Q&A Hero

Q: Unless state law says otherwise, a bankrupt party may choose either the state's exemptions or the federal exemptions when deciding which property to exempt from bankruptcy.

Q: What is the general priority rule established by the Uniform Commercial Code?

Q: On July 1, Acledes Bank attaches and perfects a security interest in all of the Playo Inc.'s present and after-acquired equipment. On July 15, Richard sells and delivers to a new toy manufacturing machine to Playo Inc. Richard attaches a security interest in the machine on July 16 and perfects it by filing on July 17. Which security interest has priority and why?

Q: What are the three options available to a secured creditor regarding the collateral if the debtor defaults?

Q: The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has retrospective application and even applies to cases filed before 17th October 2005.

Q: The Bankruptcy Code is a part of state law.

Q: What are the three basic requirements for a security interest to be attached to the goods of a debtor?

Q: Why is filing a financing statement the only practical way to perfect a security interest in equipment?

Q: Under the UCC, a collateral which has been sold in a private sale by a secured party to a good faith purchaser for value, after the debtor's default: A. may be redeemed by the debtor within 10 days after the disposition. B. may be redeemed by creditors with subordinate claims. C. remains subject to the security interests of subordinate lien creditors in all cases where the collateral is disposed of at a private sale. D. discharges the security interest pursuant to which such sale was made and any security interest or lien subordinate thereto.

Q: Bonn, a secured party, sells collateral at a private sale to a good faith purchaser for value after the debtor defaults. Which of the following statements is true with regard to the UCC Secured Transactions Article? A. In all cases, the collateral will remain subject to the security interests of subordinate lien creditors. B. The security interest under which the sale was made and any security interest or lien subordinate to it will be discharged. C. In all cases, Bonn may not buy the collateral at a private sale. D. Bonn will be entitled to receive a first priority in the sale proceeds.

Q: Which of the following is an option for the secured creditor when the debtor defaults? A. Transfer the collateral on to another creditor. B. Forget the collateral, and sue the debtor on his note or promise to pay. C. Sell the collateral and keep the surplus if any. D. Repossess the collateral and conduct a public sale without the knowledge of the debtor.

Q: In which of the following orders are the proceeds from the sale of collateral by the secured party distributed? A. Debtor, creditor's debt, selling expenses, and junior interests B. Selling expenses, creditor's debt, junior interests, and debtor C. Creditor's debt, selling expenses, debtor, and junior interests D. Junior interests, debtor, selling expenses, and creditor's debt

Q: With regard to a prior perfected security interest in goods for which a financing statement has been filed, which of the following parties is most likely to have a superior interest in the same collateral? A. A buyer in the ordinary course of business who purchased the goods from a merchant. B. A subsequent buyer of consumer goods who purchased the goods from another customer. C. The trustee in bankruptcy of the debtor. D. Lien creditors of the debtor.

Q: A typewriter, which was subject to a prior UCC security interest, was delivered to Ed Fogel for repair. Fogel, who is engaged in the business of repairing typewriters, repaired the typewriter. However, the owner of the typewriter now refuses to pay for the services performed by Fogel. The state in which Fogel operates his business has a statute which gives Fogel a mechanics lien on the typewriter. Fogel's mechanics lien: A. takes priority over a prior perfected security interest under all circumstances. B. is subject to a prior perfected purchase money security interest under all circumstances. C. is subject to a prior unperfected security interest where the statute is silent as to priority. D. takes priority over a prior perfected security interest unless the statute expressly provides otherwise.

Q: Which section of the UCC defines what constitutes default in a secure transaction? A. 2-205 B. 3-104 C. The UCC does not define default; it is defined in private agreements between the parties. D. 9-102

Q: Which of the following statements is true regarding a secured creditor's disposition of the collateral after the debtor's default? A. The debtor cannot redeem the collateral after his default. B. The collateral must be disposed of by private sale. C. The creditor may opt not to repossess the collateral and instead sue the debtor on his underlying obligation. D. If the proceeds realized from the sale of the collateral exceed the various expenses that must be satisfied from those proceeds, the surplus goes to the creditor.

