Deck 21: Security Interests and Creditors Rights

Question 1

A security agreement does not need to contain a description of the collateral.

Answer 1

False

Question 2

A purchase-money security interest in consumer goods is created when a person buys goods on credit.

Answer 2

True

Question 3

A buyer in the ordinary course of business has priority even if a previously perfected security interest exists as to the goods.

Answer 3

True

Question 4

Advances against lines of credit can be subject to a perfected security interest in certain collateral.

Question 5

When a debtor fails to pay for labor and materials furnished for the repair or improvement of personal property, a creditor can recover payment through a mechanic's lien.

Question 6

Once default has occurred and the secured party has obtained possession of the collateral, the secured party has no more options.

Question 7

A secured party is any creditor who has a security interest in a debtor's collateral.

Question 8

Proceeds are whatever is received when collateral is sold.

Question 9

Perfection is usually accomplished without filing a financing statement.

Question 10

Any breach of the terms of the security agreement can constitute default.

Question 11

If a debtor does not pay a mechanic's lien, the debtor's property can be sold to satisfy the debt.

Question 12

Most of the customers in any business are buyers in the ordinary course of business.

Question 13

A security interest that provides for a security interest in collateral subject to future advances is a floating lien.

Question 14

To create an enforceable security interest, the secured party must give something of value to a debtor's other creditors.

Question 15

When more than one party claims an interest in the same collateral, a perfected secured party's interest has priority over the interests of most other parties.

Question 16

A security interest is enforceable only if the debtor has title to the collateral.

Question 17

In most situations, the state office in which a financing statement should be filed depends on the location of the collateral.

Question 18

Attachment gives the creditor an enforceable security interest in the collateral.

Question 19

A purchase-money security interest (PMSI) in consumer goods is perfected automatically when the PMSI is created.

Question 20

Where and how to perfect a security interest sometimes depends on the classification of the collateral.

Question 21

A creditor must exhaust all legal remedies against the principal debtor before holding the surety responsible for payment.

Question 22

Market Credit Corporation is the secured party in a secured transaction with Northwest Outfitters. Market Credit could also be referred to as

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

Question 23

A guaranty contract must normally be in writing to be enforceable.

Question 24

The payment of Olinda's debt to Pari is guaranteed by Olinda's personal property. Pari is most likely to perfect her interest by​

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

Question 25

A surety can use any defenses available to the principal debtor to avoid liability on the debt.

Question 26

An artisan's lien is possessory.

Question 27

A creditor's composition agreement is usually held to be enforceable.

Question 28

A surety is primarily liable for the debt of a principal.

Question 29

A creditor's surrender of collateral to a debtor without the guarantor's consent can reduce the guarantor's obligation.

Question 30

A defaulting debtor cannot redeem nonexempt property before a sale under a writ of execution.

Question 31

Federal law alone governs garnishment actions.

Question 32

A guarantor can be required to pay an obligation only after the principal debtor defaults.

Question 33

A guarantor is secondarily liable on an obligation.

Question 34

An employee can be discharged due to a garnishment order.

Question 35

If a creditor wins a judgment against a debtor and the debtor will not or cannot pay the amount due, the dispute is at an end.

Question 36

In some states, a judgment creditor must obtain a separate order of garnishment to cover each of the debtor's pay periods.

Question 37

Olaf is the creditor in a transaction with Phil. Once certain requirements are met, Olaf’s rights will attach, which means that Olaf will have

A)an indivisible ownership right to Phil’s property.
B)an enforceable security interest in Phil’s property.
C)a notice affixed to Phil’s property.
D)the permission of a court to seize Phil’s property.

Question 38

The payment of Allen Janitorial Service’s debt to Business Finance, Inc., is guaranteed by Allen’s personal property. Business Finance is

A)a debtor.
B)a secured creditor.
C)a security interest.
D)a secured party.

Question 39

In the context of judicial liens, an attachment is a court-ordered seizure and taking into custody of property before a judgment is obtained on a past-due debt.

Question 40

The payment of Eden Valley Farm’s debt to First County Bank is guaranteed by Eden’s personal property. This property is

A)a future advance.
B)after-acquired property.
C)a floating lien.
D)collateral.

Question 41

Gina borrows from Hilltop Bank the funds to buy a car. The car secures the debt. Gina defaults on the loan. Hilltop takes possession of the car, planning to sell it to recover some of the unpaid debt. Before Hilltop sells the car or enters into a contract for its sale, Gina can pay the bank what she owes and take back the car. This is​

A) ​a deficiency judgment.
B) ​a floating lien.
C) ​the right of redemption.
D) ​the right of retention.

Question 42

Natural Resource Investment Company and Mega Bank are secured parties with security interests in property owned by LNG Gas Corporation. Between these interests, the first to be filed or perfected has priority over other filed or perfected security interests in​

A) ​most circumstances.
B) ​no circumstances.
C) ​states that have not adopted Article 9 of the UCC.
D) ​states that require a security agreement to be signed and dated by the creditor.

Question 43

Middling Credit Corporation asks Little Supply Company to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired property. This is​

A) ​a first-in-time rule.
B) ​a floating lien.
C) ​a funds guaranty.
D) ​in violation of secured transactions law.

