Question 1

The financing of commercial sales of goods is governed by:

Accepted Answer

Article 9 of the UCC governs secured transactions, including the financing of commercial sales of goods.

Question 2

Fern TV sells Ryan a 52" plasma television. Ryan does not have the cash necessary to buy the TV, so Fern allows him to make 12 monthly payments. If Ryan misses any payments, Fern may take the TV back. Fern:

Accepted Answer

Fern has a security interest in the TV as collateral for Ryan's debt. This means that if Ryan fails to make the payments, Fern has the right to repossess the TV.

Question 3

When a business lends another business money, it should perfect its security interest by:

Accepted Answer

Filing a financing statement with the state secretary of state is the most common and effective way for a business to perfect its security interest when lending money to another business. This allows the lending business to claim priority over other potential creditors in the event of the borrowing business's default or bankruptcy. The other choices listed are not relevant to perfecting a security interest.

Question 4

Lisa goes to the local appliance store and buys an oven on credit. The store extends her credit. The store's security interest in the oven perfects when:

Accepted Answer

The store's security interest in the oven perfects when the financing statement is filed with the Secretary of State. This serves as notice to other potential creditors and ensures the store's priority over other claims in case of default or bankruptcy. Completing the financing statement, posting notices, and notifying credit agencies may all be steps in perfecting the security interest, but filing with the Secretary of State is the most important step.

Question 5

Tiny borrows $20,000 from First Bank. Mike is the surety on the loan. Tiny defaults and First Bank requires Mike to pay the balance of the loan. In this case, Mike may sue:

Accepted Answer

As the surety on the loan, Mike is legally responsible for the balance of the loan if the borrower defaults. He can then sue the borrower, Tiny, to seek reimbursement or exoneration for the amount he paid to the bank. This is a common scenario in suretyship agreements. Mike does not have legal grounds to sue the bank as they are within their rights to hold the surety responsible for the loan. Therefore, the best choice in this case is C.

Question 6

If the principal does not pay the creditor, and the surety has to satisfy the debt, the principal:

Accepted Answer

The principal is ultimately responsible for repaying any debt incurred and if the surety has to step in to satisfy the debt, the principal is obligated to repay the surety. This is a standard provision in suretyship agreements.

Question 7

An attached interest means:

Accepted Answer

An attached interest refers to a situation in which the customer has transferable rights in the collateral and has also signed the debt instrument. This means that the customer has a legal claim to the collateral and has agreed to repay the debt as per the terms of the agreement. It does not necessarily imply that the customer has provided value, as this may be a separate requirement.

Question 8

Lisa goes to the local appliance store and buys an oven on credit. The store extends her credit. The store's security interest in the oven perfects when the store:

Accepted Answer

The store's security interest in the oven perfects when it files a financing statement or when possession of the oven is taken, neither of which are options provided. The choices given do not accurately describe the process of perfecting a security interest according to UCC Article 9.

Question 9

If the principal does not pay the creditor, and the surety has to satisfy the debt, the principal:

Accepted Answer

The principal is obligated to repay the surety the full amount of the debt that the surety has satisfied on the principal's behalf. None of the other choices accurately describe this obligation.

Question 10

The law regarding the kinds of credit that may be applied to personal property is:

Accepted Answer

The law regarding the kinds of credit that may be applied to personal property is not specifically covered by the common law of torts, Article 2 of the UCC (which generally deals with the sale of goods), the law of preferred interests, or the Bankruptcy Code. Instead, it is typically governed by other areas of law, including secured transactions under Article 9 of the UCC.

Question 11

In order to establish a superior right, a creditor must:

Accepted Answer

In order to establish a superior right, a creditor must perfect their security interest in the collateral. This means that they must file the appropriate documents with the relevant government agency or take possession of the collateral. This ensures that the creditor has priority over other creditors in the event of default or bankruptcy. Choices A, B, and D are not relevant to establishing a superior right.

Question 12

To create a legally valid security interest, a business must ensure that the interest is:

Accepted Answer

To create a legally valid security interest, the interest must be perfected, meaning that the creditor has taken all necessary steps to give notice of their interest in the collateral. This ensures that the creditor has priority over any other parties who claim an interest in the collateral. Debated, united, detached, and exposed do not have any relevance to the creation of a legally valid security interest.