Q: A secured creditor repossesses the collateral from the debtor and sells it to satisfy the debt. Which of the following has the first claim on the proceeds of the sale? A. Debtor B. Consequential damages suffered by the creditor due to the debtor's default C. Court costs D. Expenses of repossessing, storing, and selling the collateral

Q: Generally, a buyer in the ordinary course of business can take a property free from any security interest. Which of the following buyer is an exception? A. A person who is a consumer of durable goods. B. A person buying inventories from a wholesaler. C. A person buying farm products from a farmer. D. A person who is a consumer of perishable goods.

Q: A buyer in the ordinary course of business is: A. subject to the security interest created by his seller. B. free from the security interest created by the secured party. C. free from the security interest created by his seller. D. subject to the security interest created by the secured party.

Q: A retailer of consumer goods who relies on attachment of a security interest to perfect it does not prevail over a bona fide purchaser: A. who has knowledge of the security interest. B. who gives value for the goods. C. who buys goods for household use. D. who resells the good in the absence of a financing statement.

Q: Acorn Marina Inc. sells and services boat motors. On April 1, 1989, Acorn financed the purchase of its entire inventory with GAC Finance Company. GAC required Acorn to execute a security agreement and financing statement covering the inventory and proceeds of sale. On April 14, 1989, GAC filed the financing statement pursuant to the UCC Secured Transactions Article. On April 27, 1989, Acorn sold one of the motors to Mike for use in his charter business. Mike, who had once worked for Acorn, knew that Acorn regularly financed its inventory with GAC. Acorn has defaulted on its obligations to GAC. The motor purchased by Mike is: A. subject to the GAC security interest because he should have considered the fact that GAC financed the inventory purchased by Acorn. B. subject to the GAC security interest because he purchased the motor for commercial use. C. not subject to the GAC security interest because he is regarded as a buyer in the ordinary course of Acorn's business. D. not subject to the GAC security interest because GAC failed to file the financing statement until more than 10 days after April 1, 1989.

Q: Which of the following corresponds to the priority rule for purchase money security interest in inventory? A. The PMSI has priority if it is perfected at the time the debtor receives possession of the inventory. B. The PMSI has priority if it is perfected within 20 days after the debtor receives possession of the inventory. C. The PMSI has priority if the holder of the competing security interest received notification within three years before the debtor receives the inventory. D. The PMSI has priority when it has been filed or perfected before the other interest on the same collateral.

Q: A perfected purchase money security interest in a manufacturer's stock has priority over a conflicting security interest in the same stock if the notification states that the person expects to acquire a purchase money security interest in stock of the debtor and describes the stock. Which of the following priority rules does this statement correspond to? A. PMSI in noninventory collateral B. PMSI in inventory collateral C. Buyer in the ordinary course of business D. Artisan's and mechanic's lien

Q: Cutco Lawn Products Manufacturing Company sells 100 riding lawn mowers to the Smith Hardware Company, a retailer in the same industry. Smith pays for the mowers with a $50,000 loan from the Bass Bank. The Bank takes a security interest in the mowers to secure payment of the loan, and perfects it by filing. Later, Smith sells one of the mowers to Carl, a consumer, who buys in good faith and in the ordinary course of Smith's business. However, Carl knows that the Bank has a security interest in the mowers. Smith defaults on its loan payments, and the Bank moves to repossess all the mowers. Can it repossess the mower sold to Carl? A. Since the Bank attached its security interest, it may repossess the mower from Carl. B. Since the mower is in Carl's possession now, the bank has no right over this third party. C. Since Carl knew about Bass's security interest, the bank may repossess his mower. D. Since Carl bought the mower in good faith, the bank may not repossess his mower.

