Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following may not be used as collateral within the scope of UCC Article 9?

Accepted Answer

A)  Certificates of deposit. 
B)  Accounts receivable. 
C)  Goodwill. 
D)  A 250-acre farm. 
A)  Certificates of deposit. 
B)  Accounts receivable. 
C)  Goodwill. 
D)  A 250-acre farm. D

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

If repossessed collateral is sold or otherwise disposed of by the creditor,the time,place,manner,and method of disposal must be:

Accepted Answer

A)  commercially reasonable. 
B)  scheduled with the debtor so that the debtor is able to attend. 
C)  court ordered. 
D)  perfected. 
A)  commercially reasonable. 
B)  scheduled with the debtor so that the debtor is able to attend. 
C)  court ordered. 
D)  perfected.

Question 5

Which of the following is correct concerning termination statements?

Accepted Answer

A)  A secured party must file a termination statement when consumer goods are involved and the debtor has paid for them. 
B)  The termination statement clears the debtor's public record with regard to old, irrelevant financing statements so that the same collateral can be used again to secure a future loan. 
C)  The secured party must file a termination statement within 20 days of a consumer debtor's demand, provided the debtor has paid the full debt. 
D)  All of the above are correct concerning termination statements. 
A)  A secured party must file a termination statement when consumer goods are involved and the debtor has paid for them. 
B)  The termination statement clears the debtor's public record with regard to old, irrelevant financing statements so that the same collateral can be used again to secure a future loan. 
C)  The secured party must file a termination statement within 20 days of a consumer debtor's demand, provided the debtor has paid the full debt. 
D)  All of the above are correct concerning termination statements.

Question 6

Landscaper Lottie used her machinery,employee labor,and her expertise to landscape Opal's new guest home.Opal fails to pay for the landscaping because she has run out of money.Lottie files a lien against the real property.This lien is called:

Accepted Answer

A)  an artisan's lien; her landscape design is a work of art. 
B)  a landlord's lien; Opal is planning to rent the guest house to a tenant. 
C)  a mechanic's lien; it was created by improving real property. 
D)  a purchase money security interest. 
A)  an artisan's lien; her landscape design is a work of art. 
B)  a landlord's lien; Opal is planning to rent the guest house to a tenant. 
C)  a mechanic's lien; it was created by improving real property. 
D)  a purchase money security interest.

Question 7

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.

Question 8

Great State Bank and First Federal Bank have a security interest in TriColor's equipment.If neither secured party is perfected,the first to sue or repossess has priority over the collateral.

Accepted Answer

A) True 
 B)False

Question 9

Bagsby owns a business selling insects for organic gardening.Bagsby is seeking a loan from First Natural Bank.The loan officer is asking that the loan be secured by Bagsby's inventory of insects,now owned or hereafter acquired.In order to do this,a new security agreement will need to be signed each time Bagsby gets new insects or sells his insects.

Accepted Answer

A) True 
 B)False

Question 10

On April 10,Amy agreed to buy a riding lawn mower from Mowers Plus,signing a promissory note and security agreement giving Mowers Plus a security interest in the mower.On April 15,Amy took delivery of the mower.On May 1,Mowers Plus filed a financing statement.Which of the following is correct?

Accepted Answer

A)  Despite the agreement, Mowers Plus could not create a security interest in the mower since it is a consumer good. 
B)  Mowers Plus has attachment of a security interest in Amy's mower. 
C)  Mowers Plus completed the attachment of a security interest in the mower when it filed the financing statement on May 1. 
D)  The security interest has not attached, but attachment is unimportant to enforceability of a security interest. 
A)  Despite the agreement, Mowers Plus could not create a security interest in the mower since it is a consumer good. 
B)  Mowers Plus has attachment of a security interest in Amy's mower. 
C)  Mowers Plus completed the attachment of a security interest in the mower when it filed the financing statement on May 1. 
D)  The security interest has not attached, but attachment is unimportant to enforceability of a security interest.

Question 11

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 12

Great State Bank took a security interest in Gresham,Inc.'s meat processing equipment.Gresham defaulted on the loan.Which statement is correct?

