Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

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?

Accepted Answer

Shelter Roofing can place a mechanic's lien on Rosalyn's house. State law governs mechanic's liens. Under that law, if a property owner in Rosalyn's situation does not pay what he or she owes, the house can be sold to satisfy the debt. The only requirements are that the lien be filed within a specific time from the time of the work, depending on the applicable statute. Notice of the foreclosure and sale of the house must be given to Rosalyn in advance. The proceeds from the sale are used to pay the debt and the costs of the proceedings, with any surplus paid to Rosalyn.

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

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

Accepted Answer

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 7

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

Accepted Answer

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 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

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

Question 11

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

Accepted Answer

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 12

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

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

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

Question 17

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

Accepted Answer

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

Question 18

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

Accepted Answer

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

Question 19

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

Accepted Answer

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 20

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

Accepted Answer

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.

Exam 25: Security Interests and Creditors Rights

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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