Q: What section of the UCC governs the prioritization of competing security interest in collateral for secured loans? A. 2-201 B. 3-343 C. 6-230 D. 9-322

Q: Which of the following is true about perfection of fixtures? A. Automatic perfection does not apply for consumer goods that are yet to become fixtures. B. A creditor who relies on attachment for perfection will prevail against other creditors who hold an interest in the good to which the consumer good is attached. C. Fixture filing is always necessary to perfect the security interest in any good. D. A creditor with a security interest in fixtures obtains perfection merely by attachment of her security interest to the good.

Q: Smith Auto Sales has a secured loan on the inventory of the business with Northshore Credit Union which is filed in February. In March Smith Auto Sales has another secured loan made on the inventory of the business from GMAC credit. GMAC files their security interest in May. Who will have priority in the event of a default by Smith Auto Sales? A. Neither will have priority and both will share equally revenue from sale of inventory B. Northshore Credit Union will have priority and they will have their debt satisfied prior to GMAC receiving funds C. Since GMAC came last they will have priority and will have their debt satisfied before Northshore Credit Union D. Since there is a conflict with the security with the inventory, neither security interest will be recognized and both creditors will get nothing

Q: Mark filed a financing statement on Daniel's collateral on March 2. However, attachment of this interest did not occur until March 4. Meanwhile, Charles, who had attached a security interest on the same collateral on March 1, filed a financing statement on March 3. Which interest has priority and why? A. Mark's interest has priority because he filed the security before Charles did. B. Charles' interest has priority because he attached the security first. C. Mark's interest has priority because his attaching was the latest. D. Charles' interest has priority because his filing was the latest.

Q: Carter sold a $20,000 boat to Davis on credit for personal use. As part of the deal, Davis completed an installment note payable to Carter and a security agreement giving Carter a security interest in the boat which was attached on July 1. Carter never filed a financing statement. On August 1, Davis borrowed $15,000 from Bank, by completing a security agreement giving the Bank a security interest in the boat. This interest attached on the same day and the Bank filed a financing statement on August 6. Davis defaulted on both his installment payments to Carter and his loan obligation to the Bank. Each of these parties wants to satisfy Davis's obligation by repossessing and selling the boat. Whose security interest in the boat has priority and why? A. Bank's interest has priority because Carter never filed a financing statement. B. Carter's interest has priority because his security interest was perfected before Bank's interest. C. Bank's interest has priority because Carter failed to attach his security interest. D. Bank's interest has priority because the Bank perfected the interest within ten days after Davis received the collateral.

Q: Which of the following is a means of obtaining control over the collateral? A. The secured party becomes the bank's customer for the deposit account. B. The debtor is the bank with which the deposit is maintained. C. The bank has agreed to comply with the debtor's instructions regarding the funds in the account. D. The debtor becomes the bank's customer for the deposit account.

Q: Which of the following is the only form of perfection that occurs without the giving of public notice? A. Perfection by public filing B. Perfection by attachment C. Perfection by possession D. Perfection by control

Q: In which of the following cases will perfection by attachment not be effective? A. The goods were sold on conditional sales contract to the consumer. B. The creditor has lent money to enable a consumer to buy goods. C. The consumer good is a motor vehicle. D. The goods were sold on a time-payment plan to the consumer.

Q: For which of the following is the filing of a financing statement necessary for perfection to occur? A. A security interest in documents of title. B. A security interest in chattel paper. C. A security interest in consumer goods. D. A security interest in general intangibles.

Q: Edith purchases a television set from Big Al's Electronic Emporium, agreeing to pay Big Al in monthly installments on a 12-month payment plan. In order to have a perfect security interest in the television set, Big Al: A. must file a financing statement with the appropriate public office. B. must create a field warehousing arrangement. C. should have Edith sign another contract recognizing Big Al's security interest. D. should not do anything as it is already perfect.

