Business law test 3

Whenever the payment of a debt is guaranteed by personal property owned by the debtor, the transaction is known as a _______________________

secured transaction

Article _____ of the Uniform Commercial Code creates various rights and remedies for secured creditors.

9

What type of law governs the procedures that must be followed to create a mechanic's lien? a. Federal law b. Municipal law c. State law d. Real estate law e. Mechanical law

C. state law

__________ is the process by which secured parties protect themselves against third parties who may want to settle a debt out of the same collateral.

Perfection

If a person holds a mechanic's lien, the security for the lien is the debtor's ____________________

Real property

The UCC sets forth detailed rules for determining when the debtor's name on a financing statement is sufficient. Select the five areas in which the UCC has specifically addressed debtor names: a. corporations b. trusts c. sole proprietorships d. fiduciaries e. trade names f. mortgages g. organizations h. name changes

a,b,e,g,h

Select the two exceptions to the rule of automatic perfection for PMSIs. a. Security interests subject to state and federal laws may require additional steps. b. Securities subject to municipal regulations may require additional steps. c. PMSIs in non-consumer goods may not automatically perfect. d. PMSIs in consumer goods may not automatically perfect.

a,c

Four of the common factors that determine the interest rate on a mortgage are: a. income b. gender c. credit history d. credit score e. physical condition of the property f. outstanding debts g. national origin h. religion

a,c,d,f

In order to get approval from the lender for a short sale, a borrower typically must show a hardship. Select four examples of appropriate hardships. a. loss of job b. child ran away from home c. declining value of the home d. death of a distant relative e. divorce f. death of a household member g. promotion at work

a,c,e,f

Select the three defenses that a surety or guarantor can assert on his or her own behalf. a. Incapacity b. Duress c. Negligence d. Fraud e. Bankruptcy f. Statute of limitations

a,d,e

Bartell contracts with LaRonda to remodel and retile a bathroom. LaRonda finishes the job and gives Bartell a bill for $14,000 for labor and materials. Bartell refuses to pay. In this case, LaRonda may seek: a. a mechanic's lien. b. an artisan's lien. c. nothing; she may bring a suit only for breach of contract. d. an innkeeper's lien.

a. a mechanic's lien

Susan agrees to act as a surety for Harris. Harris defaults on his loan and Susan repays the bank because Harris declares bankruptcy. Susan now has: a. a right of subrogation. b. a right of exemption. c. no rights. d. a right of competition.

a. a right of subrogation

A floating lien is created by a security agreement that provides for a security interest in the proceeds of the sale of collateral, as well as in: a. after-acquired property and future advances. b. previously acquired property and future advances. c. after-acquired property and gifts to the owners.

a. after-acquired property and future advances

John takes out a loan from First Mutual Bank. As collateral, he uses the inventory of his business. After six weeks, the inventory that was in his warehouse when he signed the loan papers has all been sold and replaced with new inventory. In order for First Mutual to have any claim on that new inventory, the loan documents should have: a. an after-acquired property clause. b. an attachment clause. c. a future advances clause. d. an automatic perfection clause.

a. an after-acquired property clause

The rationale behind the right of redemption is that: a. it is only fair for the borrower to have a chance to regain possession after default. b. it is only fair for the creditor to be able to resell the house quickly after foreclosure. c. the creditor and the debtor must have a meeting of the minds.

a. it is only fair for the borrower to have a chance to regain possession after default

Donald is buying a house and obtains a loan from the lender. The document that Donald signs giving the lender an interest in Donald's house as security for a debt is called a: a. mortgage. b. promissory note. c. guaranty. d. deed.

