Question 1

Which of the following is the person or party that holds the interest in the secured property?

Accepted Answer

A)  A debtor. 
B)  A transaction party. 
C)  An approved party. 
D)  A secured party. 
E)  An attached party. 
A)  A debtor. 
B)  A transaction party. 
C)  An approved party. 
D)  A secured party. 
E)  An attached party.

Question 2

Generally, unsecured parties have priority over secured creditors.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following was the result in the bankruptcy case in the text In re Robert O. Troupe and Dawn Lynn Troupe involving the issue of whether a tractor dealer's failure to file a financing statement rendered its purchase money security interest unperfected because the tractor was equipment used for business purposes, or whether the security interest was automatically perfected as an interest in a consumer good?

Accepted Answer

A)  The tractor dealer prevailed because classification of collateral is determined as of the time of the creation of the security interest, and the consumers were bound by the representation on the security agreement that the tractor was to be used as consumer goods. 
B)  The tractor dealer prevailed because although representations made by the buyers on the security agreement were not controlling, the buyers were using the tractor as a consumer good at the time of default, the time at which classification of collateral is made in any dispute. 
C)  The bankruptcy trustee prevailed because the consumers made misrepresentations at the time of the sale as to the use of the tractor and wrongfully claimed that it was for consumer use when it was actually to be used as equipment in a business endeavor. 
D)  The bankruptcy trustee prevailed because although no misrepresentations were made at the time of the sale, the tractor was being used as equipment in a business endeavor at the time of default; and the time of default is the point at which issues involving use are determined. 
E)  The bankruptcy trustee prevailed because when at the time of default, collateral is used partly as a consumer good and partly as equipment in a business endeavor, the collateral loses its status as a consumer good. 
A)  The tractor dealer prevailed because classification of collateral is determined as of the time of the creation of the security interest, and the consumers were bound by the representation on the security agreement that the tractor was to be used as consumer goods. 
B)  The tractor dealer prevailed because although representations made by the buyers on the security agreement were not controlling, the buyers were using the tractor as a consumer good at the time of default, the time at which classification of collateral is made in any dispute. 
C)  The bankruptcy trustee prevailed because the consumers made misrepresentations at the time of the sale as to the use of the tractor and wrongfully claimed that it was for consumer use when it was actually to be used as equipment in a business endeavor. 
D)  The bankruptcy trustee prevailed because although no misrepresentations were made at the time of the sale, the tractor was being used as equipment in a business endeavor at the time of default; and the time of default is the point at which issues involving use are determined. 
E)  The bankruptcy trustee prevailed because when at the time of default, collateral is used partly as a consumer good and partly as equipment in a business endeavor, the collateral loses its status as a consumer good.

Question 4

"Repossession." Tina sold used vehicles. She sold a used pick-up truck to Joan and a used convertible to Barry. She properly obtained a security interest in both vehicles. Both Joan and Barry defaulted on payments owed to Tina for the vehicles. Tina was under the belief that her only option was to take possession of the collateral. Tina decided that she would repossess Joan's pick-up at Joan's house. Therefore, Tina slipped into the driveway one evening at midnight and started the engine. Joan immediately ran out and confronted Tina. Tina shoved Joan away and drove off in the pick-up truck. Tina was able to repossess Barry's convertible in a public parking lot with no altercation with him.
-Which of the following is true regarding Tina's belief that her only option was to take possession of the collateral?

Accepted Answer

A)  Tina was correct regardless of whether a vehicle or another type of good was involved. 
B)  Tina was correct, but only because a vehicle was involved. 
C)  Tina was incorrect, because only when a vehicle is involved, a party must disregard the collateral and proceed to judgment. 
D)  Tina was incorrect because regardless of whether a vehicle or another type of good was involved, Tina only had the right to ignore the collateral and proceed to judgment. 
E)  Tina was incorrect because regardless of whether a vehicle or another type of good was involved, Tina had the right to either take possession of the collateral or ignore rights in the collateral and proceed to judgment. 
A)  Tina was correct regardless of whether a vehicle or another type of good was involved. 
B)  Tina was correct, but only because a vehicle was involved. 
C)  Tina was incorrect, because only when a vehicle is involved, a party must disregard the collateral and proceed to judgment. 
D)  Tina was incorrect because regardless of whether a vehicle or another type of good was involved, Tina only had the right to ignore the collateral and proceed to judgment. 
E)  Tina was incorrect because regardless of whether a vehicle or another type of good was involved, Tina had the right to either take possession of the collateral or ignore rights in the collateral and proceed to judgment.