Q: Which of the following is most likely to be perfected by the secured party's possession of the collateral? A. A security interest in inventory B. A security interest in consumer goods C. A security interest in general intangibles D. A security interest in equipment

Q: Which of the following is true about continuation statements? A. A continuation statement must be filled after the lapse of the five year period of the financing statement. B. The continuation statement must be signed by the secured party. C. The effectiveness of the financing statement has nothing to do with the continuation statement. D. Continuation statements may be filed just once.

Q: Which of the following is true about possession of collateral by secured party as public notice? A. Change of possession is a convenient way for perfecting most security interests in consumer goods. B. Possession of collateral by the creditor is rarely executed to perfect a security interest in chattel paper and negotiable documents of title. C. Possession is a possible way of perfecting a security interest in inventory which is achieved through a field warehousing arrangement. D. Possession by the creditor is a practicable way of perfecting a security interest in equipment or farm products.

Q: Which of the following is true about financing statements? A. A financing statement never includes descriptions of the real estate. B. A financing statement serves as an implied notice to the world. C. A financing statement is effective for a period of three years from the date of filing. D. A financing statement must give the name of the secured party.

Q: Which of the following elements is an exception that validates a financing statement which covers goods that are to become fixtures, without it being lapsed? A. Name of the debtor B. Name of the secured party C. Description of a real estate mortgage D. Description of a nonfixture

Q: The Total Household Appliance store sells a refrigerator to Alvin, on the condition of making payments in installments. In this case, the store: A. has to file its purchase money security interest. B. need not file its purchase money security interest. C. has to take possession of the refrigerator. D. need not attach the refrigerator.

Q: A _____ serves as constructive notice to the world that the creditor claims an interest in collateral that belongs to a certain named debtor. A. model audit B. financial report C. financing statement D. continuation statement

Q: The perfection of a security interest by filing a financing statement: A. serves to protect the secured party's interest in the collateral against most creditors who acquire a security interest in the same collateral after the filing. B. is necessary to enable the secured party to enforce its security interest against the debtor. C. serves to give the public actual notice. D. gives the secured party priority over all other parties who acquire an interest in the collateral after the filing.

Q: Perfection by public filing of a financing statement in the appropriate public office serves as a(n) _____ notice to the world. A. express B. implied C. constructive D. public

Q: Samson Dsouza submits a financing statement in the year 2000 to perfect his security interest against Kevin. Later in the year 2006, Samson tries to attach the security interest in the property. Will Samson succeed in the attachment of the security interest? A. Samson will succeed since he has filed his financing statement. B. Samson will not succeed as the financing statement has lapsed. C. Samson may enforce his security interest by filing continuation statement. D. The security interest will automatically be enforced.

Q: Which of the following is a way of perfecting a security interest? A. Mere attachment of security interest B. Filing a private notice C. Creditor making a private sale of the collateral D. Debtor retaining the possession of the collateral

Q: Article 9 of the UCC which governs secured transactions has been adopted in how many states? A. 50 states B. 42 states C. 23 states D. 14 states

Q: Under the UCC Secured Transactions Article, for a security interest to attach, the: A. debtor must agree to the creation of the security interest. B. creditor must properly file a financing statement. C. debtor must be denied of all rights in the collateral. D. creditor must take and hold the collateral.

Q: Which of the following are automatically covered as of the time the security interest attaches to the collateral? A. Future advances B. Loaned funds C. Sale expenses D. Proceeds

Q: What type of agreement is required in nearly all security interest transactions? A. An authenticated security agreement B. An international depositor's agreement C. Foreign Assignment agreement D. Title conveyance agreement

Q: Wonder Widget Company manufactures widgets that are sold to the retailers. The retailers, in turn, sell these widgets to consumers for their own use. These widgets are: A. inventory in the hands of Wonder. B. equipment in the hands of the consumers. C. equipment in the hands of the retailers. D. consumer goods in the hands of Wonder.

Q: According to the Code classifications of collateral, which of the following includes dock warrants and dock receipts? A. Chattel paper B. Documents of title C. Deposit accounts D. General intangibles

Q: According to the Code classifications of collateral, Investment property includes: B. checks, notes, drafts, and certificates of deposit. stocks, bonds, and commodity contracts. D. bills of lading, dock warrants, dock receipts, and warehouse receipts. Investment property includes securities such as stocks, bonds, and commodity contracts [UCC 9-102(a)(49)].

