Question 1

Jullian fails to make her monthly loan payment to the bank. She is said to be in denial.

Accepted Answer

A) True 
 B)False  False

Question 2

What is the time period in which a debtor has the right to object to retention of collateral to satisfy a debt?

Accepted Answer

A)  24 hours 
B)  48 hours 
C)  3 days 
D)  20 days 
E)  30 days 
A)  24 hours 
B)  48 hours 
C)  3 days 
D)  20 days 
E)  30 days D

Question 3

Which of the following is true regarding priority in a dispute involving a purchase-money security interest in business goods other than inventory?

Accepted Answer

A)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 20 days of the debtor's possession of the collateral. 
B)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 30 days of the debtor's possession of the collateral. 
C)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 40 days of the debtor's possession of the collateral. 
D)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 45 days of the debtor's possession of the collateral. 
E)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 60 days of the debtor's possession of the collateral. 
A)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 20 days of the debtor's possession of the collateral. 
B)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 30 days of the debtor's possession of the collateral. 
C)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 40 days of the debtor's possession of the collateral. 
D)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 45 days of the debtor's possession of the collateral. 
E)  The purchase-money security interest has priority over any other secured perfected interests as long as the purchase-money security interest is perfected within 60 days of the debtor's possession of the collateral. A

Question 4

[Hang Glider] Monte borrows money from A&Z Bank and the bank has a secured interest in Monte's hang glider. The bank files a financing statement which identifies Dryden, another debtor of the bank, as the debtor for this transaction. Monte also borrows money from his neighbor, and he uses the hang glider as collateral on that transaction. His neighbor was unaware that Monte had used the hang glider as collateral for the bank loan. Monte fails to make his payment to the bank. The bank claims it should take possession of the hang glider because it has a perfected interest. When Dryden learns about the bank's interest in the hang glider, he calls that bank and tells them he has first dibs on the hang glider because their loan to Monte was not public knowledge. The bank tells Dryden that they have priority because they perfected their security interest in the hang glider when they filed the financing statement four years ago.
-Is the bank correct that it has priority because it has a perfected interest in the hang glider?

Accepted Answer

A)  Yes, because it filed a financing statement, thus perfecting its interest. 
B)  Yes, even though the financing statement is filed under a correct name, the filing of the statement perfected its interest in the hang glider. 
C)  No, because the financing statement is filed under an incorrect name, thus perfection is likely not effective. 
D)  No, it takes more than simply filing a financing statement for perfection to be effective. 
E)  Yes, because banks are excused from minor errors in financial documents, and thus the incorrect name in the financing statement does not affect perfection. 
A)  Yes, because it filed a financing statement, thus perfecting its interest. 
B)  Yes, even though the financing statement is filed under a correct name, the filing of the statement perfected its interest in the hang glider. 
C)  No, because the financing statement is filed under an incorrect name, thus perfection is likely not effective. 
D)  No, it takes more than simply filing a financing statement for perfection to be effective. 
E)  Yes, because banks are excused from minor errors in financial documents, and thus the incorrect name in the financing statement does not affect perfection.

Question 5

The term ________ is the designation for property acquired by the debtor after a security agreement covering the property is made.

Accepted Answer

A)  post-dated property 
B)  after-acquired property 
C)  profits 
D)  post-acquired property 
E)  subsequently acquired property 
A)  post-dated property 
B)  after-acquired property 
C)  profits 
D)  post-acquired property 
E)  subsequently acquired property

Question 6

If Michael, ABC Electronics, and XYZ Credit have a dispute regarding entitlement to the television, who is likely to win and why?

Accepted Answer

A)  ABC Electronics will prevail because, as a seller of consumer goods, it did not need a perfected security interest in order to prevail against other creditors. 
B)  ABC Electronics will prevail because it had a perfected security interest. 
C)  XYZ Credit will prevail because although ABC Electronics had a perfected security interest, it did not file a financing statement. 
D)  XYZ Credit will prevail because a luxury good was involved and, although ABC Electronics had a perfected security interest, it did not file a financing statement as required within 10 days of the sale. 
E)  XYZ Credit will prevail because it had a perfected security interest in a greater amount of goods than did ABC Electronics. 
A)  ABC Electronics will prevail because, as a seller of consumer goods, it did not need a perfected security interest in order to prevail against other creditors. 
B)  ABC Electronics will prevail because it had a perfected security interest. 
C)  XYZ Credit will prevail because although ABC Electronics had a perfected security interest, it did not file a financing statement. 
D)  XYZ Credit will prevail because a luxury good was involved and, although ABC Electronics had a perfected security interest, it did not file a financing statement as required within 10 days of the sale. 
E)  XYZ Credit will prevail because it had a perfected security interest in a greater amount of goods than did ABC Electronics.

