Question 1

Pharm-Ace holds a patent on a drug.Pharm-Ace used the patent (evidenced by the patent certificate)to secure a $1 million loan from First Bank.The patent is chattel paper.

Accepted Answer

A) True 
 B)False  False

Question 2

Morefield Custom Design sends 30 recliners by rail to Danville Furniture.To show where the goods will be shipped and who gets them when they arrive,Morefield will obtain ____,which can be used as collateral in a secured transaction.

Accepted Answer

A) a warehouse receipt 
B) a bill of lading 
C) chattel paper 
D) a deposit account 
A) a warehouse receipt 
B) a bill of lading 
C) chattel paper 
D) a deposit account B

Question 3

Fowler Bros.has applied to Gibralter Bank for a $50,000 loan for its business expansion.If Fowler Bros.plans to use its account at Gibralter Bank as collateral,discuss what the bank needs to do for a security interest to attach.

Accepted Answer

Attachment is a vital step in a secured transaction.For an enforceable security interest to be created,or to attach,three steps must occur: the parties must make a security agreement and either the debtor has to authenticate a security agreement describing the collateral or the secured party has to obtain possession or control of the collateral,the secured party must give value to obtain the security agreement,and the debtor must have rights in the collateral.Ordinarily the agreement is in writing and signed by the debtor or electronically recorded and authenticated by the debtor.In this case,however,it will be sufficient if the parties have an oral agreement since the bank,the secured party,has control of the deposit account being used for collateral.The second element,value,is the money the bank loans.The third element is that the debtor has rights in the collateral.Fowler Bros.has a legal right to its deposit account in Gibralter Bank.

Question 4

Spicy & Hot,Inc.is interested in expanding its Mexican food restaurant into a Mexican food catering business.Spicy & Hot,Inc.buys a new delivery van from Van World.Spicy & Hot,Inc.is a buyer in the ordinary course of business when purchasing the van.

Accepted Answer

A) True 
 B)False

Question 5

First Federal had a perfected security interest in Vicor's printing press.Second Credit had a security interest in the same press,but its interest was not perfected.First Federal takes priority over Second Credit.

Accepted Answer

A) True 
 B)False

Question 6

Aubry purchased a washing machine,a freezer,and a refrigerator from Gateway Appliances on credit,giving Gateway a security interest in the appliances.The appliances were for Aubry's household use.Gateway did not file a financing statement.Six months later,Aubry had a garage sale and sold the appliances to Tam.Tam bought the appliances for her student rental property.Aubry left town owing money on the appliances.If Gateway can trace the appliances to Tam,can Gateway repossess the appliances? Explain in detail.

Accepted Answer

Yes.Generally with consumer goods,a buye

Question 7

Micky,a mechanic,repaired Daphane's Dodge.Daphane failed to pay the repair bill of $595.Since Micky was still storing the car,he could therefore claim a landlord's lien on the car.

Accepted Answer

A) True 
 B)False

Question 8

For a security interest to attach,there must be an agreement.

Accepted Answer

A) True 
 B)False

Question 9

Article 9 applies to any transaction intended to create a security interest in personal property or fixtures.

Accepted Answer

A) True 
 B)False

Question 10

First Bank loaned $400,000 to Thomas,taking a security interest in his yacht.Thomas defaulted on the loan and First Bank repossessed the boat.First Bank sold the yacht at a public sale.The sale yielded $50,000 more than the debt.First Bank

Accepted Answer

A) must pay Thomas the $50,000. 
B) is entitled keep the $50,000. 
C) must share the $50,000 equally with Thomas. 
D) must pay the surplus to the Secretary of State. 
A) must pay Thomas the $50,000. 
B) is entitled keep the $50,000. 
C) must share the $50,000 equally with Thomas. 
D) must pay the surplus to the Secretary of State.

Question 11

Article 9 of the UCC only applies to goods and does not include intangibles such as accounts or chattel paper.

Accepted Answer

A) True 
 B)False

Question 12

Explain the difference between attachment and perfection.

Accepted Answer

A security interest has to attach to the

Question 13

Gateway sold a big-screen TV and entertainment center to Iris for $2000 on credit. Iris signed a promissory note and gave Gateway a security interest in the TV and entertainment center. Gateway filed a financing statement in the appropriate public office. When Iris defaulted on her monthly payments owing a balance of $1780, Gateway's attorney made arrangements to have the TV and entertainment center repossessed. The attorney then placed classified ads in the local newspaper to sell the goods. The attorney's fees are $300, the repo company charged $150, and the advertising costs are $50.
(A)If Iris chooses to redeem the property,how much must she pay to Gateway to recover the property?
(B)If Iris does not redeem and the TV and entertainment center are sold for $1750,how will the money be disbursed?

Accepted Answer

(A)	Up to the time that the secured part

Question 14

Under Article 9 of the UCC,electronic chattel paper may be used as collateral in a secured transaction.

Accepted Answer

A) True 
 B)False

Question 15

Donna defaulted on her loan owed to Second State Savings and Loan.The loan was secured with Donna's car.Donna used the car for personal and family reasons.Which statement is correct?

Accepted Answer

A) Second State may take Donna's car without a court order if this can be done without a breach of the peace. 
B) Second State may take Donna's car without a court order even if it means a breach of the peace. 
C) Second State may not take Donna's car because it is a consumer good. 
D) Second State may not take Donna's car because perfection was automatic. 
A) Second State may take Donna's car without a court order if this can be done without a breach of the peace. 
B) Second State may take Donna's car without a court order even if it means a breach of the peace. 
C) Second State may not take Donna's car because it is a consumer good. 
D) Second State may not take Donna's car because perfection was automatic.

