Test 4 Chapter 31-39
1. A debtor-creditor relationship is essentially a bi-lateral contract with enforceable rights and duties for both parties. a. True b. False
a
1. If the debtor is generally not paying debts as they become due, the debtor may be subject to an involuntary bankruptcy petition. a. True b. False
a
1. Unsecured creditors have equal priority and stand behind secured creditors for repayment of their debts. a. True b. False
a
10. The assignee of a partner's interest in the partnership becomes a partner only with the consent of the other partners. a. True b. False
a
11. A debtor must have rights in the collateral for a security interest to attach. a. True b. False
a
11. A limited liability company is treated like a partnership under federal tax law and has the limited liability feature of corporations. a. True b. False
a
11. The use of letters of credit arose in international trade. a. True b. False
a
12. A franchisee cannot be a corporation. a. True b. False
a
13. A letter of credit must be in writing and signed by the issuer. a. True b. False
a
13. Business corporations exist to make a profit. a. True b. False
a
13. The habitual drunkenness of a partner is a sufficient cause for judicial dissolution of a partnership. a. True b. False
a
14. A surety is liable from the moment the principal is in default. a. True b. False
a
15. Under an indemnity contract, one person pays another consideration in return for a promise to pay a specified sum of money in the event that a specified loss is suffered. a. True b. False
a
16. If a debtor is about to leave the state, the surety may call on the creditor to take action against the debtor. a. True b. False
a
16. Property that is subject to a security interest is called collateral. a. True b. False
a
17. Collateral may change its form and character during the course of a security agreement. a. True b. False
a
18. A partner's authority to act for the partnership is similar to the authority of a(n): a. agent to act for a principal. b. independent contractor to act for an employer. c. shareholder to act for a corporation. d. employee to act for another employee.
a
18. Who serve as agents of the corporation and run the "day-to-day" operations of the business? a. officers b. directors c. shareholders d. employees
a
19. Bailment given as security for the payment of a debt is a(n): ______. a. pledge. b. contribution. c. guaranty. d. subrogration.
a
2. A debtor may redeem collateral from the secured party at any time prior to sale or disposal by paying all legal costs and expenses incurred by the secured party. a. True b. False
a
2. Consideration is not required to establish or modify a letter of credit. a. True b. False
a
2. The fact that the parties share profits and losses is strong evidence of a partnership. a. True b. False
a
2. The process of incorporation involves the expenditure of funds for organizational expenses. a. True b. False
a
20. Field warehousing is an example of perfection by the mere by possession of the collateral. a. True b. False
a
21. A surety that has made payment of a claim for which it was liable as a surety is entitled to which of the following from the principal? a. Indemnity b. Exoneration c. Assignment d. Subrogation
a
21. The perfection obtained by filing a financing statement lasts for __________. a. five (5) years, and is renewable. b. five (5) years, and is non-renewable. c. ten (10) years, and is renewable. d. ten (10) years, and is non-renewable.
a
24. A letter of credit: ______. a. is an advance arrangement for financing. b. is used only in domestic sales. c. involves only two parties. d. is used only in international sales.
a
24. When there are two perfected secured creditors in the same collateral: ______. a. priority goes to the creditor who perfected first. b. priority goes to the creditor who is owed the greatest amount of money. c. each perfected secured creditor has a 50% interest in the collateral. d. both perfected secured creditors are treated like unsecured creditors in regards to the collateral.
a
27. When a state statute requires a security interest in a motor vehicle to be noted on the certificate of title, the security interest is perfected: a. by the certificate notation, when a non-inventory motor vehicle is involved. b. by filing under the UCC, regardless of how the vehicle is classified. c. by filing under the UCC, when the motor vehicle is inventory. d. either by the certificate notation or by a UCC filing, depending on how the state statute defines the term motor vehicle.
a
29. Javier buys a 3D TV and a DVR from West Coast Sales. West Coast agrees to lend him 90 percent of the purchase price. Their agreement is known as a(n): ______. a. a purchase money security interest. b. a future transaction. c. a floating lien. d. transferred collateral interest.
a
3. A surety that has made payment of a claim for which it was liable as surety is entitled to indemnity from the principal debtor. a. True b. False
a
3. Because the financing statement is intended as notice to third parties, it must be filed in a public place. a. True b. False
a
3. The vested rights of partners are not extinguished by dissolving the firm and any existing liabilities remain. a. True b. False
a
33. Suzy wants to borrow cash from Bruce. She offers him a security interest in her neighbor's diamond ring, which she has been told that she or her sister will receive after their neighbor passes away. Regarding Suzy's proposal, which of the following statements is true? a. Bruce cannot take a security interest in the ring, because Suzy does not have rights to the collateral. b. Bruce must have the ring in his possession or have a written agreement from Suzy describing the ring in order to obtain a security interest in it. c. Suzy must not have legal rights to the ring if she is going to give Bruce a security interest. d. Suzy must not give Bruce something of value as a security interest.
