Debtor-Creditor

Question 1

Which of the following rights does one cosurety generally have against another cosurety?

Answer 1

Contribution
When two people act as a cosurety, neither can generally be held liable for an entire debt. Thus, when one cosurety, upon debtor’s default, pays more than his or her proportional share, the cosurety can recover from the other cosurety the amount paid in excess of his or her share.

Question 2

In a guaranty of collection, the creditor is required to give the guarantor notice of the principal debtor’s default before the creditor can hold the guarantor liable.

Answer 2

True

Question 3

The principal debtor is a minor who can legally disaffirm his or her liability to a creditor on the debt. If the minor is in default, the guarantor has the equitable right to petition the court for exoneration.

Answer 3

False

Question 4

Which of the following methods will allow a creditor to collect money from a debtor’s wages?

Answer 4

Writ of Garnishment

Question 5

Archer has in his possession a bearer negotiable instrument. He took it by negotiation from Perth who had stolen it from Cox’s office along with cash and other property. The robbery of Cox’s office had received appropriate coverage in the local papers in the area in which both Archer and Cox reside. Archer did not know that Perth had stolen the instrument when he purchased it at a 20% discount. Cox refuses to pay and Archer has commenced legal action asserting that he is a holder in due course. Which of the following statements is correct?

Answer 5

Archer is a holder in due course and will prevail.

Question 6

In general, the third-party (primary) beneficiary rule as applied to a CPA’s legal liability in conducting an audit is relevant to which of the following causes of action against a CPA?

Answer 6

Negligence only

Question 7

A seller of goods on credit required the buyer to obtain a surety to guarantee payment for the goods purchased. Which of the following defenses may the surety use to avoid payment?

Answer 7

I.
The seller of the goods committed fraud against the buyer to induce him/her to buy the goods.
II.
The seller of the goods committed fraud against the surety to induce the surety to guarantee payment.

Question 8

In order for a security interest in goods to attach, the

Answer 8

Creditor must have given value.

Question 9

Which of the following deeds will give a real property purchaser the greatest protection?

Answer 9

general warranty

Question 10

A purchaser who obtains real estate title insurance will

Answer 10

Be insured against all defects of record other than those excepted in the policy.

Question 11

Which of the following factors help determine whether an item of personal property has become a fixture?

Answer 11

Manner of affixation & Intent of the annexor

Question 12

Under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code, a debtor will be denied a discharge in bankruptcy if the debtor

Answer 12

Refuses satisfactorily to explain a loss of assets.

Question 13

Chapter 7 of the Federal Bankruptcy Code will deny a debtor a discharge when the debtor

Answer 13

Is a corporation or a partnership.
Corporations and partnerships may go through a Chapter 7 liquidation, but do not qualify for a general discharge from all remaining debts as natural persons do.

Question 14

Which of the following statements is correct under the Reorganization Chapter of the Bankruptcy Code if the debtor remains in possession of its business?

Answer 14

The debtor has the right to retain its own accountant to represent it despite the debtor’s employment of that accountant prior to the commencement of the Reorganization proceeding.
The Code also states that although the debtor in possession does have many of the same rights as a trustee, it does not have the right to be compensated in the same manner.

Question 15

On March 15, Master voluntarily filed a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. If Master’s voluntary petition is filed properly,

Answer 15

Lawsuits by Master’s creditors will be stayed by the Federal Bankruptcy Code.

Question 16

Under the Bankruptcy Code, a trustee has the power to set aside preferential transfers made by the debtor to creditors.

Answer 16

Preferential transfers are those made for antecedent debts which enable the creditor to receive more than s/he would have otherwise received under the liquidation proceedings. One exception to the trustee’s power to avoid preferential transfers is when a security interest is given by the debtor to acquire property that is perfected within 10 days after such security interest attaches. This is called an enabling loan. Consequently, Noll’s transaction with Knox qualifies as an enabling loan and cannot be set aside by the trustee.

Question 17

Barkam recently received a discharge in bankruptcy, but certain proved claims were unpaid because of lack of funds. Which of the following is still a valid claim against Barkham?

Answer 17

any unpaid amount of taxes due to the United States or to any state or subdivision thereof from within 3 years preceding bankruptcy is not discharged by the bankruptcy proceeding.

Question 18

Allen was the surety for the payment of rent by Lear under a lease from Rosenthal Rentals. The lease was for 2 years. A clause in the lease stated that at the expiration of the lease, the lessee had the privilege to renew upon 30 days’ prior written notice or, if the lessee remained in possession after its expiration, it was agreed that the lease was to continue for 2 years more. There was a default in the payment of rent during the extended term of the lease and Rosenthal is suing Allen for the rent due based upon the guarantee. Allen contends that he is liable only for the initial term of the lease and not for the extended term. Allen is

Answer 18

Liable on the surety undertaking which would include the additional 2 years.
The lease, itself, expressed a holdover clause which went into existence when Lear remained in possession after the original leasing period.

Question 19

Which of the following bonds are an obligation of a surety?

Answer 19

Official bonds is a secondary obligation: Basically a party is guaranteeing that a public official will discharge duties in compliance with laws and regulations.

Question 20

Generally, an agency relationship is terminated by operation of law in all of the following situations, except the

Answer 20

Agent’s renunciation of the agency.

Question 21

An agency coupled with an interest is one that is created primarily for the benefit of the AGENT.

Answer 21

For example: Alex borrows $100,000 from Bill, and gives Bill some of his stock to secure the loan. He says to Bill, “In case I do not repay you, I give you agency power to sell my stock to get your money.” Bill has an agency coupled with an interest.

Question 22

Which of the following transactions is subject to registration requirements of the Securities Act of 1933?

Answer 22

The 1933 Act applies to sales of securities, including stocks, bonds and notes that are issued for periods over nine months.