Deck 25: Security Interests and Creditors Rights

Question 1

Providing only a debtor's trade name in a financing statement is sufficient for perfection even if the trade name is not the legal name of the business.

Answer 1

False

Question 2

A secured party perfects a claim by filing a financing statement with the debtor.

Answer 2

False

Question 3

Consideration to support a simple contract is not sufficient value to support the acquisition of a security interest.

Answer 3

False

Question 4

For most collateral, possession by a secured party is impractical because it denies the debtor the right to use or derive income from the property to pay the debt.

Question 5

A security interest can cover only property in which the debtor has present rights.

Question 6

Improper filing of a financing statement can render a security interest unperfected.

Question 7

The UCC's classification or definition of collateral does not affect where or how to perfect a security interest.

Question 8

Any transaction in which the payment of a debt is guaranteed by personal property owned or held by the debtor is a secured transaction.

Question 9

The method by which a secured party obtains a priority interest in a debtor's collateral is enhancement.

Question 10

Every interest in personal property that guarantees the payment or performance of an obligation is a security interest.

Question 11

Attachment ensures that a security interest between a debtor and a secured party is effective.

Question 12

To create an enforceable security interest, the collateral must be in the possession of neither the debtor nor the secured party, but in escrow.

Question 13

A security agreement must describe the collateral because no security interest can exist unless the parties agree on the property subject to it.

Question 14

A party who owes payment or performance of a secured obligation is a secured party.

Question 15

Business as we know it could not exist without secured transactions because otherwise sellers and lenders would be less likely to sell and lend on credit.

Question 16

With a binding agreement to extend credit, a secured party can obtain a security interest.

Question 17

Several documents may be considered together to comprise a security agreement.

Question 18

A floating lien is a security interest retained in collateral even when the collateral changes in character, classification, or location.

Question 19

Retail Store Inc. can give Secure Loan Company a security interest in future inventory to be acquired by the debtor.

Question 20

A debtor must have title to collateral to give a secured party a security interest in the property.

Question 21

Secure Bank lends funds to Trucking Corporation to add a maintenance garage to Trucking's property. Payment of the loan is guaranteed by the building. The law covering this transaction is provided by

A) local building ordinances.
B) state shipping regulations.
C) federal banking rules.
D) the Uniform Commercial Code.

Question 22

To create an enforceable security interest between Finance Corporation and Global Trade Inc. with a written security agreement, the agreement must contain a description of

A) the debtor.
B) the creditor.
C) all of the choices.
D) the collateral.

Question 23

Most liens have little practical use, because liens generally do not take priority over other claims to the same property.

Question 24

A small-amount mechanic's lien typically stays on record until the property against which it has been filed is sold and then the lien is paid out of the sale proceeds.

Question 25

A secured party may be liable to a debtor for failing to comply with the debtor's request for confirmation of the amount of the unpaid debt.

Question 26

Federal law provides a minimal framework to protect debtors from losing all their income in order to pay judgment debts.

Question 27

Because a writ of attachment is a prejudgment remedy, a debtor does not need to be given notice and an opportunity to be heard before the property is seized.

Question 28

Redevelopment Capital Inc. is the secured party in a secured transaction with Skyway Airport Corporation. Redevelopment Capital is also known as

A) the debtor.
B) the secured creditor.
C) the security interest.
D) collateral.

Question 29

The last security interest to be perfected is the first in priority over any other perfected security interests.

Question 30

When a debtor defaults, a secured creditor can relinquish the security interest but cannot then seek a judgment on the underlying debt.

Question 31

When a debtor defaults, a secured creditor can take possession of the collateral without a court order and either retain or resell the collateral.

Question 32

When a debtor defaults, a secured party who does not choose to retain the collateral must relinquish the security interest to the debtor.

Question 33

A buyer in the ordinary course of business takes goods subject to any security interest created by the seller because otherwise the free flow of credit would be hindered.

Question 34

Today, there is no significant difference in the liability of a surety and a guarantor in any state at common law or otherwise.

Question 35

Because of depreciation, the amount received on the sale of collateral may be less than the amount owed on the debt, but a debtor who has defaulted is not likely to have the funds to pay the deficiency.

Question 36

Reese applies for a credit card at Sell-Mart. The application gives Sell-Mart a security interest in any goods that Reese buys with the card until she pays for them in full. In this situation, the secured party is

A) Reese.
B) Sell-Mart.
C) the credit card.
D) the goods that are bought with the credit card.

Question 37

Auto Sales & Finance wants to get paid for its goods and services, so it will not sell goods or lend funds unless payment is guaranteed. This is the concept of

A) bad faith.
B) fiduciary duty.
C) a secured transaction.
D) a fair debt collection practice.

Question 38

When two conflicting security interests are unperfected, the last to attach has priority.

Question 39

When a security interest is perfected, it has priority over any other perfected security interests.

Question 40

When a co-surety pays more than his or her proportionate share on a debtor's default, he or she is entitled to recover from the debtor the excess amount paid.