a
4. Attachment provides creditors with rights against debtors. a. True b. False
a
5. A purchase money security interest in consumer goods is automatically perfected without a creditor's filing or possession of the collateral. a. True b. False
a
5. Freedom from liability to third persons dealing with the franchise holder is one of the main reasons that franchisors grant franchises. a. True b. False
a
5. Persons who are not partners under appropriate circumstances may be held liable to third persons under the doctrine of partnership by estoppel. a. True b. False
a
5. Under the independence rule banks cannot, except in limited circumstances, delve into the underlying contract issues and must only focus on the terms of the letter of credit. a. True b. False
a
6. A corporation is a separate legal entity capable of owning property, contracting, and being sued in its own name. a. True b. False
a
6. A partner is an agent of the partnership and of the other partners. a. True b. False
a
6. When a suretyship or guaranty contract is entered into after and separate from the original transaction, there must be new consideration for the promise of the guarantor. a. True b. False
a
7. Corporations are subject to a form of double taxation. a. True b. False
a
7. Generally, a secured creditor who has repossessed collateral may retain the collateral and cancel the debt. a. True b. False
a
7. Under the UPA, partners hold title to firm property by tenancy in partnership. a. True b. False
a
8. If the creditor does not enforce the suretyship agreement within the statute of limitations, the obligation is forever discharged. a. True b. False
a
8. Partners have the implied authority to bind the partnership by contracts of surety for any and all purposes. a. True b. False
a
9. A combination of two or more persons for a common nonprofit purpose is commonly an unincorporated association. a. True b. False
a
9. A corporation must file for and maintain the approval of the secretary of state and pay an annual fee to remain incorporated. a. True b. False
a
9. Suretyship and guaranty transactions have the common feature of a promise to answer for the debt or default of another. a. True b. False
a
1. A corporation has perpetual life, until one of its shareholder dies. a. True b. False
b
10. Grund, a professional night club musician, financed the purchase of a drum set to be used in his night club act. Under Article 9, the drum set will be classified as a consumer good. a. True b. False
b
10. In most states contracts of guaranty do not have to be in writing to be enforceable. a. True b. False
b
10. Most courts hold that joint ventures are subject to the same principles of law as corporations. a. True b. False
b
11. A partner is considered an employee of the partnership when doing work that would ordinarily be done by an employee. a. True b. False
b
12. A partner requires a majority vote to do those acts that are customary for a member of a partnership conducting the particular business of that partnership. a. True b. False
b
12. A security interest needs to be perfected, regardless of whether there are competing claims for the collateral. a. True b. False
b
12. Standby letters of credit are used only in international trade situations. a. True b. False
b
13. An after-acquired property clause in a consumer security agreement means that a creditor has a lien in the shifting stock of goods of the debtor. a. True b. False
b
14. A security agreement must be backed by a written record even if the creditor has possession of the collateral. a. True b. False
b
14. Each partner has to a right to do all of the following without a partnership vote except: ______. a. take an equal part in transacting the business of the firm. b. receive compensation for any work done for the partnership. c. sell the firm's goods in the regular course of business. d. borrow money for firm purposes.
b
15. If two creditors have a security interest in the same collateral, their priority is determined according to the "last in-first out" provision. a. True b. False
b
16. The government's permission is required to create: ______. a. sole proprietorships. b. corporations. c. partnerships. d. unincorporated associations.
b
17. Letters of credit are a two-party agreement used for financing. a. True b. False
b
18. Secured transactions are governed by Article 2 of the Uniform Commercial Code. a. True b. False
b
19. A creditor must file a financing statement for a security interest to attach. a. True b. False
b
2. Bankruptcy law does not regulate the manner in which the assets of the debtor are distributed instead, distribution of the debtor's assets is solely within the discretion of the trustee. a. True b. False
b
21. In determining whether a partnership exists, which of the following factors is not evidence of a partnership? a. Shared profits and losses b. Co-ownership of property c. Equal control of the business d. Partner contributions.
b
22. A letter of credit usually sets a: a. minimum money amount. b. maximum money amount. c. duration. d. strict compliance rule.
b
22. An interest in personal property or fixtures that secures payment or performance of an obligation is called a(n): ______. a. guaranty holding. b. security interest. c. guaranty interest. d. good-faith guaranty.
b
25. When the filing of a financing statement is defective: ______. a. the security interest is lost. b. the filing fails to perfect the security interest. c. the security interest is perfected through the court's application of equitable principles. d. the public notice of the creditor's interest is still effective.
b
3. The major disadvantage to investors in a corporation is nearly unlimited personal liability. a. True b. False
b
30. If a breach of the peace might occur: a. self-help repossession is the only option available to obtain the collateral. b. the creditor must use court action to obtain the collateral. c. the creditor is barred from repossessing the collateral. d. the collateral reverts to the debtor.