Q: _____ refer(s) to the goods used or bought primarily for personal purposes. A. Inventory B. Fixtures C. Consumer goods D. Equipment

Q: Tom takes his car to be repaired at Smith Auto Garage. Tom was surprised the total of the bill and refuses to pay the total of the work performed. Smith Auto Garage holds onto Tom's car based on a Mechanic Lien. Tom stops make payments on the car to Northshore Credit Union which has a perfected security interest in Tom's car. Smith Auto Garage will get their full amount of their lien prior to Northshore Credit Union receiving funds from a sale of Tom's car.

Q: If the debtor defaults on his agreement with the creditor, one of the creditor's options is to repossess the collateral and then sell it.

Q: If the debtor defaults on his agreement with the creditor, the creditor repossesses the collateral, and the creditor then sells the collateral. However, the creditor may also retain any surplus if the amount realized on the sale exceeds the amount of the debtor's debt.

Q: The secured party whose interest in fixtures is perfected will have priority where the security interest is perfected prior to the time the goods become fixtures.

Q: Perfection by mere attachment of the security interest does not require giving of public notice.

Q: Control is the only available perfection method, if the collateral is a deposit account.

Q: The basic priority rule for competing security interests is that the first secured party to attach wins.

Q: If there are conflicting security interests but neither has been perfected then the interest that attaches to the collateral first will have priority.

Q: Where the creditor has possession of the collateral, the security agreement may be oral.

Q: A security agreement may cover after-acquired property of the debtor.

Q: Under revised Article 9, the UCC allows a security agreement to be created by the consumer online.

Q: Attachment of a security interest is a necessary condition for its perfection.

Q: The state statutory law prescribes the place where the financing statement has to be filed.

Q: Safeco Corporation manufactures toys for distribution to retailers. In Safeco's hands, the toys are consumer goods.

Q: The two step process for obtaining an enforceable security interest consists of attachment and perfection.

Q: Article 2 of the UCC governs secured credit transactions.

Q: A security interest is not legally enforceable against a debtor, if it is not attached to one or more particular items of the debtor's property.

Q: Who are party to a deed of trust?

Q: A security interest is said to be a property interest in the collateral.

Q: As a condition of giving Doyle a thirty-year loan for $100,000, the Caldwell Bank requires that Doyle procure a surety. Doyle pays Sal $5000 to serve in this role. Later, Doyle and the bank make a binding contract to extend the term of the debt from thirty years to thirty years and three months. Will this change discharge Sal from his obligation? Make no assumptions except those stated here.

Q: What is an equity of redemption?

Q: The notice of lien typically must be filed within what period of time? A. Within 24 hours B. 30 to 90 days after the last work is performed C. 136 days from when the last work is performed D. 365 days from when the last work is performed

Q: Give two reasons why the surety-guarantor distinction is important.

Q: Explain the difference between an accommodation surety and a compensated surety.

Q: In the case of _____, a buyer takes possession of the property, pays the taxes, insures the property, and assumes several obligations of an owner. However, the seller keeps legal title and does not turn over the deed until the purchase price is paid. A. equity of redemption B. deed of trust C. land contract D. possessory lien

Q: Under the _____ system, the subcontractors or materialmen have direct liens and are entitled to liens for the value of labor and materials furnished, irrespective of the amount due from the owner to the contractor. A. strict foreclosure B. New York C. conditional foreclosure D. Pennsylvania

Q: Which of the following is generally true about state statutes establishing mechanic's and materialman's liens? A. Most of them require the mechanics and the material men to sign a deed of trust. B. They require that work be done in the performance of a contract to improve real property. C. They do not allow subrogation by mechanics and materialmen. D. They require mechanics and materialmen to enter into a quasi contract with the contractor.