Question 41

Owen is given value by Payday Sales Company in the form of a commitment to sell goods on credit. In terms of creating an enforceable security interest, this is

A) the only requirement.
B) a factor but not a requirement.
C) irrelevant.
D) one of the requirements.

Question 42

Maritime Bank holds a security interest in Ned's fishing trawler. Ned defaults on the debt. Maritime takes possession of the boat and notifies Ned that it will be sold to recover some of the unpaid debt. Before the sale, Ned can regain possession by

A) obtaining a deficiency judgment.
B) agreeing to a floating lien.
C) exercising the right of redemption.
D) requesting a commercially reasonable sale.

Question 43

The UCC does not define the term default. This encourages the parties to a secured transaction to

A) include standards that align with the concept of unconscionability.
B) run counter to the UCC's provision regarding good faith.
C) stipulate the conditions that will constitute a default.
D) provide the creditor with the maximum protection possible.

Question 44

Rollover Funds perfects a security interest in Steel Mill Inc.'s equipment by filing. When Steel Mill finally pays the debt, the debtor is entitled to the filing of

A) none of the choices.
B) a termination statement.
C) a confirmation request.
D) an amendment.

Question 45

Bonds Bank assigns to Capital Invest the bank's security interest in certain real property owned by Developer Inc. Capital Invest becomes the secured party of record. The bank's security interest in the collateral is

A) extended.
B) terminated.
C) floated to other property owned by Developer Inc.
D) subordinated to the assignee's interest.

Question 46

Kelly's Autos Inc. borrows funds from Loan Company under a security agreement. Later, Kelly's buys new vehicles to add to its inventory. Loan Company has a security interest in the new vehicles

A) if the security agreement included an after-acquired property clause.
B) if the lender has not yet filed a financing statement.
C) if Kelly's bought the new vehicles with the lender's funds.
D) none of the choices.

Question 47

Capital Inc. holds a security interest in Discount Retail Company's inventory. The parties agree that the interest will continue in the collateral even if it is sold, exchanged, or disposed of in some other way. This is

A) a floating lien.
B) a purchase-money security interest.
C) a right of redemption.
D) a right to subrogation.

Question 48

Construction Company has a claim against Diners Café to satisfy a debt that takes priority over other claims against the same property. This is

A) a lien.
B) a fraud.
C) a guaranty.
D) a garnishment.

Question 49

Credit Financing Inc. and Debt Lending Company hold security interests in property owned by Fleet Cartage Inc. Priority between these security interests is generally determined by

A) the amount of the claim.
B) the custom in the trade.
C) the time of perfection or attachment.
D) the float of the liens.

Question 50

Ready Credit Inc. holds a security interest in inventory owned by Soy Products Inc. Ready Credit can protect its claim to the inventory in the event of Soy Products' default by

A) assignment.
B) perfection.
C) redemption.
D) retention.

Question 51

Kiosk Jewelers borrows from Lender Inc. and Mortgage Company, using the same collateral. Only Mortgage Company has a perfected security interest. Kiosk defaults on both loans. The party with first rights to the collateral is

A) Kiosk Jewelers.
B) none of the choices.
C) Lender Inc.
D) Mortgage Company.

Question 52

Loan Company has a security interest against Manufacturing Inc. that is enforceable. In other words, with respect to the collateral, Loan's rights are said to

A) attach.
B) ensure.
C) perfect.
D) process.

Question 53

Lending Bank files a financing statement regarding a transaction with Metro Company. To be valid, the financing statement must contain all of the following except

A) a description of the collateral.
B) a statement of the purpose for the transaction.
C) Lending's name.
D) Metro's name.

Question 54

Bayou Financial Corporation holds a security interest in property owned by Cajun Farms. Perfection of this security interest may not protect Bayou against the claim of

A) a bank.
B) a buyer in the ordinary course of business.
C) a subsequent lien creditor.
D) a trustee in bankruptcy.

Question 55

Reg borrows funds from Suburban Bank secured by Reg's house. Reg defaults on the debt. The bank's options include

A) retaining the security interest and pursuing a judicial remedy.
B) destroying the collateral and collecting the unpaid debt from Reg.
C) disposing of the collateral in any commercially reasonable manner.
D) repossessing the collateral and disavowing the security interest.

Question 56

The payment of Cathy's debt to Debt Collector LLC is guaranteed by Cathy's personal property. Debt Collector is most likely to perfect its interest by

A) insuring the property for the full amount of its value.
B) calculating the precise amount of the debt.
C) correcting grammatical errors in the parties' written agreement.
D) filing a financing statement with the appropriate authority.

Question 57

Mobile Talk LLC sells phones. The phones are the collateral for a loan from Noble Bank to the seller. The parties agree to extend the UCC's automatic-perfection period for proceeds. In regard to the bank's interest in the proceeds, this agreement

A) permits the interest to remain perfected.
B) extinguishes the interest after the automatic-perfection period.
C) effectively relinquishes the bank's interest.
D) has no effect on the bank's interest.

