Question 1

A security interest is said to attach once three of the following requirements are fulfilled. Which of the following is NOT one of the three necessary requirements?

Accepted Answer

A security interest is said to attach (1) once the secured party has given something of value, (2) the debtor has rights in the collateral, and (3) either the collateral is in the possession of the secured party or the security agreement is in a writing which contains a description of the collateral and is signed by the debtor. A creditor will have to file a financing statement signed by the debtor if he wants to perfect his security interest.

Question 2

_____ is a writing or writings which evidence both a monetary obligation and a security interest in, or a lease of, specific goods when a creditor sells the security agreement of his debtor along with his interest in the collateral to a third party.

Accepted Answer

Chattel paper is a writing or writings which evidence both a monetary obligation and a security interest in, or a lease of, specific goods when a creditor sells the security agreement of his debtor along with his interest in the collateral to a third party. If he does, the secured party's collateral is described as chattel paper.

Question 3

Which of the following collaterals include literary rights, rights to performance of a contract, patents, trademarks, and copyrights?

Accepted Answer

The term general intangibles applies to any personal property other than goods, accounts, chattel paper, documents, instruments, and money. It includes literary rights, rights to performance of a contract, patents, trademarks, and copyrights and gives flexibility to the UCC to allow for new kinds of collateral.

Question 4

When a surety pays the creditor upon the default of the debtor, the surety has the right of _____ against the debtor.

Accepted Answer

When a surety pays the creditor upon the default of the debtor, the surety has the right of reimbursement against the debtor. The surety, however, has no right to reimbursement until he actually pays the creditor and then only to the extent of the payment made.

Question 5

Samantha bought a refrigerator for personal use. If the store where she purchased the refrigerator loaned her the money to make the purchase then:

Accepted Answer

If the store where Samantha purchased the refrigerator loaned her the money to make the purchase, the store's security interest attaches and is automatically perfected. No filing or other step is required to perfect a purchase money security interest (PMSI) in consumer goods.

Question 6

Which of the following statements is true regarding exoneration?

Accepted Answer

The right of exoneration allows the surety to obtain a court decree ordering the debtor to pay the creditor. The surety's remedy of exoneration is against the debtor and in no way affects the creditor's right to proceed against the surety.

Question 7

A security interest in negotiable instruments is automatically perfected upon attachment for _____ days without filing or taking possession.

Accepted Answer

A security interest in negotiable instruments is automatically perfected upon attachment for 21 days without filing or taking possession. However, if the instruments are negotiated to a holder in due course during that period, the holder in due course will take priority over the original secured party.

Question 8

A(n) _____ is the right given to a skilled person to retain possession of an item, produced with his or her labor and materials, until paid.

Accepted Answer

A mechanic's lien (sometimes referred to as an artisan's lien) is the right given to a skilled person to retain possession of an item, produced with his or her labor and materials, until paid.

Question 9

Which of the following is a category of goods used as collateral?

Accepted Answer

When goods are used as collateral they are divided into following categories: (1) consumer goods, (2) equipment, (3) farm products, (4) inventory, and (5) fixtures. The term instrument includes negotiable instruments, stocks, bonds, and other investment securities.

Question 10

The UCC recognizes two types of intangible collateral: _____ and general intangibles.

Accepted Answer

The UCC recognizes two types of intangible collateral: (1) accounts and (2) general intangibles.

Question 11

Which of the following statements is true regarding reimbursement?

Accepted Answer

When a surety pays the creditor upon the default of the debtor, the surety has the right of reimbursement against the debtor. The surety, however, has no right to reimbursement until he actually pays the creditor and then only to the extent of the payment made.

Question 12

It is common in many business transactions involving the extension of credit for the creditor to require that someone in addition to the debtor promise to fulfill the obligation. This promisor generally is known as a(n) ___.

Accepted Answer

The promisor who promises to fulfill the obligation of a debtor is known as a surety.

Question 13

A buyer has a receipt for goods that are being stored in a warehouse. He uses that receipt as collateral in another transaction. With reference to the various categories of indispensable paper, the receipt is most likely to be an example of a(n) ___.

Accepted Answer

A document includes documents that are negotiable or nonnegotiable. For example, suppose a buyer has a receipt for goods that are being stored in a warehouse. He can use that receipt as collateral in another transaction.

Question 14

Which of the following terms best represents a paper that evidences a right to payment of money that is not itself a security agreement?

Accepted Answer

The term instrument includes negotiable instruments, stocks, bonds, and other investment securities. It is any paper that evidences a right to payment of money that is not itself a security agreement.

Question 15

The right of _____ allows the surety to obtain a court decree ordering the debtor to pay the creditor.

Accepted Answer

The right of exoneration allows the surety to obtain a court decree ordering the debtor to pay the creditor.

Question 16

With reference to indispensable paper, the term _____ includes negotiable instruments, stocks, bonds, and other investment securities.

Accepted Answer

The term instrument includes negotiable instruments, stocks, bonds, and other investment securities. It is any paper that evidences a right to payment of money that is not itself a security agreement.

Question 17

James has taken a loan of $10,000 from a bank with Julia and Robert as his sureties. Once the money becomes due, Julia seeks an order from the court ordering James to pay. In this example, Julia has used her right of ___.

Accepted Answer

The right of exoneration allows the surety to obtain a court decree ordering the debtor to pay the creditor.

Question 18

Which of the following statements is true regarding accounts receivable?

Accepted Answer

The UCC recognizes two types of intangible collateral: (1) accounts and (2) general intangibles. The term accounts or accounts receivable refers to the right to payment for goods sold or leased or for services rendered which are not evidenced by chattel paper or an instrument. The term general intangibles applies to any personal property other than goods, accounts, chattel paper, documents, instruments, and money. This is used as a catchall phase for interests not otherwise covered unless they are specifically excluded.

Question 19

If a debtor goes bankrupt and has more than one secured creditors then:

Accepted Answer

Generally, if a debtor goes bankrupt and he has more than one secured creditors then the creditor who perfected her security interest first gets the first right to reclaim her collateral. However there are several exceptions to this general rule. Article 9 should be consulted to understand these rules.

Question 20

Which of the following categories of collateral is used as a catchall phase for interests not otherwise covered unless they are specifically excluded?

Accepted Answer

The term general intangibles applies to any personal property other than goods, accounts, chattel paper, documents, instruments, and money. This is used as a catchall phase for interests not otherwise covered unless they are specifically excluded.

Quiz 9: Secured Transactions and Bankruptcy

A security interest is said to attach once three of the following requirements are fulfilled. Which of the following is NOT one of the three necessary requirements?

_____ is a writing or writings which evidence both a monetary obligation and a security interest in, or a lease of, specific goods when a creditor sells the security agreement of his debtor along with his interest in the collateral to a third party.

Which of the following collaterals include literary rights, rights to performance of a contract, patents, trademarks, and copyrights?

When a surety pays the creditor upon the default of the debtor, the surety has the right of _____ against the debtor.

Samantha bought a refrigerator for personal use. If the store where she purchased the refrigerator loaned her the money to make the purchase then:

Which of the following statements is true regarding exoneration?

A security interest in negotiable instruments is automatically perfected upon attachment for _____ days without filing or taking possession.

A(n) _____ is the right given to a skilled person to retain possession of an item, produced with his or her labor and materials, until paid.

Which of the following is a category of goods used as collateral?

The UCC recognizes two types of intangible collateral: _____ and general intangibles.

Which of the following statements is true regarding reimbursement?

It is common in many business transactions involving the extension of credit for the creditor to require that someone in addition to the debtor promise to fulfill the obligation. This promisor generally is known as a(n) ___.

A buyer has a receipt for goods that are being stored in a warehouse. He uses that receipt as collateral in another transaction. With reference to the various categories of indispensable paper, the receipt is most likely to be an example of a(n) ___.

Which of the following terms best represents a paper that evidences a right to payment of money that is not itself a security agreement?

The right of _____ allows the surety to obtain a court decree ordering the debtor to pay the creditor.

With reference to indispensable paper, the term _____ includes negotiable instruments, stocks, bonds, and other investment securities.

James has taken a loan of $10,000 from a bank with Julia and Robert as his sureties. Once the money becomes due, Julia seeks an order from the court ordering James to pay. In this example, Julia has used her right of ___.

Which of the following statements is true regarding accounts receivable?

If a debtor goes bankrupt and has more than one secured creditors then:

Which of the following categories of collateral is used as a catchall phase for interests not otherwise covered unless they are specifically excluded?