a. mortage

Joey obtains a loan through First American Bank for farm equipment and signs a security agreement. He takes out a second loan through Second American Bank and signs a security agreement using the same equipment as collateral. Second American Bank files a financing statement. Joey borrows money from Clyde and signs a promissory note. Who has priority in the farm equipment? a. Second American Bank b. First American Bank c. Clyde d. No one

a. second American bank

Michael signs a promissory note and a security agreement with U.S. First Bank for a line of credit with his business inventory as collateral. U.S. First perfects its interest. Michael then buys a truck for use in his business and he finances the purchase through U.S. Second Bank, which perfects its security interest. In the event of default, who has priority in the truck? a. U.S. Second Bank b. U.S. First Bank c. Both banks d. Neither bank

a. us second bank

Edward brings a valuable piece of jewelry to Luisa's shop for repairs. One of Luisa's assistants mistakenly allows Edward to take the jewelry without paying for the repairs. Luisa sues Edward to recover payment for the repairs and wins. Edward does not have the cash to pay Luisa. Luisa asks the court to issue an order to the sheriff to seize some of Edward's property to pay off the debt. Luisa is seeking a(n): a. writ of execution. b. mechanic's lien. c. order of garnishment. d. writ of attachment.

a. writ of execution

In secured transactions, __________ means the creditor has met all of the requirements to obtain an enforceable security interest in the collateral.

attachment

Select the two situations in which a security interest can be perfected without filing a financing statement: a. when all goods are purchased for wholesale only. b. when the collateral is in the possession of the secured party. c. when there are oral promises to repay the debt by the debtor. d. when the security interest is automatically perfected. e. when there is a promise to pay the debt of another person.

b,d

A surety would ordinarily be released from his or her obligation in the event of: a. the failure of the debtor to pay within a reasonable amount of time. b. a material modification of the terms of the original contract without consent. c. the death of the debtor before the entire amount of the debt is paid.

b. a material modification of the terms of the original contract without consent

Logan borrows money from Third Street Bank. To ensure repayment, the bank makes Logan sign a statement that if he fails to pay back the loan, the bank has a right to take his family art collection, which is worth approximately the same amount as the loan. The art collection is called: a. mortgage. b. collateral. c. a financing statement. d. a default remedy.

b. collateral

Margo buys a refrigerator, a consumer good, from the Appliance Depot. She makes a down payment, and she and the store create a purchase-money security interest (PMSI) in the refrigerator so that she can pay it off over time. For Appliance Depot to have the PMSI perfected, it must: a. keep the refrigerator and give Margo something else of value until she pays off the loan. b. do nothing, as PMSIs are automatically perfected. c. keep possession of the refrigerator until Margo has paid for half the cost. d. file a continuation statement with the appropriate agency under Margo's name.

b. do nothing, as PMSIs are automatically perfected

Joshua and Samantha borrow $25,000 from Zachary, using their boat as collateral for the loan. Zachary properly perfects his security interest. When Joshua and Samantha default on the loan, the boat is worth $15,000, but Zachary believes that the market will rebound and the value of the boat will go back up. Zachary: a. must sell the boat and use the $15,000 as full satisfaction of the debt. b. may retain the boat in full satisfaction of the debt so long as he gives notice to the proper parties and there are no objections. c. must sell the boat and use the $15,000 as partial satisfaction of the debt, but then be an unsecured creditor for the remaining $10,000 owed by Joshua and Samantha. d. must retain the boat until the value increases above the loan amount, then sell the boat and distribute the excess back to Joshua and Samantha.

b. may retain the boat in full satisfaction of the debt so long as he gives notice to the proper parties and there are no objections

Rosie hired Donald to perform repairs on some farm equipment she owned. Donald allowed Rosie to have the equipment before she paid for the repairs. When it became obvious that Rosie was not going to pay him, Donald successfully sued her for breach of contract. Rosie did not pay the judgment, and the tractor was destroyed in a fire. Rosie has no other valuable property that can be seized to satisfy the judgment, but she does have a job. Donald: a. may seek to have Rosie jailed for nonpayment. b. may seek an order of garnishment. c. may file a lawsuit for harassment. d. is out of options.

b. may seek an order of garnishment

Select the proper order of distribution of proceeds. a. Pay the debt of the secured party, then give the surplus to the debtor. b. Pay the expenses to sell the collateral, then pay off the debt, then give the surplus to the debtor. c. Pay the expenses to sell the collateral, then pay off any secondary claims on the collateral, then pay off the debt, then give the surplus to the debtor.

b. pay the expenses to sell the collateral, then pay off the debt, then give the surplus to the debtor

