Question 1

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.

Accepted Answer

The right of redemption is the legal right of a borrower to regain ownership of an asset, such as a car or house, after defaulting on a loan and before the asset is sold by the lender to recover the debt. In this scenario, Gina has the right to pay off the loan and take back possession of the car before Hilltop sells it. Choice A, deficiency judgment, refers to the difference between the amount owed on a loan and the amount recovered through the sale of the collateral. Choice B, floating lien, is a security interest in an asset, such as a car or boat, that may not have a fixed location or may move from one location to another. Choice D, right of retention, refers to the right of a service provider to retain possession of a customer's property until payment is made for services rendered.

Question 2

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.

Accepted Answer

The general rule under the Uniform Commercial Code (UCC) is that the first to file or perfect their security interest in the collateral has priority over later filings. This rule applies in most circumstances, except for a few exceptions such as purchase money security interests or statutory liens. States that have adopted Article 9 of the UCC follow this rule. The requirement for a signed and dated security agreement does not affect the priority of competing security interests.

Question 3

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.

Accepted Answer

A security agreement that provides coverage for proceeds from the sale of after-acquired property is referred to as a floating lien. This type of security interest can extend to property that the debtor has not yet acquired at the time the security agreement is executed. It is a common type of security interest in secured transactions.

Question 4

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.

Accepted Answer

Nicol has a perfected security interest, which means they have priority over Mac and Lena in regards to the collateral. Therefore, Nicol has first rights to the collateral.

Question 5

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.

Accepted Answer

The Miatas are after-acquired property, which refers to property that the debtor does not own at the time the security agreement is entered into but which the debtor may acquire later.

Question 6

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.

Accepted Answer

The agreement accurately describes the subject property by serial number, which is sufficient to establish Diamond's interest in the eight restored autos. There is no need for an added description of the autos' other identifying characteristics. Matching the description in the financing statement would further strengthen Diamond's interest but is not necessary for the agreement to be valid.

Question 7

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.

Accepted Answer

The initial effective term of a financing statement is five years.

Question 8

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.

Accepted Answer

In most states, a lien can be filed within a certain timeframe after the last date of labor or materials provided, usually ranging from 60 to 120 days. This gives the contractor a reasonable amount of time to seek payment before resorting to legal action.

Question 9

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.

Accepted Answer

Priority between security interests is generally determined by the time of perfection or attachment. The first to perfect or attach their security interest generally has priority over later security interests.

Question 10

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.

Accepted Answer

The answer of Loni delivers her Mazda to be repaired...

Question 11

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.

Accepted Answer

Imprints is requesting a writ of execution, which is a court order directing a sheriff to seize and sell a debtor's nonexempt property to satisfy a judgment. This is a common tool used by creditors to collect on a debt owed to them. A composition agreement is an agreement between a debtor and creditors to settle a debt for less than the full amount owed, and an order of garnishment is a court order directing an employer to withhold a portion of an employee's wages to satisfy a debt. Neither of these options are being requested by Imprints in this scenario.

Question 12

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.

Accepted Answer

Tully's request for the seizure of Sasha's property is a request for a writ of attachment. This legal remedy allows a creditor to have property in the debtor's possession seized in order to secure the debt. It is a common method of ensuring that a judgment in the creditor's favor will be collectible.

Question 13

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.

Accepted Answer

The answer of Quotient Financial Corporation is a secured party...

Question 14

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.

Accepted Answer

Filing a financing statement with the appropriate authority is the most common way of perfecting a security interest in personal property. This provides notice to the public that Kirsten has an interest in John's property and establishes her priority over other creditors in the event of default. Attaching a label or calculating the debt amount would not have legal significance in perfecting Kirsten's interest, while correcting grammatical errors is not related to perfecting the interest at all.

Question 15

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.

Accepted Answer

This is a description of a lien, which is a legal claim against property to secure payment of a debt or obligation. Liens can be voluntary (such as a mortgage) or involuntary (such as a tax lien or mechanic's lien) and can take priority over other claims against the same property.

Question 16

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.

Accepted Answer

The answer of Frances borrows $1,000 from Garden State Bank,...

Question 17

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.

Accepted Answer

A financing statement is used to perfect a security interest in collateral. The statement must include the names of the debtor and the secured party, a description of the collateral, and any other information required by law. However, the reason for allowing Clifton to take the goods does not need to be included in the financing statement as it is not relevant to perfecting a security interest.

Question 18

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.

Accepted Answer

An order of garnishment is a request made to a financial institution to pay a portion of the funds in a debtor's account to a creditor. This is often used in cases where a debt is past due and legal action has been taken to collect the debt. A writ of execution is a court order that allows a creditor to seize a debtor's property to satisfy a debt. A composition agreement is a negotiated settlement between a debtor and creditor. Option C is not applicable as there are laws in place to govern garnishment orders.

Question 19

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.

Accepted Answer

Petra's lien will terminate if she voluntarily surrenders possession of the washing machine. This means that Petra can choose to release her lien on the machine by giving it back to Oscar or allowing him to take possession of it without receiving payment. However, if Petra continues to maintain possession of the machine, her lien will remain in effect until she is paid the full amount owed under their contract. Filing a written notice of lien within thirty days may help to protect Petra's lien rights, but it is not necessary for the lien to remain in effect.

Question 20

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.

Accepted Answer

The answer of Hal's Hardware store defaults on a debt...

Quiz 21: Security Interests and Creditors Rights

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​

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​

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​

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​

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​

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​

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​

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​

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​

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​

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​

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

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​

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​

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​

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​

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​

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​

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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