Question 7

What did the court conclude in the Case Opener, the case in which the plaintiff claimed that her repossessed vehicle was not sold in a commercially reasonably manner and that she was wrongly left with a deficiency?

Accepted Answer

A)  That showing that the sale grossed more than 50% of the vehicle's value established that the sale was commercially reasonable. 
B)  That good faith in selling the vehicle established commercial reasonableness as a matter of law. 
C)  That the secured party failed to prove that its sale of the vehicle conformed with established industry practices. 
D)  That there was no obligation on the seller to engage in a commercially reasonable sale because the plaintiff was in default. 
E)  That while not every aspect of the sale had to be commercially reasonable, the seller failed to show that sufficient advertisement of the sale was accomplished, thereby rendering the sale itself commercially unreasonable. 
A)  That showing that the sale grossed more than 50% of the vehicle's value established that the sale was commercially reasonable. 
B)  That good faith in selling the vehicle established commercial reasonableness as a matter of law. 
C)  That the secured party failed to prove that its sale of the vehicle conformed with established industry practices. 
D)  That there was no obligation on the seller to engage in a commercially reasonable sale because the plaintiff was in default. 
E)  That while not every aspect of the sale had to be commercially reasonable, the seller failed to show that sufficient advertisement of the sale was accomplished, thereby rendering the sale itself commercially unreasonable.

Question 8

When perfection by possession occurs, the parties must have a written security agreement.

Accepted Answer

A) True 
 B)False

Question 9

________ is the person or the party that holds the interest in the secured property.

Accepted Answer

A)  A debtor 
B)  A ruling party 
C)  An approved party 
D)  A secured party 
E)  An attached party 
A)  A debtor 
B)  A ruling party 
C)  An approved party 
D)  A secured party 
E)  An attached party

Question 10

[Favi's Furniture] Favi took out a loan from First Bank and executed a security agreement which gave First Bank rights to any after-acquired property as collateral. A year later, Favi took out a loan with Second Bank and executed a security agreement with Second Bank using his new delivery truck as collateral. Favi eventually defaulted on both loans.
-If Favi sells the truck, what is First Bank's best option?

Accepted Answer

A)  Seek repossession of the truck. 
B)  File a financing statement within 90 days after the debtor receives the proceeds of the sale of the truck. 
C)  File a financing statement within 60 days after the debtor receives the proceeds of the sale of the truck. 
D)  File a financing statement within 30 days after the debtor receives the proceeds of the sale of the truck. 
E)  File a financing statement within 10 days after the debtor receives the proceeds of the sale of the truck. 
A)  Seek repossession of the truck. 
B)  File a financing statement within 90 days after the debtor receives the proceeds of the sale of the truck. 
C)  File a financing statement within 60 days after the debtor receives the proceeds of the sale of the truck. 
D)  File a financing statement within 30 days after the debtor receives the proceeds of the sale of the truck. 
E)  File a financing statement within 10 days after the debtor receives the proceeds of the sale of the truck.

Question 11

Thomas and Pauline are two secured parties. Neither party has perfected their interests. Assuming a purchase-money security interest is not involved, who would prevail in a dispute?

Accepted Answer

A)  The party who attached its interest first will prevail. 
B)  The party who loaned money first will prevail. 
C)  Thomas and Pauline will divide the proceeds from the sale of the collateral evenly between them. 
D)  The party who loaned the most money on the collateral has priority. 
E)  The party who first notified the debtor of a missed payment has priority. 
A)  The party who attached its interest first will prevail. 
B)  The party who loaned money first will prevail. 
C)  Thomas and Pauline will divide the proceeds from the sale of the collateral evenly between them. 
D)  The party who loaned the most money on the collateral has priority. 
E)  The party who first notified the debtor of a missed payment has priority.

