Question 1

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.

Accepted Answer

The transaction involves a loan and a security interest in real property, which falls under the scope of the Uniform Commercial Code (UCC). The UCC governs transactions involving personal property, as well as fixtures and real property that are used as collateral for loans or other forms of credit. Local building ordinances and state shipping regulations do not typically provide legal guidance for this type of transaction, and federal banking rules may apply to the lender, but not necessarily to the underlying loan agreement. Therefore, the correct answer is option D, the Uniform Commercial Code.

Question 2

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.

Accepted Answer

A written security agreement must contain a description of the collateral to be enforceable, as it identifies the specific assets subject to the security interest.

Question 3

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

Accepted Answer

Liens can have practical use as they can provide a legal claim to property in certain situations. They may also take priority over other claims depending on the type of lien and specific circumstances. However, the priority of liens can be complex and varies by jurisdiction.

Question 4

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.

Accepted Answer

A small-amount mechanic's lien does indeed stay on record until the property is sold and the lien is paid from the sale proceeds.

Question 5

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.

Accepted Answer

Under Article 9 of the Uniform Commercial Code, a debtor has the right to request confirmation of the amount of the unpaid debt from a secured party. If the secured party fails to comply with this request or provides an incorrect amount, they may be held liable to the debtor.

Question 6

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

Accepted Answer

The federal law provides exemptions to protect certain types of income, assets, and property from being seized to pay judgment debts. However, the amount and type of exemptions vary by state, and some states offer more extensive protection than others.

Question 7

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.

Accepted Answer

Due process generally requires that a debtor be given notice and an opportunity to be heard before their property is seized under a writ of attachment, to ensure fairness and protect the debtor's rights.

Question 8

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.

Accepted Answer

Redevelopment Capital Inc. is the secured creditor in this transaction, meaning they have given a loan or credit to Skyway Airport Corporation and have a security interest in collateral provided by Skyway Airport Corporation (such as property or assets) to ensure repayment of the loan. The debtor is the party that owes the money (in this case, Skyway Airport Corporation), the security interest is the interest held by the secured creditor in the collateral, and collateral is the property or assets provided by the debtor as security for the loan.

Question 9

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

Accepted Answer

In general, the priority of security interests is determined by the order in which they are perfected; the first security interest to be perfected typically has priority over those perfected later.

Question 10

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

Accepted Answer

When a debtor defaults, a secured creditor can still seek a judgment on the underlying debt even after relinquishing the security interest.

Question 11

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

Accepted Answer

This is known as the right of repossession, which is allowed under many secured transactions laws. However, the creditor must follow certain procedures and give notice to the debtor before taking possession of the collateral.

Question 12

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

Accepted Answer

When a debtor defaults, a secured party who does not choose to retain the collateral has several options, including selling the collateral to satisfy the debt, foreclosing on the collateral, or obtaining a judgment to recover any deficiency. The secured party does not have to relinquish the security interest to the debtor.

Question 13

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.

Accepted Answer

A buyer in the ordinary course of business takes goods free of any security interest created by the seller, ensuring the smooth flow of commerce and protecting buyers from undisclosed security interests.

Question 14

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

At common law and in various jurisdictions, there are significant differences between the liability of a surety and a guarantor. A surety's obligation is typically primary and immediate upon the debtor's default, whereas a guarantor's obligation usually arises only after the creditor has exhausted remedies against the principal debtor.

Question 15

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

Depreciation causes the value of assets to decrease over time, which means that the sale of collateral may not cover the full amount owed on a debt. In the case of default, the debtor is unlikely to have additional funds to pay the remaining deficiency.

Question 16

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.

Accepted Answer

Sell-Mart is the secured party because they have a security interest in any goods that Reese buys with the card until she pays for them in full. This means that Sell-Mart has the right to take possession of the goods if Reese fails to make the required payments. Reese is the debtor in this situation, and the credit card is just a means of accessing credit. The goods that are bought with the credit card are the collateral for the security interest.

Question 17

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.

Accepted Answer

The concept of guaranteeing payment before selling goods or lending funds is called a secured transaction. This means that the lender has some form of collateral or security to ensure that they will receive payment, either through a lien on the goods being sold or through a security interest in other assets of the borrower. This is a common practice in the auto sales and finance industry, where the vehicle itself serves as collateral for the loan. The other options, such as bad faith, fiduciary duty, and fair debt collection practices, do not accurately describe this concept.

Question 18

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

Accepted Answer

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

Question 19

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

Accepted Answer

Perfection of a security interest does not automatically grant it priority over all other perfected security interests. Priority among perfected security interests depends on factors such as the type of collateral, the time of perfection, and specific rules applicable to the type of security interest.

Question 20

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.

Accepted Answer

The answer of When a co-surety pays more than his...

Quiz 25: Security Interests and Creditors Rights

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

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