Carter owns a condo with a mortgage on it. Carter has some financial difficulties and fails to make several payments so the bank begins the foreclosure process. After Carter's condo is sold at auction, Carter writes a book about his financial hardships which sells a significant number of copies and makes Carter enough money to pay off the mortgage. If Carter is allowed to buy back the property from the purchaser and regain the property, it is because his state has the: a. one-year statute of limitations on the foreclosure. b. statutory right of redemption. c. borrower privilege. d. equitable right of redemption.

b. statutory right of redemption

Lindsey promises Mountain State Bank that she will be responsible for a loan taken out by her niece, Emma. The agreement is that if Emma does not make payment the moment the debt is due, then Mountain State may demand repayment from Lindsey. This is known as a: a. bond. b. suretyship. c. creditor's composition agreement. d. foreclosure.

b. suretyship

Every aspect of the disposition of collateral by the secured party must __________________________

be commercially reasonable

Choose the answer that represents the correct order of the UCC's rules of priority. a. The first attached but unperfected security interest has priority. → Perfected security interests have priority over unperfected security interests. → The first perfected security interest has priority when two or more perfected security interests conflict. b. The first perfected security interest has priority when two or more perfected security interests conflict. → The first attached but unperfected security interest has priority. → Perfected security interests have priority over unperfected security interests. c. Perfected security interests have priority over unperfected security interests. → The first perfected security interest has priority when two or more perfected security interests conflict. → The first attached but unperfected security interest has priority.

c

Misha owes money on several different credit cards. He owes enough money that he may be forced to declare bankruptcy. Rather than declare bankruptcy, he asks the creditors to reduce his debt amounts so that he can pay them off. The creditors and Misha sign a contract that provides for the payment of some of the debt and the elimination of the rest of the debt. This is called: a. a writ of execution. b. a writ of attachment. c. a composition agreement. d. an order of garnishment.

c. a composition agreement

Jennie signs a written instrument giving the bank a property interest in her car to secure a loan she has signed. This instrument is known as: a. a security interest. b. collateral. c. a security agreement. d. a financing statement.

c. a security agreement

Tranh owns a home with a fixed-rate mortgage. Unfortunately, the real estate market has a downturn, and his home is now worth less than he owes on the mortgage. In addition, Tranh is laid off from his job. Rather than go through the time and cost of a foreclosure, the bank gives Tranh permission to sell the property for the market value and agrees to forgive the balance of the loan. This is called: a. a forbearance. b. a workout agreement. c. a short sale. d. a prepayment.

c. a short sale

Christina has been sued and is worried about losing her "stuff." She understands that there is an exemption for housing but does not want to lose all of her belongings. She most likely will be able to keep all of her personal property listed below except: a. her expensive pedigreed pet dog. b. pictures of her family taken over the years and stored in albums. c. a very expensive vase that she purchased on a trip to China. d. her clothing.

c. a very expensive vase that she purchased on a trip to china

Rick agrees to customize Melissa's wedding ring. The cost is $10,000. After the job is complete Melissa refuses to pay. As long as Rick retains possession of the ring he may seek to recover the cost of the labor with: a. an innkeeper's lien. b. a judicial lien. c. an artisan's lien. d. a mechanic's lien

c. an artisan's lien

Ted wants to start a candy shop and needs money. He talks with Quincy and Gillian separately, and each agrees to loan funds to Ted. The two do not know that the other is loaning him money. He gives each a security interest in the business. Each has filed a financing statement with the proper agency. When Ted fails to make payments and Quincy and Gillian both seek to sell the shop in order to be paid, the one who has first priority is the one who: a. attached first. b. signed first. c. filed first. d. converted first.

c. filed first

Mary has a security interest in a black velvet painting that Paolo owns so, with his permission, she takes the painting and stores it in her garage. Mary: a. has failed to file a financing statement, and thus the security interest is invalid. b. has improperly perfected her interest. c. has a security interest that is perfected. d. may only perfect this interest by delivering the collateral to the secretary of state's office.

c. has a security interest that is perfected

Carl has been sued and is concerned about losing his house if the plaintiff wins. He consults with an attorney who reviews his case and tells him not to worry because of the: a. personal property exemption. b. equitable right of redemption. c. homestead exemption. d. right of reimbursement.

