Deck 17: UCC Article 2A: Lease Contracts

Question 1

Contracts for the lease of goods are governed by state statutory laws that are modeled after Article 2A of the UCC, which defines what a lease is.

Answer 1

True

Question 2

Article 2A applies to the lease of goods and real estate leases.

Answer 2

False

Question 3

Many business firms prefer to buy personal property, such as the machinery and heavy equipment rather than lease it.

Answer 3

False

Question 4

Leasing is often an attractive alternative because the business can use equipment on an exclusive basis without the large up-front investment required to purchase it.

Question 5

True leases always involve two parties.

Question 6

A secured transaction occurs when the seller retains a security interest in the goods being sold.

Question 7

The UCC applies its warranty rules for the sale of goods to leases.

Question 8

A lease must be in writing if the total payments to be made under the lease, excluding payments for options to renew or buy, are $1,000 or more.

Question 9

What may be the best reason(s) to lease equipment?

A) Tax deductions
B) Current equipment access
C) Preserve cash flow
D) All of the choices are correct.

Question 10

Leases of goods under Article 2A of the Uniform Commercial Code (UCC)

A) 1A
B) 1C
C) 2A
D) 2B

Question 11

What is most important in understanding UCC leasing rules?

A) Fees involved
B) Case law
C) Potential collateral
D) All of the choices are correct.

Question 12

What may a business lease be used for?

A) Service Fees
B) Machinery
C) Rental Property
D) Collateral

Question 13

__________ is often an attractive alternative because the business can use equipment on an exclusive basis without the large up-front investment required to purchase it.

A) Renting
B) Buying
C) Selling
D) Leasing

Question 14

The main difference between a lease and a sale is that a sale transfers __________ to the goods from the seller to the buyer, while a lease does not transfer title.

A) Temporary custody
B) Ownership
C) Limited rights
D) Possession

Question 15

Equipment that a business may lease include:

A) Service Fees
B) Machinery
C) Rental Property
D) Land

Question 16

Title to the goods does not pass, since the lessor retains it in the form of a __________ interest in the goods.

A) Former
B) Residual
C) Continuing
D) Collateral

Question 17

What case applied the economic realities test to the transaction and held that, even though the parties intended the Master Agreement to be a lease, the transactions was, in fact, a secured financing arrangement?

A) Corporate Center Associates v. Total Group and Office Outfitters, 462 N.W.2d 713 (Iowa Ct. App. 1990)
B) In Re: Pillowtex, Inc., 349 F.3d 711 (3d Cir. 2003)
C) Brankle Brokerage & Leasing, Inc. v. Volvo Financial Services, 394 B.R. 906 (2008)
D) None of the choices are correct.

Question 18

What does a lease not transfer?

A) Title
B) Goods
C) All of the choices are correct.
D) None of the choices are correct.

Question 19

Lessee in ordinary course of business means a person who in good faith and without knowledge that the lease to him [or her] is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods leases in ordinary course from a person in the business of selling or leasing goods of that kind but does not include a pawnbroker.

A) Lessor
B) Lessor as a merchant
C) Lessee
D) Lessee in ordinary course of business

Question 20

Which party acts as a middleman in a finance lease?

A) The lessee
B) The supplier
C) The seller
D) The lessor

Question 21

The __________, the party who owns the leased goods and is making them available for lease.

A) Obligor
B) Lessor
C) Renter
D) Lessee

Question 22

What most likely happens at the end of the lease term?

A) Lease is extended
B) The equipment is returned to the lessor
C) The equipment is resold to the lessor
D) Nothing happens

Question 23

Who must sign the lease agreement in order to be valid?

A) Lessor
B) Lessee
C) Renter
D) Two or more above.

Question 24

Jane makes payments to a company for office equipment she intends to keep at the end of the lease by renewing the lease for the remaining useful life of the equipment. What type of transaction does Jane intend to pursue?

A) Rental agreement
B) Lease agreement
C) Security agreement
D) Resale agreement

Question 25

A secured transaction occurs when the seller retains a security __________ in the goods being sold.

A) Fees
B) Interest
C) Property
D) Collateral

Question 26

What type of title does a secured transaction pass to the buyer?

