BUL Exam 3 Guide with Questions and
Answers
Know the difference between a surety and guarantor (including what an accommodation surety is). -
Answer-A surety is primarily liable for the debtor's obligation, and the creditor can demand performance
from the surety at the time the debt is due rather than sue debtor for payment or performance on the
duty
&
A guaranty contract is like a suretyship, but a guarantor does not join the principal debtor in making a
promise, but makes a separate promise to be liable only after principle debtor defaults and cannot pay
A surety is primarily liable on the debt, but the guarantor is secondarily liable
An accommodation surety acts without compensation so a friend or a relative.
Know what the rights of subrogation, reimbursement and contribution are. - Answer-Right of
subrogation - The surety has to pay or perform the principal's obligation then the surety requires all of
the rights that the creditor had against the principal. These rights could include right to any collateral in
the possession of the creditor, any judgment right the creditor had against the principal on the
obligation and the rights of creditor in bankruptcy proceedings.
Right to reimbursement - entitled to recover her costs from the principal
,Right to contribution - If one of two or more co-sureties performs or pays principal's obligation, the
surety who satisfied the obligation has a right to contribution from the co-sureties
Know what a lien is and the difference between an artisan's, mechanic's and materialmen's lien. -
Answer-A lien is a security interest in property available to businesses and individuals by statute and
common law
Artisan's - common law lien - Artisan has a lien on the property he improved until he is paid. Right to
keep possession until paid. Only if the took possession. If they did not have possession then this would
no apply. If he gives up the goods voluntarily he gives up the lien. If the artisan keeps the goods without
a right or he was paid he is liable for unlawful detention of goods. The work must have been preformed
at the request of the owner.
For example, if a person has a new engine put in his car and the mechanic gives the car back to him
before he pays for the engine, the mechanic loses the lien on the car to secure the person's payment for
the work and materials.
Also, state statutes give mechanics and materialmen a right to a lien on real property into which their
labor or materials have been incorporated
A materialman is a person who has contracted to furnish certain materials needed to perform a
designated general contract. New York system theory of subrogation and the subcontractors or
materialmen cannot recover more than is owed at the time of filing the lien under PA the
subcontractors or materialmen have direct liens and are entitled to liens the value of labor and
materials furnished.
Know what a secured transaction is and how to create one - Answer-obligations the payment of which
is guaranteed by the borrower's pledge of collateral
No looseness is permitted in secured transactions. A security interest is an interest in personal property
or fixtures obtained by a creditor to secure payment or performance of an obligation. A security interest
is a property interest in the collateral.
, Obtaining an enforceable security interest is a two-step process - attachment and perfection.
Attachment - not legally enforceable until it is attached. Legal sense not physical. 3 requirements.
1. Must be an agreement by the debtor granting the creditor a security interest in the property
(collateral) or the second party must have possession.
2. Creditor must give something of value to the debtor.
3. Debtor must have rights in the collateral or the owner must agree to allow it.
Know what perfection of a security interest is and how to obtain it (including filing a financing statement
and a purchase money security interest) - Answer-The creditor gets protection against other creditors
or purchasers of the collateral by perfecting her security interest. Perfection is not effective without an
attachment of the security interest. Three main ways of perfecting a security interest:
1. By filing a public notice of the security interest.
2. By the creditors taking possession or control of the collateral.
3. In certain transactions, by mere attachment of the security interest; this is known as automatic
perfection.
The most common way - financing statement. Notice to the world that the creditor claims interest in
collateral that belongs to a certain named debtor. Available from the office of the secretary of state.
Security agreement can be filed as the financing statement if it contains the required information. Must
contain names of debtor, give the name of the secured party, contains a statement indicating or
describing the collateral covered by the financing statement.
Know the order of priority when more than one person is claiming the same collateral upon a default. -
Answer-most of that statutes provide that a mechanic's lien has priority over all liens attaching after the
first work is performed or after the first materials are furnished. There are no priorities among lien
claimants under the majority of the statutes.
The procedure followed in the foreclosure of a mechanic's lien on real estate , the lien attaches only to
the interest that the person has in the property that has been improved at the time the notice is filed.