b
31. If the collateral is in the possession of the creditor: ______. a. a financing statement must be filed to perfect the interest. b. the security interest is perfected. c. only a security interest has been obtained. d. the type of goods will determine the method of perfection.
b
32. The concept of perfection: ______.: a. creates a security interest. b. protects against the claims of others to the collateral. c. secures the rights of the creditor against the debtor. d. Converts unsecured creditors into secured creditors.
b
4. A corporation must have at least two shareholders. a. True b. False
b
4. The amount of credit specified in a letter of credit must be taken by the beneficiary in the form of a lump-sum payment. a. True b. False
b
4. The rights of partners are determined by the partnership agreement, which must be written to comply with the statute of frauds a. True b. False
b
6. Creditors cannot legally request collateral on a previously unsecured loan. a. True b. False
b
7. Subrogation is an agreement that a party shall not be liable for loss. a. True b. False
b
8. Consumer goods are classified into different categories based on the physical characteristics of the goods. a. True b. False
b
8. The death of a majority shareholder terminates a corporate enterprise. a. True b. False
b
9. Suppose Harvey is a secured creditor and Joe is the debtor. If Harvey sells the collateral because Joe defaulted, Joe is not liable for any deficiency. a. True b. False
b
14. The people in a corporation responsible for the management of the business are the: ______. a. partners. b. shareholders. c. board of directors. d. licensees.
c
15. Which of the following will not result in dissolution of the partnership by court decree? a. Insanity of a partner. b. Incapacity of a partner. c. Withdrawal of a partner. d. Habitual drunkenness of a partner.
c
16. When a partner disassociates with a partnership, which of the following is true? a. The partnership is no longer bound by acts of that partner, whether or not a notice is filed. b. The disassociated partner is prohibited from competing with the partnership for a period of one year. c. The disassociated partner may be liable for damages for breach of contract. d. Notice need not be given to third parties.
c
17. A(n) _______ allows the owners to be taxed like a partnership but with limited liability. a. corporation. b. franchise. c. limited liability company. d. joint venture.
c
18. When a surety pays a debt that it is obligated to pay, it automatically acquires the claim and the rights of the creditor through: a. assignment. b. exoneration. c. subrogation. d. default.
c
20. An agreement or provision in an agreement that one party shall not be held liable for loss is: a. contribution. b. exoneration. c. indemnity. d. subrogation.
c
20. Dissolution of a partnership: a. always means that the business has ended. b. increases the authority of the partners. c. is followed by a winding-up period. d. means the partners' vested rights are extinguished.
c
23. A(n) __________ statement is a document, which may be requested by a paid-up debtor, stating that a security interest is no longer claimed under the specified financing statement. a. execution b. discharge c. termination d. hold harmless
c
23. An agreement under which one party agrees to pay drafts drawn by a creditor is called a: ______. a. contract of surety. b. guaranty contract. c. letter of credit. d. debtor's agreement.
c
26. A(n) ______security interest is effective against third persons as well as against the buyer. a. universal. b. prohibitive. c. perfected. d. protective.
c
1. If Bruce receives a fixed payment for performing continuing services for a third party he is considered a partner, regardless of whether he shares in partnership profits or losses. a. True b. False
False
15. The principal forms of business organization are: ______. a. sole proprietorships, joint ventures, and corporations. b. unincorporated associations, partnerships, and corporations. c. unincorporated associations, limited partnerships, and corporations. d. sole proprietorships, partnerships, and corporations.
d
17. All of the following transactions are prohibited by a by a partner without the consent of other partners except: ______. a. a contract that makes it impossible for the firm to conduct its usual business. b. submitting controversies of the firm to arbitration. c. making a general assignment of firm property for the benefit of creditors d. lease agreement for office equipment
d
19. Partnership property may consist of: a. real property only. b. personal property only. c. any and all property acquired by the partnership. d. all property contributed by the partners or acquired for the firm or with its funds.
d
22. Regarding partnership property: a. only a managing partner has the right to use firm property for firm business. b. where a three-person partnership owns three autos, each partner owns one of the autos individually. c. on the death of a partner, that partner's share of partnership property vests in his or her next of kin. d. a creditor of a partner cannot proceed against any specific items of partnership property.
d
25. Pasquale and Paul were sureties on the debt of Rose. Each had a $100,000 responsibility. Upon Rose's default, Pasquale paid $50,000 to the creditor. How much may Pasquale recover from Paul under the concept of contribution? a. Zero b. $50,000 c. $10,000 d. $25,000
d
28. Upon a default by a buyer, the secured seller may resell the collateral: a. not less than three (3) months after the buyer's default. b. not less than six (6) months after the buyer's default. c. only at a public sale. d. at either a public or a private sale.
d