Question 58

To create an enforceable security interest between Mortgage Bank and Nations Property Company with a written security agreement, the agreement must be signed by

A) the debtor.
B) the creditor.
C) all of the choices.
D) a disinterested third-party witness.

Question 59

Bayside Marina borrows funds from Credit Union secured by Bayside's interest in the marina. If Credit Union fails to perfect its claim to the collateral, the claim will be reduced to that of

A) an unsecured creditor.
B) a state of local official.
C) a secured party.
D) a debtor.

Question 60

Credit Corporation holds a perfected security interest in Dental Clinic's real property that includes priority to the proceeds from a sale of the collateral resulting from a bankruptcy. In relation to the bankruptcy trustee, this gives the secured party

A) equal rights.
B) superior rights.
C) no rights.
D) subordinate rights.

Question 61

Barth borrows funds from City Bank to pay his tuition. His mother Debi co-signs the credit application. After the loan agreement is signed, Barth agrees to a higher rate of interest without telling Debi. She is

A) discharged from the agreement.
B) liable at the higher rate of interest.
C) liable at the lower rate of interest.
D) liable for the principal only.

Question 62

Rancho West owes Silo & Barn Inc. $5,000 on their contract, but refuses to pay. To collect, Silo files a mechanic's lien, under which security for the debt is represented by

A) Rancho's personal property.
B) Rancho's real estate.
C) the $5,000 owed on the contract.
D) property held by a third party.

Question 63

Petro Refinery asks Quality Bank for a loan to increase its inventory. Quality requires Rose, Petro's president, to sign a personal guaranty to pay the debt if Petro defaults. Rose is a guarantor. The guaranty is required to be in writing because

A) the debtor has a right of redemption.
B) the co-signer has a right of contribution.
C) the main purpose rule applies.
D) the main purpose rule does not apply.

Question 64

Brewery Company's debt to Credit Service is past due. Credit obtains a judgment against Brewery, but the firm refuses to pay. Credit asks the court to order the seizure of Brewery's property. This is a request for

A) an artisan's lien.
B) a mechanic's lien.
C) a writ of attachment.
D) a writ of execution.

Question 65

United Contractors Inc. holds a lien on Vista Estate's real property. This property can be sold to satisfy the debt if, before the sale, notice is given to

A) Vista Estate.
B) Vista Estate's other creditors.
C) the general public.
D) the state in which the property is located.

Question 66

Equipment Company holds a lien on Fertile Farm's equipment. The equipment can be sold to satisfy the debt

A) if, before the sale, notice is given to Fertile Farm.
B) if, before the sale, notice is given to Fertile Farm's other creditors.
C) if, before the sale, notice is given to the general public.
D) without notice.

Question 67

Consumer Credit Inc. (CCI) lends $1,000 to Dave. Eve acts as Dave's surety. If Eve pays the loan, she gets

A) any right that Dave had against CCI.
B) any right that Dave or CCI had against her.
C) any right that CCI had against Dave.
D) none of the choices.

Question 68

Business Sales Inc.'s debt to Cartage Company is past due. Cartage brings a legal action against Business Sales to collect. To ensure that a judgment in the creditor's favor will be collectible, Cartage asks the court to order the seizure of the debtor's property. This is a request for

A) an artisan's lien.
B) a mechanic's lien.
C) a writ of attachment.
D) a writ of execution.

Question 69

Building Company adds a shipping dock to the property of Corporate Complex, but the owner does not pay. Building files a lien on Corporate's property. The property

A) can be held to guarantee payment of the debt.
B) must be sold to provide payment of the debt.
C) must be returned to the debtor within a certain period of time.
D) none of the choices.

Question 70

To make a sale to Gourmet Inc., Hill Valley Commodities asks Gourmet's outside accountant Ina to co-sign a credit application. According to the terms, if Gourmet defaults, Hill Valley can look to her for payment without first pursuing legal remedies against Gourmet. Tina is

A) a surety.
B) a lienor.
C) a guarantor.
D) a creditor.

Question 71

Rashi is a student at State University. In need of funds to pay for tuition and books, Rashi asks Tiempo Loans, Inc., for a short-term loan. The lender agrees to make a loan if Rashi will have someone who is financially responsible guarantee the loan payments. Umberto, a well-known businessperson and a friend of Rashi's family, calls Tiempo and agrees to pay the loan if Rashi cannot. Because of Umberto's reputation, the loan is made. Rashi is making the payments, but because of illness he is unable to work for one month. He asks Tiempo to extend the loan for three months. The lender agrees, raising the interest rate for the extended period. Umberto is not notified of the extension (and thus does not consent to it). One month later, Rashi drops out of school. All attempts to collect the remainder of the loan from Rashi fail. Can Tiempo assert a claim against Umberto on the debt?

Question 72

The roof in Rosalyn's house springs a leak. She contracts with Shelter Roofing & Restoration Company to repair the roof and fix the damage to the house. Rosalyn pays 10 percent of the price in advance. Shelter Roofing does the work, but Rosalyn refuses to pay the rest of the price. What can Shelter Roofing do, and how is it done?