‘s extension of credit is the consideration
to support Isaac’s promise to repay the loan and Linda‘s suretyship undertaking.
a. True
b. False
41. Jack and Karin are cosureties on a debt owed by Lyle to Mike. If Lyle’s debt becomes due and he and Karin both
refuse to pay it, Jack may bring an action in equity against Karin to obtain an order requiring her to pay her share of
the debt.
a. True
b. False
42. Authentication of a security agreement may occur by the debtor’s encrypting a record in part, with the present intent
of the authenticating party’s accepting the record.
a. True
b. False
43. Laura is considering the possibility of becoming a surety to Carl on a debt by David, but she would like more
information on the relationship between Carl and David concerning the transaction. If Laura requests such
information from Carl, he must disclose it, because his failure to disclose material facts will constitute fraud.
a. True
b. False
44. In a suretyship, the creditor’s rights against the principal debtor are determined primarily by the contract between
them.
a. True
b. False
45. Article 9 of the UCC would govern transactions involving which one of the following?
a. Mortgage on a house
b. Purchase of waterfront property
c. Financing purchase of a sailboat
d. Mechanic‘s lien on an automobile
46. Gary owns and operates a farm and a farm machinery dealership. Under the Code, a new tractor that Gary has for
sale at his dealership is classified as:
a. farm products.
b. equipment.
c. consumer goods.
d. inventory.
47. “Attachment” occurs when a secured party has given value, the debtor acquires rights in the collateral, and the:
a. debtor has paid one installment of his obligation.
b. collateral is delivered to the borrower.
c. debtor and secured party have an agreement.
d. debtor has completed his obligation to pay.
48. In which of the following situations would the buyer not qualify as “buyer in the ordinary course of business“?
a. Susie buys her classmate Jill’s car from her.
b. Caroline buys a refrigerator from Sears.
c. James buys eggs from the supermarket.
d. Todd buys a bicycle at his friend Joe’s shop.
49. A buyer of goods who buys without knowledge of a security interest, for value, and primarily for personal, family, or
household purposes takes the goods:
a. subject to any purchase money security interest automatically perfected.
b. subject to all security interests in the goods.
c. free of any purchase money security interest automatically perfected.
d. free of a security interest perfected by filing.
50. Which of the following is NOT included in the rules of priority established by Article 9?
a. A creditor with a perfected security interest has superior rights in the collateral over a creditor with an
unperfected security interest
b. Conflicting perfected security interests rank according to priority in time of filing or perfection
c. As long as conflicting security interests are unperfected, the first to attach has priority
d. Security interests are ranked in order by date of obligation (oldest debts have first priority.)
51. Beth recently purchased a stereo system for her apartment and a new sailboat. She financed the purchases with
XYX Finance Co. Under the Code, these items are classified as:
a. consumer goods.
b. equipment.
c. inventory.
d. real property.