Question 5

Which of the following is true regarding the definition of default under the UCC?

Accepted Answer

A)  The UCC defines default as failure to make any payment when due. 
B)  The UCC defines default as failure to make a payment within 30 days after a payment is due. 
C)  The UCC defines default as failure to make a payment within 60 days after a payment is due. 
D)  The UCC defines default as failure to make a payment within 90 days after a payment is due. 
E)  The UCC does not define default. 
A)  The UCC defines default as failure to make any payment when due. 
B)  The UCC defines default as failure to make a payment within 30 days after a payment is due. 
C)  The UCC defines default as failure to make a payment within 60 days after a payment is due. 
D)  The UCC defines default as failure to make a payment within 90 days after a payment is due. 
E)  The UCC does not define default.

Question 6

What did the court conclude in the Case Opener, the case in which the plaintiff claimed that her repossessed vehicle was not sold in a commercially reasonably manner and that she was wrongly left with a deficiency?

Accepted Answer

A)  That showing that the sale grossed more than 50% of the vehicle's value established that the sale was commercially reasonable. 
B)  That good faith in selling the vehicle as a matter of law established commercial reasonableness. 
C)  That the secured party failed to prove that its sale of the vehicle conformed with established trade practices. 
D)  That there was no obligation on the seller to engage in a commercially reasonable sale because the plaintiff was in default. 
E)  That while not every aspect of the sale had to be commercially reasonable, the seller failed to show that sufficient advertisement of the sale was accomplished thereby rendering the sale itself commercially unreasonable. 
A)  That showing that the sale grossed more than 50% of the vehicle's value established that the sale was commercially reasonable. 
B)  That good faith in selling the vehicle as a matter of law established commercial reasonableness. 
C)  That the secured party failed to prove that its sale of the vehicle conformed with established trade practices. 
D)  That there was no obligation on the seller to engage in a commercially reasonable sale because the plaintiff was in default. 
E)  That while not every aspect of the sale had to be commercially reasonable, the seller failed to show that sufficient advertisement of the sale was accomplished thereby rendering the sale itself commercially unreasonable.

Question 7

Which of the following was the result In Re Tower Air Inc., the case in the text in which a debtor made repairs to an aircraft used as collateral without claiming available insurance proceeds, later filed bankruptcy, and the bankruptcy trustee and the creditor each claimed entitlement to the insurance proceeds?

Accepted Answer

A)  The court ruled in favor of the bankruptcy trustee on the basis that regardless of whether or not repairs were made, the right to claim the proceeds belonged to the debtor; and the trustee succeeded to the rights of the debtor. 
B)  The court ruled in favor of the bankruptcy trustee on the basis that because the debtor had already repaired the collateral, the trustee was entitled to the proceeds of the insurance policy. 
C)  The court ruled in favor of the bankruptcy trustee on the basis that the trustee made first claim to the insurance proceeds and already had the proceeds in possession when the creditor first claimed entitlement to them. 
D)  The court ruled that the creditor was entitled to the full insurance proceeds, without consideration of the amount of the debt, on the basis that it had a secured interest. 
E)  The court ruled that the creditor was entitled to the proceeds of the insurance policy up to the amount of the debt on the basis that it had a secured interest. 
A)  The court ruled in favor of the bankruptcy trustee on the basis that regardless of whether or not repairs were made, the right to claim the proceeds belonged to the debtor; and the trustee succeeded to the rights of the debtor. 
B)  The court ruled in favor of the bankruptcy trustee on the basis that because the debtor had already repaired the collateral, the trustee was entitled to the proceeds of the insurance policy. 
C)  The court ruled in favor of the bankruptcy trustee on the basis that the trustee made first claim to the insurance proceeds and already had the proceeds in possession when the creditor first claimed entitlement to them. 
D)  The court ruled that the creditor was entitled to the full insurance proceeds, without consideration of the amount of the debt, on the basis that it had a secured interest. 
E)  The court ruled that the creditor was entitled to the proceeds of the insurance policy up to the amount of the debt on the basis that it had a secured interest.

