CLFP EXAM - Leasing Law 2023-2024 ACTUAL EXAM
TEST BANK 200 QUESTIONS & CORRECT DETAILED
ANSWERS WITH RATIONALES| GRADED A.
A transaction does not create a security interest merely because of what? - ANS1.) the
present value of the consideration the lessee is obligated to pay the lessor for the right
of possession and use is substantially equal to or greater than the FMV at the time the
lease was entered
2.) the lessee assumes the risk of loss of the goods or agrees to pay taxes, insurance,
filings, maintenance etc related to the property
3.) the lessee has the option to renew or own
4.) The lessee has the option to renew for a fixed rent equal to or greater then the FMV
at the time of the option
5.) The lessee has an option to become the owner of the goods at a price >= FMV at
the time of the option
Contrast True Lease/Secured Loan - Bankruptcy - ANSGenerally, a lessor under a true
lease has better rights to recover equipment in a bk.
Contrast True Lease/Secured Loan - Collateral - ANSIt is incorrect to referred to leased
equipment as collateral but it is appropriate for a secured loan. Both require good
maintenance of the equipment. Lease has return provisions
Contrast True Lease/Secured Loan - Filing/Title - ANSIt is not required for a lessor to
file a UCC for a true lease. Leases are not governed by UCC Article 9 and there is not
filing requirement under article 2A.
Contrast True Lease/Secured Loan - Interest/Usury - ANSInterest is charged on a
secured loan, but not on a lease. Therefore a true lease may avoid usury laws. True
lease has rent payments whereas a secured loan has interest/principal payments.
Contrast True Lease/Secured Loan - Liability - ANSGenerally speaking their is more
exposure to the lessor on a true lease for liability
Contrast True Lease/Secured Loan - Residual - ANSWith respect to vehicles, aircraft
and other titled equipment true leases require the lessor to be shown as the owner.
Whereas secured loans require notation on certificate of title of the lender's interest.
Contrast True Lease/Secured Loan - UCC Rights - ANSUCC distinguishes true lease
and loans in several ways. True Lease = UCC 2A. Secured Loan = UCC 9. In a lease,
lessor owns equipment. In a loan, the lessee owns the equipment and the lender has
security interest
Describe the Bankruptcy Procedure. - ANS1.) filing petition (voluntary or involuntary)
, 2.) Automatic Stay - prohibit action against debtor other than through the court.
3.) If Chapter 11, prepare Plan of Reorganization which outlines repayment of debt.
4.) Assumption/Rejection of debt. Submitted prior to Plan of Reorganization, if accepted
must be paid by debtor per agreement. If rejected, lessor can recover equipment;
How are "reasonably predictable" and "useful economic life" determined? - ANSwith
reference to the facts and circumstances at the time the transaction is entered.
How does Article 2A define Fiance Lease? - ANSRefers to a lease which is 1.) a true
lease in which 2.) lessor is not the manufacturer or vendor of the property. 3.) the lessor
does not select the equipment or lease it from inventory 4.) lessor makes sure lessee is
apprised of its rights with the supplier
How is "residual position" used by courts to designate lease vs. loan? - ANSIf the lease
allows the lessee to purchase the asset for substantially less than the FMV, the lease
will be deemed a secured loan
What are a Lessee's disadvantages for failing to "qualifying to do business" in a state? -
ANS1.) cannot obtain written confirmation for teh state that it has legal right to
transaction business in the state, has not dissolved or failed to pay taxes
2.) certain legal rights in a foreign foreign jurisdiction may be impaired
What are a Lessor's disadvantages for failing to "qualifying to do business" in a state? -
ANS1.) potential penalty
2.) may not sue or use courts within the state
3.) both can be cured by retroactively filing to do business (and pay retroactive fees) in
the state
What are other consideration the courts use in determining lease vs. loan treatment? -
ANS1.) length of term vs. economic useful life
2.) responsibility to pay state and local tax,
3.) operating expenses and insurance
4.) benefit and burden of ownership
What are Preferences in Bankruptcy? - ANSPayments made within 90 days prior to
filing bankruptcy petition (one year if payments made to debtor owner). Such payments
may need to be returned to bankruptcy estate for apportionment among creditors.
Timely payments made in ordinary course of business are not considered preferences
What are some key concerns in determining "doing business" in a particular state? -
ANS1.) the presence of an office or place of business;
2.) the presence of an agent employed by the foreign corporation
3.) Foreign corp representatives routinely visit the sate renting hotel rooms etc.
4.) the value of the property owned by the foreign corporation and the volume of the
business transacted.
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