A) Express
B) Automatic
C) Conditional
D) Predominant

Question 27

Which of the following statements best describes what a secured transaction is?

A) A secured transaction is when the seller retains a security interest in the goods being sold.
B) A secured transaction is when the seller retains title to the goods being sold.
C) A secured transaction is when the buyer obtains a security interest in the goods being sold.
D) A secured transaction is when the lessee obtains a security interest in the goods being sold.

Question 28

What legal recourse does a secured party have upon default?

A) Reimbursement
B) Repayment
C) Repossession
D) None of the choices are correct.

Question 29

According to the UCC, the true lease of goods involves the payment for __________ possession with an expectation that the goods will be returned to the owner at the end of the lease term.

A) Permanent
B) Quasi-Permanent
C) Temporary
D) Custodial

Question 30

When does a lease for goods create a security interest in the goods?

A) Obligation to make payments
B) Payments are made for the entire term
C) No right to early termination
D) All of the choices are correct.

Question 31

What document is necessary for a lessor to file when acquiring a security interest in collateral?

A) Service fee agreement
B) UCC financing statement
C) Rental Property
D) Novation

Question 32

A business signs a three-year "lease" for a very old copier that only has an additional two-year useful life. What does the business maintain?

A) Implied agreement
B) Security interest
C) Rental agreement
D) Financing statement

Question 33

What type of warranty conveys that the goods shall be merchantable via the contract where the seller is a merchant with respect to goods of that kind?

A) Express warranty
B) Temporary warranty for resale
C) Implied warranty of fitness for a particular purpose
D) Implied warranty of merchantability

Question 34

For goods to be merchantable, they must be:

A) pass without objection in the trade under the contract description
B) conforming in some respects
C) available for sale at a later date
D) None of the choices are correct.

Question 35

What types of warranties are offered when goods are leased?

A) Express
B) Valid
C) General
D) None of the choices are correct.

Question 36

How many parties are there in a finance lease?

A) One
B) Two
C) Three
D) None of the choices are correct.

Question 37

What must be included in a finance lease?

A) Parties
B) Goods
C) Time for performance
D) All of the choices are correct.

Question 38

What is the threshold amount in the lease which requires a writing?

A) $500.00
B) $750.00
C) $1,000.00
D) $5,000.00

Question 39

What situation would allow for an exception the writing requirement for leases?

A) General goods for sale
B) Specially manufactured Goods
C) Verbal agreement of the parties
D) Perishable goods

Question 40

What law states that if the total payments to be made under the lease, excluding payments for options to renew or buy, are $1,000 or more, the lease must be in writing?

A) Rule Against Perpetuities
B) Statute of Frauds
C) Torts
D) Conflict of Laws

Question 41

Baked Goods Inc. wants to lease an oven from Oven Corp. for use in its bakery business. Baked Goods's bank agrees to purchase the equipment from Oven Corp. and then lease the equipment to Baked Goods. In this scenario, identify who is the lessor and the lessee and why?

Question 42

Sally's Concrete signs a five-year "lease" for office computers and laptops that gives Sally's an option to become the owner of the computers and laptops at the end of the five-year period at no additional charge. Does Sally's Concrete have a lease or a security interest?

Question 43

Hugh's Hot Dogs is in need of push carts for their recent marketing push to local lunch time workers. In efforts to acquire additional equipment, Hugh's CEO seeks out new suppliers. They have recently decided to lease the push carts from a local restaurant supply store. The store requests a lease agreement be signed by Hugh's Hot Dogs. Who is the lessor? The lessee?

Question 44

Hugh's Hot Dogs is in need of push carts for their recent marketing push to local lunch time workers. In efforts to acquire additional equipment, Hugh's CEO seeks out new suppliers. The store requests a lease agreement be signed by Hugh's. The CEO sends the CFO to sign the agreement on his behalf. Hugh's in-house counsel has examined the agreement. Must the CFO sign the lease agreement? Will Hugh's be bound to the agreement although the CEO did not sign it?

Question 45

Jimmy drives a company car for Acme Corp. Acme Corp. leased the car from Toyota for three years. Jimmy drives to and from work but also uses the car to take his kids to soccer practice three times a week. Will Acme Corp be able to claim depreciation on the car or tax benefits for the mileage?