c. homestead exemption

Stewart grants Julie a security interest in 500 shares of stock in his company in exchange for a loan. Stewart makes his loan payments on time, and his business is growing and successful. When the loan is nearly repaid, Stewart is in a car accident and is unable to work for a few months. He could sell his company were it not encumbered by Julie's security interest. Julie: a. must abide by the original terms; once a financing statement is filed, it is permanent until it is fully paid according to the filing. b. may require Stewart to accelerate his payments because of her insecurity about his ability to pay her. c. may release her interest in the stock by filing an amendment. d. may request an accounting from Stewart.

c. may release her interest in the stock by filing an amendment

As a surety for a loan that Duke did not pay, Caden pays the debt in full. If Duke does not declare bankruptcy Caden has a right of: a. exemption. b. foreclosure. c. reimbursement. d. contribution.

c. reimbursement

Gil loans Larson the money to buy a new ski boat. They agree that Gil will have a security interest in the boat until Larson repays the loan. Under Article 9 of the UCC, they need to file a financing statement: a. with the marina where Gil purchased the boat. b. in the county in which the transaction took place. c. under the name of Larson. d. under the name of Gil.

c. under the name of larson

One concern that a creditor rarely has is: a. can the debt be satisfied by the possession and sale of the collateral? b. will the creditor have priority over other creditors? c. will the debtor have enough money in the bank to continue business?

c. will the debtor have enough money in the bank to continue business

The rights and remedies of secured parties under Article 9 are __________

cumulative

Dina and Michelle buy a house together and sign a document to borrow some of the money for the house. The contract provides that they will pay a single rate of interest for the first five years of the loan, and then the rate will vary depending on a specific index rate. This type of contract is: a. a traditional home contract. b. a prepayment mortgage. c. a fixed-rate mortgage d. an adjustable-rate mortgage.

d. an adjustable-rate mortgage

Abigail borrows $14,000 from Daniel, using her family jewelry collection as collateral. Daniel properly perfects the security interest. When Abigail defaults on the loan, Daniel demands that she give him the jewelry. Abigail refuses. Daniel: a. can threaten her if she doesn't give him the collection since she is wrongfully withholding it. b. can enter her property without her permission to take the collection. c. can wait until she is gone and then sneak in to her house and take the collection. d. can ask a court to order her to give him the collection.

d. can ask a court to order her to give him the collection

Amanda owns a business with $1.5 million worth of equipment. She needs cash, so on September 15 she opens a $750,000 line of credit with Eighth Avenue Bank using the equipment as collateral. She draws $40,000 on the line of credit. The bank properly perfects the security agreement. On November 10, Amanda takes another $15,000 from the bank. The bank: a. has a perfected security interest for the $40,000, which was perfected on September 15 but not for the $15,000. b. has a perfected security interest for the $15,000, which was perfected on November 10 but not for the $40,000. c. has a perfected security interest for $55,000, $40,000 of which was perfected on September 15 and $15,000 of which was perfected on November 10. d. has a perfected security interest for $55,000 which was perfected on September 15.

d. has a perfected security interest for $55,000 which was perfected on September 15

Marguerite wants to borrow cash from Jimmy. She offers him a security interest in her neighbor's diamond ring, which she has been told that she or her sister will receive after their neighbor passes away. Regarding Marguerite's proposal, which of the following statements is true? a. Marguerite must not have legal rights to the ring if she is going to give Jimmy a security interest. b. Jimmy must have the ring in his possession, or have a written agreement from Marguerite describing the ring, in order to obtain a security interest in it. c. Marguerite must not give Jimmy something of value as a security interest. d. Jimmy cannot take a security interest in the ring because Marguerite does not have legal rights to it.

d. jimmy cannot take a security interest in the ring because marguerite does not have legal rights to it

Because of the right of subrogation, any right that the creditor had against the debtor now becomes the right of the surety and includes all of the following EXCEPT: a. creditor rights in bankruptcy. b. rights to collateral possessed by the creditor. c. rights to judgments obtained by the creditor. d. liabilities of the creditor.

d. liabilities of the creditor

Monica defaults on her business line of credit with First American Bank, for which she used a business vehicle as security. First American Bank obtains possession of the vehicle and: a. may retain the vehicle as partial satisfaction of the debt. b. may sell the vehicle and apply the proceeds to the debt. c. may lease the vehicle and apply the proceeds to the debt. d. may do any of these.