Question 16

Masterview,Inc.purchased a new computer system,which included some computer programs.When Masterview developed financial troubles,two competing creditors of Masterview claimed the right to repossess the computer system and the programs.The UCC distinguishes "software" from "goods" and treats them differently for some purposes,which would be important in this situation.

Accepted Answer

A) True 
 B)False

Question 17

Ken decided to open a retail boat dealership.He expects that many of his sales will be credit sales.What should Ken do to protect his interests in the collateral in the credit sales that he makes?

Accepted Answer

The UCC gives special treatment to secur

Question 18

Wanderlust gave a security interest in his Conestoga wagon to Iowa Bank who perfected its security interest by filing a financing statement with the appropriate officials in Iowa.Five months later,Wanderlust hit the trail again,moving to Montana.If Iowa Bank wants to continue its perfected interest in the Conestoga wagon,it should

Accepted Answer

A) file a continuation statement for another five years in Iowa before Wanderlust moves on. 
B) re-perfect by filing a financing statement in the appropriate place in Montana, according to Montana law, within four months of Wanderlust's entering Montana. 
C) repossess the Conestoga wagon. 
D) file a continuation statement for another four months in Iowa before Wanderlust moves on. 
A) file a continuation statement for another five years in Iowa before Wanderlust moves on. 
B) re-perfect by filing a financing statement in the appropriate place in Montana, according to Montana law, within four months of Wanderlust's entering Montana. 
C) repossess the Conestoga wagon. 
D) file a continuation statement for another four months in Iowa before Wanderlust moves on.

Question 19

In terms of collateral,which of the following would be categorized as "equipment"?

Accepted Answer

A) a mowing tractor used to mow personal property 
B) crops produced by a farming operation 
C) goods held by someone for sale or lease 
D) a computer system used in a retail store 
A) a mowing tractor used to mow personal property 
B) crops produced by a farming operation 
C) goods held by someone for sale or lease 
D) a computer system used in a retail store

Question 20

Great State Bank loans money to Seth,securing the loan with property owned by Seth.Great State Bank is advised by its attorney to file a financing statement.Great State Bank doesn't understand why it should spend the extra money for this filing,since Seth has told them that he has no other creditors.Why should Great State Bank file a financing statement?

Accepted Answer

A) There are criminal penalties for failing to file. 
B) The financing statement allows Great State Bank to repossess the collateral on default without a court order. 
C) The financing statement will protect Great State's priority rights with other creditors by giving notice to other creditors that it claims a security interest in the collateral. 
D) Filing the financing statement is necessary to complete the attachment requirement in order to create a security interest. 
A) There are criminal penalties for failing to file. 
B) The financing statement allows Great State Bank to repossess the collateral on default without a court order. 
C) The financing statement will protect Great State's priority rights with other creditors by giving notice to other creditors that it claims a security interest in the collateral. 
D) Filing the financing statement is necessary to complete the attachment requirement in order to create a security interest.

Exam 24: Secured Transactions

Pharm-Ace holds a patent on a drug.Pharm-Ace used the patent (evidenced by the patent certificate)to secure a $1 million loan from First Bank.The patent is chattel paper.

Morefield Custom Design sends 30 recliners by rail to Danville Furniture.To show where the goods will be shipped and who gets them when they arrive,Morefield will obtain ____,which can be used as collateral in a secured transaction.

Fowler Bros.has applied to Gibralter Bank for a $50,000 loan for its business expansion.If Fowler Bros.plans to use its account at Gibralter Bank as collateral,discuss what the bank needs to do for a security interest to attach.

Spicy & Hot,Inc.is interested in expanding its Mexican food restaurant into a Mexican food catering business.Spicy & Hot,Inc.buys a new delivery van from Van World.Spicy & Hot,Inc.is a buyer in the ordinary course of business when purchasing the van.

First Federal had a perfected security interest in Vicor's printing press.Second Credit had a security interest in the same press,but its interest was not perfected.First Federal takes priority over Second Credit.

Micky,a mechanic,repaired Daphane's Dodge.Daphane failed to pay the repair bill of $595.Since Micky was still storing the car,he could therefore claim a landlord's lien on the car.

For a security interest to attach,there must be an agreement.

Article 9 applies to any transaction intended to create a security interest in personal property or fixtures.

First Bank loaned $400,000 to Thomas,taking a security interest in his yacht.Thomas defaulted on the loan and First Bank repossessed the boat.First Bank sold the yacht at a public sale.The sale yielded $50,000 more than the debt.First Bank

Article 9 of the UCC only applies to goods and does not include intangibles such as accounts or chattel paper.

Explain the difference between attachment and perfection.

Under Article 9 of the UCC,electronic chattel paper may be used as collateral in a secured transaction.

Donna defaulted on her loan owed to Second State Savings and Loan.The loan was secured with Donna's car.Donna used the car for personal and family reasons.Which statement is correct?

Ken decided to open a retail boat dealership.He expects that many of his sales will be credit sales.What should Ken do to protect his interests in the collateral in the credit sales that he makes?

In terms of collateral,which of the following would be categorized as "equipment"?

Introduction to Law

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International Law

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Introduction to Contracts

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Introduction to Sales

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Starting a Business: LLCs and Other Options

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