Question 44

Lena borrows from Mac and Nicol, using the same collateral for both loans. Only Nicol has a perfected security interest. Lena defaults on both loans. The party with first rights to the collateral is​

A) ​Lena.
B) ​Mac and Nicol, in proportion to Lena's debt to each.
C) ​Mac only.
D) ​Nicol only.

Question 45

Kayla's Auto Sales borrows money from Lenders Finance Corporation under a security agreement. With the money, Kayla's buys six Miatas. The Miatas are​

A) ​beyond the extent of Lenders's interest.
B) ​after-acquired property.
C) ​a future advance.
D) ​proceeds.

Question 46

The payment of Chick's debt to Diamond is guaranteed by Chick's collection of eight restored autos. Their agreement describes Chick's subject property by serial number. To establish Diamond's interest, this is​

A) ​not sufficient because it is too specific.
B) ​not sufficient if it matches the description in the financing statement.
C) ​sufficient if it accurately describes the parties' agreement.
D) ​not sufficient without an added description of the autos' other identifying characteristics.

Question 47

Capital Projects, Inc., files a financing statement to provide notice of its security interest in the property of Data Network Corporation. The initial effective term of a financing statement is a period of​

A) ​five days.
B) ​five months.
C) ​five weeks.
D) ​five years.

Question 48

Frank performs a contract with Gene to add a garage to Gene's property, but Gene does not pay. Frank can file a lien on Gene's property if, from the last date labor or materials were provided, he acts​

A) ​immediately.
B) ​within 60 to 120 days.
C) within two years.
D) ​within a reasonable time.

Question 49

Debit & Credit Financing, Inc., and Equity Lending Company are secured parties with security interests in property owned by Fleet Shipping Corporation. 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

Loni delivers her Mazda to be repaired at Nile's Body Shop. Loni agrees to pay cash. Nile performs, but Loni does not pay. Nile tells Loni that he will keep the car until she pays. This is​

A) ​a judicial lien.
B) ​a mechanic's lien.
C) ​an artisan's lien.
D) ​a violation of most states' laws.

Question 51

Helen's debt to Imprints Printers is past due. Imprints obtains a judgment against Helen, but she refuses to pay it. Imprints asks the court for an order that directs the sheriff to seize and sell any of Helen's nonexempt real or personal property that is within the court's geographic jurisdiction. This is a request for​

A) ​a writ of execution.
B) ​a composition agreement.
C) ​an order that would violate most state laws.
D) ​an order of garnishment.

Question 52

Sasha's debt to Tully is past due. Tully brings a legal action against Sasha to collect the debt. To ensure that a judgment in Tully's favor will be collectible, he asks the court to order the seizure of Sasha's property. This is a request for​

A) ​a contract of suretyship.
B) ​an order that would violate most state laws.
C) ​a writ of attachment.
D) ​an order of receivership.

Question 53

Quotient Financial Corporation is a secured party with a security interest in property owned by Retail Sales Company. Perfection of this security interest may not protect Quotient Financial 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 54

The payment of John's debt to Kirsten is guaranteed by John's personal property. Kirsten is most likely to perfect her interest by​

A) ​attaching a bright label to John's property.
B) ​calculating the precise amount of John's debt.
C) ​correcting grammatical errors in the parties' written agreement.
D) ​filing a financing statement with the appropriate authority.

Question 55

Custom Cabinets & Carpentry Company has a claim against Duane's property to satisfy a debt that takes priority over other claims against the same property. This is​

A) ​a lien.
B) ​a violation of most state laws.
C) ​a composition agreement.
D) ​a contract of suretyship.

Question 56

Frances borrows $1,000 from Garden State Bank, using her recreational vehicle (RV) motor home, which she purchased at Hugo's RV Sales & Service, as collateral. To perfect its security interest, the bank must file its financing statement with​

A) ​the secretary of state.
B) ​the county clerk.
C) ​the city treasurer.
D) ​Hugo's RV Sales & Service.

Question 57

Brass & Woodwind Instruments, Inc., allows Clifton to keep a professional clarinet that he bought from Brass & Woodwind even though he has not paid the full price. Brass & Woodwind's legally sufficient financing statement in the goods need not include​

A) ​a description of the collateral.
B) ​a statement of the reason for allowing Clifton to take the goods.
C) ​Brass & Woodwind's name.
D) ​Clifton's name.

Question 58

Jessie's debt to Kayla is past due. Kayla brings a legal action against Jessie to collect the debt. Kayla asks the court to order Liberty Bank, in which Jessie has an account, to pay a portion of the funds to Kayla. This is a request for​

A) ​a writ of execution.
B) ​an order of garnishment.
C) ​an order that would violate most state laws.
D) ​a composition agreement.

Question 59

Oscar refuses to pay Petra $500 in cash on their contract to repair Oscar's washing machine, which Petra still possesses at her repair shop. Petra's lien on the machine will terminate​

A) ​if Petra continues to maintain possession.
B) ​if Petra does not file a written notice of lien within thirty days.
C) ​if Petra voluntarily surrenders possession.
D) ​within thirty days.