Question 12

[Dirty Laundry] Morgan planned to start her own laundry business. She borrowed $60,000 from ABC Bank. She used her car and home as collateral and also gave ABC Bank an interest in any property she acquired after the security interest was made. The bank perfected its interest. Morgan purchased a new computer from XYZ Electronics for use in her business. XYZ obtained a purchase money security interest on the computer. Morgan was having problems with cash flow and failed to make payments to XYZ Electronics on the new computer. After the sale and before Morgan stopped making payments, XYZ had filed a financing statement. The electronics store sought to repossess the computer, but the bank opposed that. Morgan's business picked up and she was able to completely repay her loan to the bank and to XYZ. She requested that the bank discontinue its security interest, but the bank did not do so as requested by Morgan, and still had not done so 45 days after Morgan had paid off the loan and requested that the bank terminate its interest.
-________ property is the proper designation for any equipment subject to the bank's security interest that Morgan obtains after the initial loan agreement.

Accepted Answer

A)  After-acquired 
B)  Post-dated 
C)  Cover 
D)  Post-security 
E)  Valid 
A)  After-acquired 
B)  Post-dated 
C)  Cover 
D)  Post-security 
E)  Valid

Question 13

A bank taking possession of collateral does not have to file a financing statement in order to perfect its interest.

Accepted Answer

A) True 
 B)False

Question 14

[Overextended Debtor] Michael bought a flat screen television for his living room from ABC Electronics, and financed the purchase through ABC Electronics. Later, Michael bought a boat, a new car, and an expensive engagement ring for his girlfriend, and found he was unable to continue making payments on the television. The manager of ABC Electronics called 60 days after the sale and asked Michael to return the television. Michael refused on the basis that ABC Electronics never perfected its interest in the television. He also explained that he had later granted a secured interest in the television along with his other goods to XYZ Credit in return for a loan. No financing statement was filed on behalf of ABC Electronics although XYZ Credit, with no knowledge of any interest of ABC Electronics, did file a financing statement.
-Which statement is true regarding Michael's statement that the security interest of ABC was not perfected?

Accepted Answer

A)  Michael is wrong because the security interest perfected immediately. 
B)  Michael is correct because the security interest perfected when he was still in possession of the collateral 30 days after the purchase. 
C)  Michael is correct because the security interest perfected when he was still in possession of the collateral 60 days after the purchase. 
D)  Michael is correct because no financing statement was filed. 
E)  Michael is correct only because in the case of luxury goods, a financing statement must be filed within 20 days of the sale in order for the seller to establish perfection. 
A)  Michael is wrong because the security interest perfected immediately. 
B)  Michael is correct because the security interest perfected when he was still in possession of the collateral 30 days after the purchase. 
C)  Michael is correct because the security interest perfected when he was still in possession of the collateral 60 days after the purchase. 
D)  Michael is correct because no financing statement was filed. 
E)  Michael is correct only because in the case of luxury goods, a financing statement must be filed within 20 days of the sale in order for the seller to establish perfection.

Question 15

[Hang Glider] Monte borrows money from A&Z Bank and the bank has a secured interest in Monte's hang glider. The bank files a financing statement which identifies Dryden, another debtor of the bank, as the debtor for this transaction. Monte also borrows money from his neighbor, and he uses the hang glider as collateral on that transaction. His neighbor was unaware that Monte had used the hang glider as collateral for the bank loan. Monte fails to make his payment to the bank. The bank claims it should take possession of the hang glider because it has a perfected interest. When Dryden learns about the bank's interest in the hang glider, he calls that bank and tells them he has first dibs on the hang glider because their loan to Monte was not public knowledge. The bank tells Dryden that they have priority because they perfected their security interest in the hang glider when they filed the financing statement four years ago.
-Is Dryden correct that the bank does not have priority because the loan was not public knowledge?

