Question 1

All of the following statements are true about when secured transactions are used, except

Accepted Answer

A)  The lender views a borrower's credit history as risky. 
B)  The UCC requires that all loans must be a secured transaction. 
C)  The lender feels contractual obligations may not be enough for the debtor to honor her obligations. 
D)  The borrower will generally benefit from lower interest rates. 
A)  The lender views a borrower's credit history as risky. 
B)  The UCC requires that all loans must be a secured transaction. 
C)  The lender feels contractual obligations may not be enough for the debtor to honor her obligations. 
D)  The borrower will generally benefit from lower interest rates.

Question 2

In order to ensure that a security interest is enforceable, all of the following must occur, except

Accepted Answer

A)  The lender has offered the approval of a loan. 
B)  The debtor has a rightful legal claim in the collateral. 
C)  The debtor recorded the security interest within the county in which the property is located. 
D)  The debtor has authenticated an agreement that describes the collateral. 
A)  The lender has offered the approval of a loan. 
B)  The debtor has a rightful legal claim in the collateral. 
C)  The debtor recorded the security interest within the county in which the property is located. 
D)  The debtor has authenticated an agreement that describes the collateral.

Question 3

Scott perfected a security interest against Jaimie for a loan that she offered her car as collateral. Shortly thereafter, Jaimie declared bankruptcy. Which statement below is correct?

Accepted Answer

A)  The bankruptcy proceedings always has a superior claim to any property. 
B)  All creditors will take a portion of the property in proportion to the amount of debt owed to each lender. 
C)  Scott will have a superior interest since he perfected the security interest in the car. 
D)  Once the proceeds from the bankruptcy are used to satisfy existing debt, Scott will then have a claim to the remaining proceeds. 
A)  The bankruptcy proceedings always has a superior claim to any property. 
B)  All creditors will take a portion of the property in proportion to the amount of debt owed to each lender. 
C)  Scott will have a superior interest since he perfected the security interest in the car. 
D)  Once the proceeds from the bankruptcy are used to satisfy existing debt, Scott will then have a claim to the remaining proceeds.

Question 4

If a lender wishes to automatically perfect a security interest in business equipment, the lender must.

Accepted Answer

A)  Ensure the goods are within the borrower's possession within 20 days of the agreement and file a UCC-1 financing agreement. 
B)  File a declaration of interest describing the good used as collateral. 
C)  Notify other creditors doing business with the debtor of the nature of the collateral. 
D)  Verify by judicial proceeding that the borrower uses the equipment in the ordinary course of business. 
A)  Ensure the goods are within the borrower's possession within 20 days of the agreement and file a UCC-1 financing agreement. 
B)  File a declaration of interest describing the good used as collateral. 
C)  Notify other creditors doing business with the debtor of the nature of the collateral. 
D)  Verify by judicial proceeding that the borrower uses the equipment in the ordinary course of business.

Question 5

All of the following are methods of perfecting a security interest except

Accepted Answer

A)  Filing a UCC-1 financing statement. 
B)  When the borrower physically transfers possession to the lender. 
C)  Issuing chattel paper to memorialize the financing and secured interest. 
D)  Having the court issue a court order declaring a perfection. 
A)  Filing a UCC-1 financing statement. 
B)  When the borrower physically transfers possession to the lender. 
C)  Issuing chattel paper to memorialize the financing and secured interest. 
D)  Having the court issue a court order declaring a perfection.

Question 6

In James v. Ford Motor Credit, the court ruled

Accepted Answer

A)  A repo agent cannot remove a good if the debtor objects to it. 
B)  The fact that the repo agent removed the car from a public area and exercised control over the car for over an hour meant that the repossession did not breach the peace. 
C)  A debtor has a right of self-help at any time if he believes his good has been wrongfully possessed. 
D)  Ford Motor Credit cannot delegate the responsibility to a third party, including the repo agent. 
A)  A repo agent cannot remove a good if the debtor objects to it. 
B)  The fact that the repo agent removed the car from a public area and exercised control over the car for over an hour meant that the repossession did not breach the peace. 
C)  A debtor has a right of self-help at any time if he believes his good has been wrongfully possessed. 
D)  Ford Motor Credit cannot delegate the responsibility to a third party, including the repo agent.

Question 7

When a debtor uses the same property as collateral for several loans a lender may want to protect his security interest from other creditors who may assert claims against the same collateral by

Accepted Answer

A)  Entering into a contract with the other creditors. 
B)  Requesting the court determine that the other creditors' interests are invalid. 
C)  Perfecting a security interest. 
D)  Requesting title to the property. 
A)  Entering into a contract with the other creditors. 
B)  Requesting the court determine that the other creditors' interests are invalid. 
C)  Perfecting a security interest. 
D)  Requesting title to the property.