Question 60

Hal's Hardware store defaults on a debt to Intrastate Bank, which takes possession of the collateral securing the debt. Intrastate sells the collateral. The proceeds from the sale are applied first to​

A) ​the balance of Hal's debt to Intrastate.
B) ​Hal's debts to other creditors.
C) ​Intrastate's expenses for the sale.
D) ​the minimum amount Hal's needs to stay in business.

Question 61

Fleet Trucking, LLC, buys a white van from Go Motors, Inc., on credit under a guaranty signed by Herbie, Fleet's president, making him personally liable if the company does not pay. Herbie​

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

Question 62

Elvin fraudulently induces Franz, a consumer, to sign a promissory note to buy a speedboat. Elvin sells the note to Gaston, who takes it for value, in good faith, and without knowledge of the fraud. With respect to the defense against payment on the note to Elvin, Franz can​

A) ​assert this defense against Gaston.
B) ​file for a property exemption.
C) ​exercise the right of subrogation.
D) ​obtain a deficiency judgment.

Question 63

Raoul is a surety for Suzu's loan from Turnkey Credit, Inc. Raoul's right to "step into the shoes" of Turnkey, after paying Suzu's debt, and exercise any of the Turnkey's rights against Suzu is the right of​

A) ​contribution.
B) ​redemption.
C) ​reimbursement.
D) ​subrogation.

Question 64

Bertram, Chaka, and Dougal are co-sureties of Erica's debt to Finance Loan Company. Bertram pays Erica's entire debt. Bertram's right to seek proportionate payments from Chaka and Dougal is the right of

A) ​contribution.
B) ​exemption.
C) ​reimbursement.
D) ​subrogation.

Question 65

Nell's debt to Olsen is past due. Olsen obtains an order of garnishment to require Nell's employer Pro Transmission Service, Inc., to pay part of Nell's paycheck to Olsen. The law​

A) ​limits the amount that can be taken from Nell's take-home pay.
B) ​permits Olsen to dismiss Nell because her wages are garnished.
C) ​practically does not allow Olsen to collect the awarded amount.
D) ​requires Pro to retain Nell as an employee until the debt is paid.

Question 66

Fact Pattern 21-1
Petro Oil Refinery asks Quality Bank for a loan to increase its oil inventory. Quality requires Robin, Petro's president, sign a personal guaranty to pay the debt if Petro defaults. Meanwhile, to sell fifty barrels of refined oil to Slick Lubricants, Inc., Petro asks its outside accountant Tina to co-sign a credit application.
Refer to Fact Pattern 21-1. If Robin is a guarantor, then the guaranty is required to be in writing because of​

A) ​the debtor's right of redemption.
B) ​the co-signer's right of contribution.
C) ​the creditor's transfer of possession.
D) ​the Statute of Frauds.

Question 67

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

A) ​any right that CCI had against Joe, but not a right to be repaid by Joe.
B) ​a right to be repaid by Joe, but not any right that CCI had against Joe.
C) ​any right that CCI had against Joe and a right to be repaid by Joe.
D) ​none of the choices.

Question 68

Jay is a surety for Karen's loan from Little Bank. Jay's right to be reimbursed by Karen after having paid her debt is the right of​

A) ​contribution.
B) ​redemption.
C) ​reimbursement.
D) ​subrogation.

Question 69

Smartt Software Company borrows $10,000 from Term 'N All Loans, Inc., but cannot repay the loan when it comes due. Term 'N All refuses to extend the time for repayment unless Smartt can provide an acceptable surety. Uno Venture Corporation agrees to act as a surety for the loan after Smartt offers the firm a discount on software and shows Uno financial statements, compiled with Term 'N All's assistance, that misrepresent Smartt's financial situation. Later, after Uno uses the discount to buy software, Smartt again defaults on repayment of the loan, and Term 'N All files a suit against Uno to collect the amount of the debt. Is Uno liable? Why or why not?​

Question 70

Lenders Loan Company and Mortgage Service Corporation-Nadya's creditors-contract with Nadya for the discharge of her liquidated debts on payment of a lesser sum. This is​

A) ​a composition agreement.
B) ​a subrogation.
C) ​a suretyship agreement.
D) ​in violation of most states' laws.

Question 71

Sara needs $1,500 to buy textbooks and other school supplies. Tomas agrees to loan Sara $1,500, accepting as collateral Sara's car. They put their agreement in writing and sign it. Sara keeps possession of the car. Does Tomas have an enforceable security interest? How can Tomas let other creditors know of his interest in the car?​

Question 72

Fact Pattern 21-1
Petro Oil Refinery asks Quality Bank for a loan to increase its oil inventory. Quality requires Robin, Petro's president, sign a personal guaranty to pay the debt if Petro defaults. Meanwhile, to sell fifty barrels of refined oil to Slick Lubricants, Inc., Petro asks its outside accountant Tina to co-sign a credit application.
Refer to Fact Pattern 21-1. If, after the loan agreement is signed, Slick agrees to a higher rate of interest without telling Tina, then Tina 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.