Accepted Answer

A)  Yes, private persons should not be expected to search for notification of secured interests. 
B)  No, once the financing statement is filed, the statement becomes public knowledge and parties considering making a loan to another party are expected to search for notification of secured interests. 
C)  Yes, although financial statements become public knowledge, only banks and businesses, but not private persons, are expected to search for notification of secured interests. 
D)  Yes, financial statements are not generally considered public knowledge. 
E)  No, although financial statements are generally not considered public knowledge, private persons are expected to search for notification of secured interests. 
A)  Yes, private persons should not be expected to search for notification of secured interests. 
B)  No, once the financing statement is filed, the statement becomes public knowledge and parties considering making a loan to another party are expected to search for notification of secured interests. 
C)  Yes, although financial statements become public knowledge, only banks and businesses, but not private persons, are expected to search for notification of secured interests. 
D)  Yes, financial statements are not generally considered public knowledge. 
E)  No, although financial statements are generally not considered public knowledge, private persons are expected to search for notification of secured interests.

Question 16

[Repo] Meredith sells used cars and trucks. She sold a used pick-up truck to Jill and a used convertible to Caleb. She properly obtained a security interest in both vehicles. Both Jill and Caleb defaulted on payments owed to Meredith for the vehicles. Meredith was under the belief that her only option was to take possession of the collateral. She decided to repossess Jill's pick-up at Jill's house. Meredith slipped into Jill's driveway after midnight and started the truck's engine. Jill immediately ran out and confronted Meredith. Meredith shoved Jill away and drove off in the pick-up truck. Meredith was able to repossess Caleb's convertible in a public parking lot with no altercation with him.
-Which statement is correct about the creation of a security interest?

Accepted Answer

A)  The debtor has no actual rights to the collateral until final payment is made. 
B)  The secured party must give a consumer good to get the security agreement. 
C)  A written agreement is necessary to create a security interest. 
D)  To create a security interest, either a written agreement is necessary or the secured party is in possession of the collateral. 
E)  The secured party must be a bank. 
A)  The debtor has no actual rights to the collateral until final payment is made. 
B)  The secured party must give a consumer good to get the security agreement. 
C)  A written agreement is necessary to create a security interest. 
D)  To create a security interest, either a written agreement is necessary or the secured party is in possession of the collateral. 
E)  The secured party must be a bank.

Question 17

[Favi's Furniture] Favi took out a loan from First Bank and executed a security agreement which gave First Bank rights to any after-acquired property as collateral. A year later, Favi took out a loan with Second Bank and executed a security agreement with Second Bank using his new delivery truck as collateral. Favi eventually defaulted on both loans.
-If First Bank had properly perfected its security interest, which creditor's interest would take priority?

Accepted Answer

A)  First Bank, because in a dispute between a secured perfected creditor and a secured unperfected creditor, the secured perfected creditor takes priority. 
B)  First Bank, because in a dispute between two secured and perfected creditors, the party who perfected first takes priority. 
C)  First Bank, because in a dispute between two secured but unperfected creditors, the party who attached first takes priority. 
D)  The two banks will have equal rights to the property. 
E)  Second Bank, because "after-acquired property" is not specific enough to grant attachment right to First Bank, and, thus, the secured agreement of Second Bank takes priority. 
A)  First Bank, because in a dispute between a secured perfected creditor and a secured unperfected creditor, the secured perfected creditor takes priority. 
B)  First Bank, because in a dispute between two secured and perfected creditors, the party who perfected first takes priority. 
C)  First Bank, because in a dispute between two secured but unperfected creditors, the party who attached first takes priority. 
D)  The two banks will have equal rights to the property. 
E)  Second Bank, because "after-acquired property" is not specific enough to grant attachment right to First Bank, and, thus, the secured agreement of Second Bank takes priority.

Question 18

Perfection of a security interest in a motor vehicle generally occurs when the secured party files the interest with the state's Department of Motor Vehicles.

Accepted Answer

A) True 
 B)False

Question 19

Generally, unsecured parties have priority over secured creditors.

Accepted Answer

A) True 
 B)False

Question 20

[Dirty Laundry] Morgan planned to start her own laundry business. She borrowed $60,000 from ABC Bank. She used her car and home as collateral and also gave ABC Bank an interest in any property she acquired after the security interest was made. The bank perfected its interest. Morgan purchased a new computer from XYZ Electronics for use in her business. XYZ obtained a purchase money security interest on the computer. Morgan was having problems with cash flow and failed to make payments to XYZ Electronics on the new computer. After the sale and before Morgan stopped making payments, XYZ had filed a financing statement. The electronics store sought to repossess the computer, but the bank opposed that. Morgan's business picked up and she was able to completely repay her loan to the bank and to XYZ. She requested that the bank discontinue its security interest, but the bank did not do so as requested by Morgan, and still had not done so 45 days after Morgan had paid off the loan and requested that the bank terminate its interest.
-Which statement is correct regarding priority in rights to the computer?