Question 8

"Dry Cleaning." Molly wanted to start her own dry cleaning business. She borrowed $50,000 from ABC Bank. She used her car and home as collateral and also gave ABC Bank an interest in any property she acquired after the security interest was made. The bank perfected its interest. Molly purchased a new computer from XYZ Electronics for use in her business. XYZ obtained a purchase money security interest on the computer. Molly was having problems with cash flow and failed to make payments to XYZ Electronics on the new computer. After the sale and before Molly stopped making payments, XYZ had filed a financing statement. The electronics store sought to repossess the computer, but the bank opposed that. Molly's business picked up and she was able to completely repay her loan to the bank and to XYZ. She requested that the bank discontinue its security interest, but the bank did not do so as requested by Molly, and still had not done so 45 days after Molly had paid off the loan and requested that the bank terminate its interest.
-Which of the following is true regarding priority in rights to the computer?

Accepted Answer

A)  The bank had priority because the computer was considered after-acquired property properly covered by the initial security interest. 
B)  XYZ Electronics had priority because XYZ Electronics had a purchase-money security interest in the computer. 
C)  XYZ Electronics had priority only if XYZ Electronics perfected its security interest within 10 days of the purchase. 
D)  XYZ Electronics had priority only if XYZ Electronics perfected its security interest within 20 days of the purchase. 
E)  The bank had a security interest in the computer because it perfected its security interest before XYZ Electronics did so. 
A)  The bank had priority because the computer was considered after-acquired property properly covered by the initial security interest. 
B)  XYZ Electronics had priority because XYZ Electronics had a purchase-money security interest in the computer. 
C)  XYZ Electronics had priority only if XYZ Electronics perfected its security interest within 10 days of the purchase. 
D)  XYZ Electronics had priority only if XYZ Electronics perfected its security interest within 20 days of the purchase. 
E)  The bank had a security interest in the computer because it perfected its security interest before XYZ Electronics did so.

Question 9

Which of the following is false regarding a creditor's rights to collateral upon a debtor's default?

Accepted Answer

A)  If a debtor defaults on a loan, the secured party can take possession of the collateral so long as the debtor does not breach the peace. 
B)  Under the UCC, the secured party can sell, lease, or transfer the collateral in any commercially reasonable method. 
C)  Regardless of where the collateral is sold, the secured party must strive to receive the best price for the collateral. 
D)  Instead of disposing of the collateral, the secured party may choose to keep the collateral in full or partial satisfaction of the debt. 
E)  A debtor in default has no rights in regard to whether collateral is retained by the secured party or sold. 
A)  If a debtor defaults on a loan, the secured party can take possession of the collateral so long as the debtor does not breach the peace. 
B)  Under the UCC, the secured party can sell, lease, or transfer the collateral in any commercially reasonable method. 
C)  Regardless of where the collateral is sold, the secured party must strive to receive the best price for the collateral. 
D)  Instead of disposing of the collateral, the secured party may choose to keep the collateral in full or partial satisfaction of the debt. 
E)  A debtor in default has no rights in regard to whether collateral is retained by the secured party or sold.

Question 10

Which of the following is formed when a debtor uses borrowed money from the secured party to buy the collateral?

Accepted Answer

A)  A secured possessory interest. 
B)  A loaned money possessory interest. 
C)  A purchase-money security interest. 
D)  A purchase-cash consumer interest. 
E)  A perfected security interest. 
A)  A secured possessory interest. 
B)  A loaned money possessory interest. 
C)  A purchase-money security interest. 
D)  A purchase-cash consumer interest. 
E)  A perfected security interest.