d. may do any of these

Which of the following typically is not a possible method of avoiding foreclosure? a. Forbearance b. A workout agreement c. A short sale d. Moving away

d. moving away

Javier buys a large 3D flat screen TV from West Coast Sales, which agrees to lend him eighty-five percent of the purchase price. Their agreement is known as a: a. pledge. b. transfer to collateral interest. c. lend-lease agreement. d. purchase-money security interest (PMSI).

d. purchase-money security interest

A debtor who is subject to a security interest may request, free of charge, a confirmation of the amount owed every: a. year. b. month. c. quarter. d. six months.

d. six months

Eric brings a valuable watch to Sherry's clock shop for repairs. One of Sherry's assistants mistakenly allows Eric to take the watch without paying for the repairs. Sherry sues Eric to recover payment for the repairs, and she asks the court to direct the sheriff to seize and take custody of the watch before the trial. Sherry is seeking a: a. garnishment. b. suretyship. c. writ of certiorari. d. writ of attachment.

d. writ of attachment

Which article of the UCC governs secured transactions? a. 2 b. 3 c. 7 d. 9

d.9

The ___________ right of redemption allows the defaulting buyer an opportunity to regain title and possession after default but before a judicial foreclosure, where the ______________ right of redemption allows a borrower to repurchase the property after a judicial foreclosure.

equitable/ statutory

An attachment occurs when property is seized and taken into custody after a judgment is obtained on a post-due debt. a. True b. False

false

Article 9 of the UCC accurately defines the term "default" so that it is clear to parties involved in a secured transaction. a. True b. False

false

In a surety agreement, the creditor must exhaust all legal remedies against the principal debtor before holding the surety responsible for payment. a. True b. False

false

Mortgage lenders typically require a statement that the borrower will obtain insurance to cover personal property that he or she plans to keep in the home. a. True b. False

false

State exemption statutes usually include only personal property. a. True b. False

false

The difference between a mechanic's lien and an artisan's lien is that a mechanic's lien involves personal property. a. True b. False

false

When a secured party sells the collateral after a repossession, that sale must be advertised and public. a. True b. False

false

When a third party promises to pay the debt of another in the event that the debtor fails to pay, a suretyship or a mortgage is created. a. True b. False

false

In order to execute an artisan's lien, the lienholder must have _________________________

possession of the property

In a suretyship, the surety is ________________________

primarily liable for the loan

A secured party can _______ all or part of any collateral described in the financing statement, thereby terminating its security interest in that collateral.

release

The payments on a fixed-rate mortgage __________________

remain the same

If the non-prevailing party refuses to pay the judgment after a lawsuit, the prevailing party may ___________________

seek a writ of execution

The _________________________ is a protection for debtors that allows them to either keep their house or to have sufficient funds to find a place to live.

the homestead exemption

A party who is contemplating loaning money and taking a security interest in property can obtain information from the filing officer about other financing statements filed against the debtor. a. True b. False

true

A purchase-money security interest (PMSI) is an automatically perfected security interest that arises when one buys consumer goods on credit. a. True b. False

true

Artisan's liens usually take priority over other creditors' claims to the same property. a. True b. False

true

Normally, the terms of the guaranty contract determine the extent and time of the guarantor's liability when the principal debtor defaults. a. True b. False

true

The general rule when more than one security interest has been perfected in the same collateral is that the first security interest to be perfected has priority. a. True b. False

true

The most common means to perfect a security interest is to file a financing statement. a. True b. False

true

When the debtor has fully paid a debt, the debtor is entitled to have a termination statement filed if a financing statement was filed to perfect the security interest. a. True b. False

true

After the notice from the secured party that he or she proposes to retain the collateral, the debtor has ______ days after the notice is sent to object.

twenty

A lien may be defined as: a. a structure that supports the real property of a creditor. b. a debt owed by a creditor to a bank. c. a creditor's claim on the property of a debtor.

C. a creditor's claim on the property of a debtor

____________________ normally requires that a guaranty contract between the guarantor and the creditor be in writing to be enforceable unless the "main purpose" rule applies.

the statute of frauds

The secured party in a secured transaction is the party _____________________________________

who has interest in the collateral