Question 8

The Bank of Edwards on July 1st and Legacy Bank on July 2nd both entered into a loan agreement with Julius. On July 3rd, Legacy Bank filed a UCC-1 financing statement and on July 5th, the Bank of Edwards did as well. In this situation, if Julius defaults on his loan with both banks, who has priority?

Accepted Answer

A)  The Bank of Edwards 
B)  Legacy Bank 
C)  Both banks have the same priority 
D)  The bank which loaned the largest amount of money to Julius. 
A)  The Bank of Edwards 
B)  Legacy Bank 
C)  Both banks have the same priority 
D)  The bank which loaned the largest amount of money to Julius.

Question 9

As a general rule, the party that has the largest amount of interest secured has priority over all others when multiple creditors have a perfected a security interest on the same collateral.

Accepted Answer

A) True 
 B)False

Question 10

An automatically perfected security interest in consumer goods when a merchant or lender offers financing to a borrower to purchase goods is called a(n)

Accepted Answer

A)  Floating lien 
B)  UCC-2 perfecting statement 
C)  Purchase-money security interest 
D)  Perfection by operation of law 
A)  Floating lien 
B)  UCC-2 perfecting statement 
C)  Purchase-money security interest 
D)  Perfection by operation of law

Question 11

In Morgan County Feeders v. McCormick, the court ruled

Accepted Answer

A)  Cattle will always be considered equipment for a farm. 
B)  Cattle will always be considered inventory for a farm. 
C)  To determine if cattle are equipment or inventory, the court must determine what the predominant use is of the cattle. 
D)  To determine if cattle are equipment or inventory, the court must see how the owner listed them in legal documents. 
A)  Cattle will always be considered equipment for a farm. 
B)  Cattle will always be considered inventory for a farm. 
C)  To determine if cattle are equipment or inventory, the court must determine what the predominant use is of the cattle. 
D)  To determine if cattle are equipment or inventory, the court must see how the owner listed them in legal documents.

Question 12

When a loan lacks collateral, it is called a

Accepted Answer

A)  Risky loan 
B)  Illegal loan 
C)  Unenforceable loan 
D)  Unsecured loan 
A)  Risky loan 
B)  Illegal loan 
C)  Unenforceable loan 
D)  Unsecured loan

Question 13

Nancy offers her mother's wedding ring as collateral for a loan from a creditor. Shortly after entering into the agreement, Nancy fails to pay back the loan according to the schedule agreed upon. What remedies might the creditor have?

Accepted Answer

A)  The creditor can take possession of the ring. 
B)  The creditor, after two missed payments may retake possession of the ring. 
C)  The creditor may take Nancy to court to seek payment according to the terms of the loan. 
D)  The creditor may seek criminal charges against Nancy. 
A)  The creditor can take possession of the ring. 
B)  The creditor, after two missed payments may retake possession of the ring. 
C)  The creditor may take Nancy to court to seek payment according to the terms of the loan. 
D)  The creditor may seek criminal charges against Nancy.

Question 14

All of the following scenarios may trigger a default except

Accepted Answer

A)  Sally does not make a payment on a loan by the due date. 
B)  Bob dies before he pays off his loan. 
C)  Tom destroys his car that he offered as collateral on a loan. 
D)  Joe declares bankruptcy. 
A)  Sally does not make a payment on a loan by the due date. 
B)  Bob dies before he pays off his loan. 
C)  Tom destroys his car that he offered as collateral on a loan. 
D)  Joe declares bankruptcy.

Question 15

A person who buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods from a person in the business of selling goods of that kind is called

Accepted Answer

A)  Unsecured purchaser 
B)  Buyer in the ordinary course of business 
C)  Good faith client 
D)  Fiduciary buyer 
A)  Unsecured purchaser 
B)  Buyer in the ordinary course of business 
C)  Good faith client 
D)  Fiduciary buyer

Question 16

A financing agreement between a lender and a borrower where the borrower pledges certain collateral for the loan is called a secured transaction.

Accepted Answer

A) True 
 B)False

Question 17

Trent delivers his prized, one of a kind, oil painting of Frank Gotch, a famous wrestler from long ago, to Canon Bank as collateral for a loan, and Canon Bank hung the oil painting in its lobby. Shortly thereafter, Trent enters into another loan with Kenland Bank uses the same painting as collateral. Trent defaults on both loans at the same time. According to Article 9 of the UCC which entity has a perfected security interest?