Question 11

According to the UCC, value is consideration.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is the designation for property acquired by the debtor after a security agreement covering the property is made?

Accepted Answer

A)  Post-dated property. 
B)  After-acquired property. 
C)  Proceeds. 
D)  Post-acquired property. 
E)  Subsequently acquired property. 
A)  Post-dated property. 
B)  After-acquired property. 
C)  Proceeds. 
D)  Post-acquired property. 
E)  Subsequently acquired property.

Question 13

Which of the following is a term used to identify a person who routinely buys goods in good faith from a person who routinely sells these goods?

Accepted Answer

A)  A buyer in the typical course of business. 
B)  An approved buyer. 
C)  An approved buyer in the ordinary course of business. 
D)  A buyer in the ordinary course of business. 
E)  An exchanger in the typical course of business. 
A)  A buyer in the typical course of business. 
B)  An approved buyer. 
C)  An approved buyer in the ordinary course of business. 
D)  A buyer in the ordinary course of business. 
E)  An exchanger in the typical course of business.

Question 14

Once a financing statement has been filed with a correct agency, for how long is the statement valid under the UCC?

Accepted Answer

A)  1 year 
B)  2 years 
C)  3 years 
D)  4 years 
E)  5 years 
A)  1 year 
B)  2 years 
C)  3 years 
D)  4 years 
E)  5 years

Question 15

Which of the following is false regarding types of collateral?

Accepted Answer

A)  Collateral may include farm products. 
B)  Collateral may include goods such as equipment. 
C)  Collateral may include indispensable paper such as documents of title. 
D)  Collateral may include intangibles such as chattel paper. 
E)  Collateral may include proceeds. 
A)  Collateral may include farm products. 
B)  Collateral may include goods such as equipment. 
C)  Collateral may include indispensable paper such as documents of title. 
D)  Collateral may include intangibles such as chattel paper. 
E)  Collateral may include proceeds.

Question 16

Which of the following is a writing that indicates both a monetary obligation and a security interest in specific goods?

Accepted Answer

A)  Chattel paper. 
B)  Combined paper. 
C)  Transactional paper. 
D)  Monetary and secured paper. 
E)  Specific interest paper. 
A)  Chattel paper. 
B)  Combined paper. 
C)  Transactional paper. 
D)  Monetary and secured paper. 
E)  Specific interest paper.

Question 17

If a buyer purchases chattel paper in the ordinary course of business and without notice of any prior security interest, the buyer can obtain the good involved free of any security interest.

Accepted Answer

A) True 
 B)False

Question 18

"Overextended Debtor." For his home, Dennis purchased a big screen television from ABC Electronics and financed the purchase through ABC Electronics. Later, because Dennis had bought a boat, a new car, an expensive engagement ring for his girlfriend, and some other items, he was unable to continue making payments on the television. The manager from ABC Electronics called 60 days after the sale and asked Dennis to return the television. Dennis refused on the basis that ABC Electronics never perfected its interest in the television. He also explained that he had later granted a secured interest in the television along with his other goods to XYZ Credit in return for a loan. No financing statement was filed on behalf of ABC Electronics although XYZ Credit, with no knowledge of any interest of ABC Electronics, did file a financing statement.
-In a dispute between Dennis, ABC Electronics, and XYZ Credit regarding entitlement to the television, who is likely to win and why?