Answers
Know the difference between a surety and guarantor (including what an accommodation surety is). -
Answer-A surety is primarily liable for the debtor's obligation, and the creditor can demand performance
from the surety at the time the debt is due rather than sue debtor for payment or performance on the
duty
&
A guaranty contract is like a suretyship, but a guarantor does not join the principal debtor in making a
promise, but makes a separate promise to be liable only after principle debtor defaults and cannot pay
A surety is primarily liable on the debt, but the guarantor is secondarily liable
An accommodation surety acts without compensation so a friend or a relative.
Know what the rights of subrogation, reimbursement and contribution are. - Answer-Right of
subrogation - The surety has to pay or perform the principal's obligation then the surety requires all of
the rights that the creditor had against the principal. These rights could include right to any collateral in
the possession of the creditor, any judgment right the creditor had against the principal on the
obligation and the rights of creditor in bankruptcy proceedings.
Right to reimbursement - entitled to recover her costs from the principal
,Right to contribution - If one of two or more co-sureties performs or pays principal's obligation, the
surety who satisfied the obligation has a right to contribution from the co-sureties
Know what a lien is and the difference between an artisan's, mechanic's and materialmen's lien. -
Answer-A lien is a security interest in property available to businesses and individuals by statute and
common law
Artisan's - common law lien - Artisan has a lien on the property he improved until he is paid. Right to
keep possession until paid. Only if the took possession. If they did not have possession then this would
no apply. If he gives up the goods voluntarily he gives up the lien. If the artisan keeps the goods without
a right or he was paid he is liable for unlawful detention of goods. The work must have been preformed
at the request of the owner.
For example, if a person has a new engine put in his car and the mechanic gives the car back to him
before he pays for the engine, the mechanic loses the lien on the car to secure the person's payment for
the work and materials.
Also, state statutes give mechanics and materialmen a right to a lien on real property into which their
labor or materials have been incorporated
A materialman is a person who has contracted to furnish certain materials needed to perform a
designated general contract. New York system theory of subrogation and the subcontractors or
materialmen cannot recover more than is owed at the time of filing the lien under PA the
subcontractors or materialmen have direct liens and are entitled to liens the value of labor and
materials furnished.
Know what a secured transaction is and how to create one - Answer-obligations the payment of which
is guaranteed by the borrower's pledge of collateral
No looseness is permitted in secured transactions. A security interest is an interest in personal property
or fixtures obtained by a creditor to secure payment or performance of an obligation. A security interest
is a property interest in the collateral.
, Obtaining an enforceable security interest is a two-step process - attachment and perfection.
Attachment - not legally enforceable until it is attached. Legal sense not physical. 3 requirements.
1. Must be an agreement by the debtor granting the creditor a security interest in the property
(collateral) or the second party must have possession.
2. Creditor must give something of value to the debtor.
3. Debtor must have rights in the collateral or the owner must agree to allow it.
Know what perfection of a security interest is and how to obtain it (including filing a financing statement
and a purchase money security interest) - Answer-The creditor gets protection against other creditors
or purchasers of the collateral by perfecting her security interest. Perfection is not effective without an
attachment of the security interest. Three main ways of perfecting a security interest:
1. By filing a public notice of the security interest.
2. By the creditors taking possession or control of the collateral.
3. In certain transactions, by mere attachment of the security interest; this is known as automatic
perfection.
The most common way - financing statement. Notice to the world that the creditor claims interest in
collateral that belongs to a certain named debtor. Available from the office of the secretary of state.
Security agreement can be filed as the financing statement if it contains the required information. Must
contain names of debtor, give the name of the secured party, contains a statement indicating or
describing the collateral covered by the financing statement.
Know the order of priority when more than one person is claiming the same collateral upon a default. -
Answer-most of that statutes provide that a mechanic's lien has priority over all liens attaching after the
first work is performed or after the first materials are furnished. There are no priorities among lien
claimants under the majority of the statutes.
The procedure followed in the foreclosure of a mechanic's lien on real estate , the lien attaches only to
the interest that the person has in the property that has been improved at the time the notice is filed.