Accepted Answer

A)  Great State Bank may take possession of the collateral. 
B)  Great State Bank may ignore its rights in the collateral and sue Gresham for the money owed. 
C)  Both a and b are courses of action that Great State Bank may follow. 
D)  Neither a nor b are courses of action that Great State Bank may follow. 
A)  Great State Bank may take possession of the collateral. 
B)  Great State Bank may ignore its rights in the collateral and sue Gresham for the money owed. 
C)  Both a and b are courses of action that Great State Bank may follow. 
D)  Neither a nor b are courses of action that Great State Bank may follow.

Question 13

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

Question 14

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 party

Question 15

Byron bought a 50' yacht from Myrtle's Marina by entering into a note and security agreement promising the yacht as collateral for the purchase money security interest.When Byron faced some tough financial times,he failed to make three monthly payments.Myrtle's Marina repossessed the yacht by removing the yacht engine and advertised a public auction of the yacht.Byron appealed to his good friend Charles and managed to pay off the debt balance and the Marina's expenses of repossessing and advertising the sale.Byron's actions represent:

Accepted Answer

A)  strict foreclosure. 
B)  redemption. 
C)  silent bidding at the auction. 
D)  an artisan's lien. 
A)  strict foreclosure. 
B)  redemption. 
C)  silent bidding at the auction. 
D)  an artisan's lien.

Question 16

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 17

There is no way to attach a security interest in electronic chattel paper.

Accepted Answer

A) True 
 B)False

Question 18

A PMSI can be created only in goods and software.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following parties can defeat a perfected security interest?

Accepted Answer

A)  A "buyer in ordinary course of business." 
B)  A buyer of consumer goods if the buyer is not aware of the security interest, gives value for the goods, will continue to use the goods as consumer goods, and the secured party has not filed a financing statement. 
C)  A buyer who purchases chattel paper or an instrument in the ordinary course of business, and then takes possession. 
D)  All of the above are correct. 
A)  A "buyer in ordinary course of business." 
B)  A buyer of consumer goods if the buyer is not aware of the security interest, gives value for the goods, will continue to use the goods as consumer goods, and the secured party has not filed a financing statement. 
C)  A buyer who purchases chattel paper or an instrument in the ordinary course of business, and then takes possession. 
D)  All of the above are correct.

Question 20

George's Wholesale agrees to purchase 1,000 pounds of bananas from Chickadee Exports at 39 cents per pound.George's does not have the money for the bananas now,but promises to pay in two months.Chickadee Exports wants to make the sale,but is worried about waiting for the payment,knowing the bananas are not "appealing" collateral. So,Chickadee prepares an instrument claiming George's $400 sorting machine as collateral.George's never signs the agreement,but accepts the shipment of bananas.This is an example of a:

Accepted Answer

A)  check. 
B)  security interest. 
C)  promissory note. 
D)  None of the above. 
A)  check. 
B)  security interest. 
C)  promissory note. 
D)  None of the above.

Exam 24: Secured Transactions

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

Which of the following may not be used as collateral within the scope of UCC Article 9?

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.

If repossessed collateral is sold or otherwise disposed of by the creditor,the time,place,manner,and method of disposal must be:

Which of the following is correct concerning termination statements?

Landscaper Lottie used her machinery,employee labor,and her expertise to landscape Opal's new guest home.Opal fails to pay for the landscaping because she has run out of money.Lottie files a lien against the real property.This lien is called:

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.

Great State Bank and First Federal Bank have a security interest in TriColor's equipment.If neither secured party is perfected,the first to sue or repossess has priority over the collateral.

On April 10,Amy agreed to buy a riding lawn mower from Mowers Plus,signing a promissory note and security agreement giving Mowers Plus a security interest in the mower.On April 15,Amy took delivery of the mower.On May 1,Mowers Plus filed a financing statement.Which of the following is correct?

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?

Great State Bank took a security interest in Gresham,Inc.'s meat processing equipment.Gresham defaulted on the loan.Which statement is correct?

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.

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.

There is no way to attach a security interest in electronic chattel paper.

A PMSI can be created only in goods and software.

Which of the following parties can defeat a perfected security interest?

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