Accepted Answer

A)  ABC Electronics will prevail because, as a seller of consumer goods, it did not need a perfected security interest in order to prevail against other creditors. 
B)  ABC Electronics will prevail because it had a perfected security interest. 
C)  XYZ Credit will prevail because although ABC Electronics had a perfected security interest, it did not file a financing statement. 
D)  XYZ Credit will prevail because a luxury good was involved and, although ABC Electronics had a perfected security interest, it did not file a financing statement as required within 10 days of the sale. 
E)  XYZ Credit will prevail because it had a perfected security interest in a greater amount of goods than did ABC Electronics. 
A)  ABC Electronics will prevail because, as a seller of consumer goods, it did not need a perfected security interest in order to prevail against other creditors. 
B)  ABC Electronics will prevail because it had a perfected security interest. 
C)  XYZ Credit will prevail because although ABC Electronics had a perfected security interest, it did not file a financing statement. 
D)  XYZ Credit will prevail because a luxury good was involved and, although ABC Electronics had a perfected security interest, it did not file a financing statement as required within 10 days of the sale. 
E)  XYZ Credit will prevail because it had a perfected security interest in a greater amount of goods than did ABC Electronics.

Question 19

List three advantages discussed in the text associated with perfection by possession.

Accepted Answer

First, a secured party does not have to

Question 20

Which of the following is defined as the series of legal steps a secured party takes to protect its rights and collateral from other creditors who wish to have their debts returned through the same collateral?

Accepted Answer

A)  Perfection 
B)  Filing 
C)  Noticing 
D)  Financing noticing 
E)  Arrangement 
A)  Perfection 
B)  Filing 
C)  Noticing 
D)  Financing noticing 
E)  Arrangement

Exam 30: Secured Transactions

Which of the following is the person or party that holds the interest in the secured property?

Generally, unsecured parties have priority over secured creditors.

Which of the following is true regarding the definition of default under the UCC?

What did the court conclude in the Case Opener, the case in which the plaintiff claimed that her repossessed vehicle was not sold in a commercially reasonably manner and that she was wrongly left with a deficiency?

Which of the following is false regarding a creditor's rights to collateral upon a debtor's default?

Which of the following is formed when a debtor uses borrowed money from the secured party to buy the collateral?

According to the UCC, value is consideration.

Which of the following is the designation for property acquired by the debtor after a security agreement covering the property is made?

Which of the following is a term used to identify a person who routinely buys goods in good faith from a person who routinely sells these goods?

Once a financing statement has been filed with a correct agency, for how long is the statement valid under the UCC?

Which of the following is false regarding types of collateral?

Which of the following is a writing that indicates both a monetary obligation and a security interest in specific goods?

If a buyer purchases chattel paper in the ordinary course of business and without notice of any prior security interest, the buyer can obtain the good involved free of any security interest.

List three advantages discussed in the text associated with perfection by possession.

Which of the following is defined as the series of legal steps a secured party takes to protect its rights and collateral from other creditors who wish to have their debts returned through the same collateral?

An Introduction to Dynamic Business Law

Business Ethics

The US Legal System

Alternative Dispute Resolution

Constitutional Principles

International and Comparative Law

Crime and the Business Community

Tort Law

Negligence and Strict Liability

Product Liability

Liability of Accountants and Other Professionals

Intellectual Property

Introduction to Contracts

Agreement

Consideration

Capacity and Legality

Legal Assent

Contracts in Writing

Third-Party Rights to Contracts

Discharge and Remedies

Introduction to Sales and Lease Contracts

Title, Risk of Loss, and Insurable Interest

Performance and Obligations Under Sales and Leases

Remedies for Breach of Sales and Lease Contracts

Warranties

Negotiable Instruments: Negotiability and Transferability

Negotiation, Holder in Due Course, and Defenses

Liability, Defenses, and Discharge

Checks and Electronic Fund Transfers

Other Creditors Remedies and Suretyship

Bankruptcy and Reorganization

Agency Formation and Duties

Liability to Third Parties and Termination

Forms of Business Organization

Partnerships: Nature, Formation, and Operation

Partnerships: Termination and Limited Partnerships

Corporations: Formation and Financing

Corporations: Directors, Officers, and Shareholders

Corporations: Mergers, Consolidations, Terminations

Corporations: Securities and Investor Protection

Employment and Labor Law

Employment Discrimination

Administrative Law

Consumer Law

Environmental Law

Antitrust Law

The Nature of Property, Personal Property, and Bailments

Real Property

Landlord-Tenant Law

Insurance Law

Wills and Trusts

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