Accepted Answer

A)  Trent because he is the rightful owner of the painting. 
B)  Canon Bank in that the security interest was perfected by possession. 
C)  Kenland Bank because it is the most recent lender. 
D)  Canon Bank and Kenland Bank both have an equal perfected security interest. 
A)  Trent because he is the rightful owner of the painting. 
B)  Canon Bank in that the security interest was perfected by possession. 
C)  Kenland Bank because it is the most recent lender. 
D)  Canon Bank and Kenland Bank both have an equal perfected security interest.

Question 18

Cody is a regular client of Bear Paw Productions and purchases their world famous furniture to furnish the hotels he owns. Unknown to Cody, Bear Paw recently took out a loan with Grizzly Bank and used "all the inventory of furniture at Bear Paw Productions" as the collateral as a security interest. Bear Paw Productions defaults on its loan with Grizzly Bank. Which of the following statements is correct?

Accepted Answer

A)  Cody will be able to keep all of inventory furniture that he purchased. 
B)  Grizzly Bank will be able to reclaim the furniture that Cody purchased as it was collateral. 
C)  Cody will be required to repay the remainder of the loan Bear Paw Productions owes to Grizzly in order to keep the furniture. 
D)  Grizzly Bank will have the option of pursuing legal action to enforce the terms of the loan against Cody or Bear Paw Productions. 
A)  Cody will be able to keep all of inventory furniture that he purchased. 
B)  Grizzly Bank will be able to reclaim the furniture that Cody purchased as it was collateral. 
C)  Cody will be required to repay the remainder of the loan Bear Paw Productions owes to Grizzly in order to keep the furniture. 
D)  Grizzly Bank will have the option of pursuing legal action to enforce the terms of the loan against Cody or Bear Paw Productions.

Question 19

If a borrower is in default, the lender has all the following options except

Accepted Answer

A)  Repossess the collateral by judicial action. 
B)  Allow the borrower time to cure the default. 
C)  Repossess the collateral by judicial action and sell the collateral. 
D)  File criminal charges against the borrower for theft. 
A)  Repossess the collateral by judicial action. 
B)  Allow the borrower time to cure the default. 
C)  Repossess the collateral by judicial action and sell the collateral. 
D)  File criminal charges against the borrower for theft.

Question 20

To perfect their security interest Georgia files a UCC-2A financing statement with the secretary of state where the lender resides.

Accepted Answer

A) True 
 B)False

Exam 23: Secured Transactions

All of the following statements are true about when secured transactions are used, except

In order to ensure that a security interest is enforceable, all of the following must occur, except

Scott perfected a security interest against Jaimie for a loan that she offered her car as collateral. Shortly thereafter, Jaimie declared bankruptcy. Which statement below is correct?

If a lender wishes to automatically perfect a security interest in business equipment, the lender must.

All of the following are methods of perfecting a security interest except

In James v. Ford Motor Credit, the court ruled

When a debtor uses the same property as collateral for several loans a lender may want to protect his security interest from other creditors who may assert claims against the same collateral by

As a general rule, the party that has the largest amount of interest secured has priority over all others when multiple creditors have a perfected a security interest on the same collateral.

An automatically perfected security interest in consumer goods when a merchant or lender offers financing to a borrower to purchase goods is called a(n)

In Morgan County Feeders v. McCormick, the court ruled

When a loan lacks collateral, it is called a

Nancy offers her mother's wedding ring as collateral for a loan from a creditor. Shortly after entering into the agreement, Nancy fails to pay back the loan according to the schedule agreed upon. What remedies might the creditor have?

All of the following scenarios may trigger a default except

A person who buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods from a person in the business of selling goods of that kind is called

A financing agreement between a lender and a borrower where the borrower pledges certain collateral for the loan is called a secured transaction.

If a borrower is in default, the lender has all the following options except

To perfect their security interest Georgia files a UCC-2A financing statement with the secretary of state where the lender resides.

Legal Foundations and Thinking Strategically

Business, Societal, and Ethical Contexts of Law

Business and the Constitution

The American Judicial System, Jurisdiction, and Venue

Resolving Disputes: Litigation and Alternative Dispute Resolution

Contracts: Overview, Definition, Categories, and Source of Law

Mutual Assent: Agreement and Consideration

Capacity and Legality

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Contracts for the Sale of Goods: Overview of Article 2

Sales Contracts: Agreement, Consideration, and the Statute of Frauds

Title, Allocation of Risk, and Insurable Interest

Performance and Cure in Sales Contracts

Breach and Remedies in a Sales Transaction

UCC Article 2A: Lease Contracts

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Definition, Creation, and Categories of Negotiable Instruments

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