Question 13

Tiny borrows $20,000 from First Bank. Mike is the surety on the loan. Tiny defaults and First Bank requires Mike to pay the balance of the loan. In this case, Mike may sue:

Accepted Answer

Mike, as the surety, has agreed to take on the obligation of paying the loan if Tiny defaults. This situation does not inherently involve violation of guarantor obligations, fraud, or grounds for exoneration by the bank, nor does it legally allow Mike to sue Tiny to become an indentured servant, as indentured servitude is not a legal remedy for debt in modern legal systems.

Question 14

In order to establish a superior right, a creditor must:

Accepted Answer

A creditor typically establishes a superior right by perfecting a security interest, which involves steps like filing a financing statement, not by the actions listed in the other choices.

Question 15

When a creditor extends credit to a debtor, to protect itself, the creditor should:

Accepted Answer

By taking a security interest in an asset owned by the debtor and attaching any security interest it takes, the creditor has a better chance of recouping their losses if the debtor defaults on the loan. A perfected security interest is also important, but selecting option E is incorrect because it includes the contradictory statement of making sure the security interests are not perfected.

Question 16

Which of the following are necessary for a security interest to attach:

Accepted Answer

All of the other specific choices are correct. The security agreement must be signed by the customer, the seller must have provided value, and the customer must have legal, transferable rights in the collateral for a security interest to attach.

Question 17

Under the UCC, a security interest for consumer goods is perfected:

Accepted Answer

Under the Uniform Commercial Code (UCC), a security interest in consumer goods is automatically perfected upon attachment without the need for filing. This is known as "perfection by attachment."

Question 18

To create a legally valid security interest, a business must ensure that the interest is:

Accepted Answer

To create a legally valid security interest, the interest must be "attached." This involves a contractual agreement between the creditor and debtor, value being given, and the debtor having rights in the collateral. None of the options provided (exposed, debated, united, detached) correctly describe this process.

Question 19

The law regarding the kinds of credit that may be applied to personal property is:

Accepted Answer

Article 9 of the UCC governs secured transactions, including the types of credit that may be applied to personal property (such as mortgages on homes, liens on cars, and security interests in other goods).

Question 20

When a business lends another business money, it should perfect its security interest by:

Accepted Answer

None of the options listed are correct ways to perfect a security interest in a loan between businesses. The correct way to perfect a security interest may depend on specific laws and regulations governing the type of collateral being used to secure the loan. Common methods include filing a UCC-1 financing statement in the appropriate state or registering with a specialized registry for certain types of collateral (such as intellectual property).

Quiz 13: Negotiable Instruments, Credit, and Bankruptcy

The financing of commercial sales of goods is governed by:

Fern TV sells Ryan a 52" plasma television. Ryan does not have the cash necessary to buy the TV, so Fern allows him to make 12 monthly payments. If Ryan misses any payments, Fern may take the TV back. Fern:

When a business lends another business money, it should perfect its security interest by:

Lisa goes to the local appliance store and buys an oven on credit. The store extends her credit. The store's security interest in the oven perfects when:

Tiny borrows $20,000 from First Bank. Mike is the surety on the loan. Tiny defaults and First Bank requires Mike to pay the balance of the loan. In this case, Mike may sue:

If the principal does not pay the creditor, and the surety has to satisfy the debt, the principal:

An attached interest means:

Lisa goes to the local appliance store and buys an oven on credit. The store extends her credit. The store's security interest in the oven perfects when the store:

If the principal does not pay the creditor, and the surety has to satisfy the debt, the principal:

The law regarding the kinds of credit that may be applied to personal property is:

In order to establish a superior right, a creditor must:

To create a legally valid security interest, a business must ensure that the interest is:

Tiny borrows $20,000 from First Bank. Mike is the surety on the loan. Tiny defaults and First Bank requires Mike to pay the balance of the loan. In this case, Mike may sue:

In order to establish a superior right, a creditor must:

When a creditor extends credit to a debtor, to protect itself, the creditor should:

Which of the following are necessary for a security interest to attach:

Under the UCC, a security interest for consumer goods is perfected:

To create a legally valid security interest, a business must ensure that the interest is:

The law regarding the kinds of credit that may be applied to personal property is:

When a business lends another business money, it should perfect its security interest by: