Multiple Choice Answers

EC1. 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. The trustee in bankruptcy of the debtor.
b. Lien creditors of the debtor.
c. A buyer of goods in the ordinary course of business.
d. A subsequent buyer of consumer goods who purchased the goods from another consumer.

EC2. Kettlecorn Investments, Inc., and Lone Bank are secured parties with security interests in property owned by Metal Fabrication 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.

General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation (Helpful) for a security interest in the equipment. The next day, GLC borrows $500,000 from Interstate Bank, also for a security interest in the equipment. GLC defaults on both loans.
EC3. Refer to Fact Pattern I. Suppose that two weeks after GLC takes possession of the equipment, Helpful and Interstate file financing statements, with Interstate filing first. In that circumstance, the party with priority to the equipment is
a. GLC.
b. Helpful and Interstate proportionately.
c. Helpful only.
d. Interstate Bank only
e. none of the above.

EC4. Hasty Pastries declares bankruptcy, idling Hasty’s delivery vehicles. The court can compel Hasty to make periodic cash payments to a creditor with a secured interest in the vehicles to offset the depreciation in their value. This is
a. the adequate protection doctrine.
b. the avoidance doctrine.
c. a preferential transfer.
d. the automatic stay.
e. none of the above.

____ EC5. Lorissa files a petition for bankruptcy. Lorissa’s creditors must file with the court their proof of claims against Lorissa’s assets within
a. fifteen days of the order for relief.
b. thirty days of the filing of the petition.
c. sixty days of the automatic stay.
d. ninety days of the creditors’ meeting.
e. none of the above.

EC6. Building Services receives a discharge in bankruptcy, even though some creditors hold judgments on overdue debts against it and others filed actions to collect on overdue debts before the bankruptcy. Reconstruction’s discharge will
a. absolve the liability of any co-debtors.
b. permit the debtor to enter into reaffirmation agreements.
c. allow the debtor to file a petition for a reorganization.
d. prohibit actions and void judgments regarding overdue debts.
e. none of the above.

____ EC7. Wilbur files a petition in bankruptcy for relief through an individual’s repayment plan. Wilbur is granted a discharge. Debts that will not be discharged include claims for
a.contributions to employee benefit plans. to be paid for services not rendered.
c.fraudulently incurred debt.
d. long overdue credit-card debt.
e. none of the above.

EC8.Tom dies owning stock as joint tenant with right of survivorship with his son, having bank accounts in his name in trust for his daughter, and owning real estate as tenants by the entirety with his wife. The trustee of Tom’s revocable trust holds title the rest of his assets. Under the terms of the revocable trust, all assets of the trust will be distributed to Tom’s son and daughter on Tom’s death. Tom’s wife, son and daughter survive him. Under the terms of Tom’s will, Tom leaves all of his property to his mother, who also survived him. Tom died
a. intestate.
b. without any probate assets.
c. with a last will that will controls the disposition of his assets.
d. None of the above.

EC9. Which of the following is accurate?
a. An instrument is defective if it has been previously honored.
b. An instrument is not defective simply because it is overdue.
c. If a note is payable on a Sunday or holiday, then the payment of the note will be due on the next business day.
d. none of the above.

EC10. Which of the following is inaccurate?
a. When the drawee of an unaccepted draft or check pays to a holder the amount due in full, all parties to the instrument are discharged.
b. Accidental destruction of a negotiable instrument cancels it.
c. A cashier’s check is an instrument in which a bank draws a check on itself.
d. A drawer is liable to the holder of a check if the check is not honored