Accepted Answer

A)  The bank had priority because the computer was considered after-acquired property properly covered by the initial security interest. 
B)  XYZ Electronics had priority because XYZ Electronics had a purchase-money security interest in the computer. 
C)  XYZ Electronics had priority only if XYZ Electronics perfected its security interest within 10 days of the purchase. 
D)  XYZ Electronics had priority only if XYZ Electronics perfected its security interest within 20 days of the purchase. 
E)  The bank had a security interest in the computer because it perfected its security interest before XYZ Electronics did so. 
A)  The bank had priority because the computer was considered after-acquired property properly covered by the initial security interest. 
B)  XYZ Electronics had priority because XYZ Electronics had a purchase-money security interest in the computer. 
C)  XYZ Electronics had priority only if XYZ Electronics perfected its security interest within 10 days of the purchase. 
D)  XYZ Electronics had priority only if XYZ Electronics perfected its security interest within 20 days of the purchase. 
E)  The bank had a security interest in the computer because it perfected its security interest before XYZ Electronics did so.

Exam 30: Secured Transactions

Jullian fails to make her monthly loan payment to the bank. She is said to be in denial.

What is the time period in which a debtor has the right to object to retention of collateral to satisfy a debt?

Which of the following is true regarding priority in a dispute involving a purchase-money security interest in business goods other than inventory?

The term ________ is the designation for property acquired by the debtor after a security agreement covering the property is made.

If Michael, ABC Electronics, and XYZ Credit have a dispute regarding entitlement to the television, who is likely to win and why?

What did the court conclude in the Case Opener, the case in which the plaintiff claimed that her repossessed vehicle was not sold in a commercially reasonably manner and that she was wrongly left with a deficiency?

When perfection by possession occurs, the parties must have a written security agreement.

________ is the person or the party that holds the interest in the secured property.

Thomas and Pauline are two secured parties. Neither party has perfected their interests. Assuming a purchase-money security interest is not involved, who would prevail in a dispute?

A bank taking possession of collateral does not have to file a financing statement in order to perfect its interest.

Perfection of a security interest in a motor vehicle generally occurs when the secured party files the interest with the state's Department of Motor Vehicles.

Generally, unsecured parties have priority over secured creditors.

An Introduction to Dynamic Business Law

Business Ethics

The Us Legal System

Alternative Dispute Resolution

Constitutional Principles

International and Comparative Law

Crime and the Business Community

Tort Law

Negligence and Strict Liability

Product Liability

Liability of Accountants and Other Professionals

Intellectual Property

Introduction to Contracts

Agreement

Consideration

Capacity and Legality

Legal Assent

Contracts in Writing

Third-Party Rights to Contracts

Discharge and Remedies

Introduction to Sales and Lease Contracts

Title, Risk of Loss, and Insurable Interest

Performance and Obligations Under Sales and Leases

Remedies for Breach of Sales and Lease Contracts

Warranties

Negotiable Instruments: Negotiability and Transferability

Negotiation, Holder in Due Course, and Defenses

Liability, Defenses, and Discharge

Checks and Electronic Fund Transfers

Other Creditors Remedies and Suretyship

Bankruptcy and Reorganization

Agency Formation and Duties

Liability to Third Parties and Termination

Forms of Business Organization

Partnerships: Nature, Formation, and Operation

Partnerships: Termination and Limited Partnerships

Corporations: Formation and Financing

Corporations: Directors, Officers, and Shareholders

Corporations: Mergers, Consolidations, Terminations

Corporations: Securities and Investor Protection

Employment and Labor Law

Employment Discrimination

Administrative Law

Consumer Law

Environmental Law

Antitrust Law

The Nature of Property, Personal Property, and Bailments

Real Property

Landlord-Tenant Law

Insurance Law

Wills and Trusts

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