Deck 30: Secured Transactions

Question 1

A debtor must have title to collateral to give a secured party a security interest in the property.

Answer 1

False

Question 2

To create an enforceable security interest, the collateral must be in the possession of neither the debtor nor the secured party, but in escrow.

Answer 2

False

Question 3

A security agreement must describe the collateral because no security interest can exist unless the parties agree on the property subject to it.

Answer 3

True

Question 4

The instrument normally filed to give public notice to third parties of a secured party's security interest is collateral .

Question 5

Attachment ensures that a security interest between a debtor and a secured party is effective.

Question 6

Consideration to support a simple contract is not sufficient value to support the acquisition of a security interest.

Question 7

Business as we know it could not exist without secured transactions because otherwise sellers and lenders would be less likely to sell and lend on credit.

Question 8

One of a creditor's main concerns is having priority over other creditors who have rights in the same property of the debtor.

Question 9

The UCC's classification or definition of collateral does not affect where or how to perfect a security interest.

Question 10

Every interest in personal property that guarantees the payment or performance of an obligation is a security interest .

Question 11

For most collateral, possession by a secured party is impractical because it denies the debtor the right to use or derive income from the property to pay the debt.

Question 12

Providing only a debtor's trade name in a financing statement is sufficient for perfection even if the trade name is not the legal name of the business.

Question 13

With a binding agreement to extend credit, a secured party can obtain a security interest.

Question 14

A security interest cannot become perfected without the filing of a security agreement.

Question 15

A secured party perfects a claim by filing a financing statement with the debtor.

Question 16

Improper filing of a financing statement can render a security interest unperfected.

Question 17

Any transaction in which the payment of a debt is guaranteed by personal property owned or held by the debtor is a secured transaction .

Question 18

Several documents may be considered together to comprise a security agreement.

Question 19

The legal process by which a secured party protects against the claims of third parties who wish to have their debts satisfied out of the same property of the debtor is perfection .

Question 20

A party who owes payment or performance of a secured obligation is a secured party .

Question 21

Redevelopment Capital Inc. is the secured party in a secured transaction with Skyway Airport Corporation. Redevelopment Capital is also known as

A)the debtor.
B)the secured creditor.
C)the security interest.
D)collateral.

Question 22

Because the UCC encourages a debtor and creditor to include in their security agreement the standards to measure their rights and duties, the parties can stipulate the conditions that will constitute a default.

Question 23

When a debtor defaults, a secured creditor can take possession of the collateral without a court order and either retain or resell the collateral.

Question 24

To create an enforceable security interest between Finance Corporation and Global Trade Inc. in a written security agreement, the agreement must contain a description of

A)the debtor.
B)the creditor.
C)all of the choices.
D)the collateral.

Question 25

A buyer in the ordinary course of business takes goods subject to any security interest created by the seller because otherwise the free flow of credit would be hindered.

Question 26

An agreement that creates or provides for a security interest is referred to as

A)a financing statement.
B)a security agreement.
C)the UCC-1 form.
D)collateral.

Question 27

When two conflicting security interests are unperfected, the last to attach has priority.

Question 28

When a debtor defaults, a secured party who does not choose to retain the collateral must relinquish the security interest to the debtor.

Question 29

A security agreement determines most of the rights and duties of a debtor and a secured party.

Question 30

A secured party may be liable to a debtor for failing to comply with the debtor's request for confirmation of the amount of an unpaid debt.

Question 31

Appliance Sales & Repair wants to get paid for its goods and services, so it will not sell goods or perform services unless payment is guaranteed. This is the concept of

A)good faith.
B)fiduciary duty.
C)a secured transaction.
D)fair debt collection practice.

Question 32

Retail Store Inc. can give Secure Loan Company a security interest in future inventory to be acquired by the debtor.

Question 33

A security interest can cover only property in which the debtor has present rights.

Question 34

Because of depreciation, an amount received on a sale of collateral may be less than the amount owed on the debt, but a debtor who has defaulted is not likely to have the funds to pay the deficiency.

Question 35

A floating lien is a security interest retained in collateral even when the collateral changes in character, classification, or location.

Question 36

When a debtor defaults, a secured creditor can relinquish the security interest but cannot then seek a judgment on the underlying debt.

Question 37

When more than one security interest has been perfected in the same collateral, they are entitled to proportionate shares in the value of the property, but neither has priority.

Question 38

The last security interest to be perfected is the first in priority over any other perfected security interests.

Question 39

A security interest in proceeds is not perfected unless it is specifically provided in the security agreement.

Question 40

When a security interest is perfected, it has priority over any other perfected security interests.

Question 41

Capital Inc. holds a security interest in Discount Store's inventory. The parties agree that the interest will continue in the collateral even if it is sold, exchanged, or disposed of in some other way. This is

A)a floating lien.
B)a purchase-money security interest.
C)the right of redemption.
D)a continuation statement.

Question 42

To pay tuition at City College, Dora borrows funds from Equity Credit and gives as security a note on which Dora is the payee. Equity Credit's loan officer agrees to hold the note as collateral. The lender does not file a financing statement. Equity Credit's security interest is perfected because

A)the lender possesses the note.
B)default on a student loan is not a credible option.
C)the collateral is intangible.
D)Dora's other creditors are not aware that Equity Credit holds the note.

Question 43

Lending Corporation holds a perfected security interest in Medical Clinic's real property that includes priority to the proceeds from a sale of the collateral resulting from a bankruptcy. In relation to the bankruptcy trustee, this gives the secured party

A)equal rights.
B)superior rights.
C)no rights.
D)subordinate rights.

Question 44

Highway Autos Inc. borrows funds from Investment Company under a security agreement. Later, the borrower buys new vehicles to add to its inventory. The lender has a security interest in the new vehicles if

A)the security agreement included an after-acquired property clause.
B)the lender has not yet filed a financing statement.
C)the borrower bought the new vehicles with the lender's funds.
D)none of the choices.

Question 45

To create an enforceable security interest between Mortgage Bank and National Property Company in a written security agreement, the agreement must be signed by

A)the debtor.
B)the creditor.
C)all of the choices.
D)a disinterested third-party witness.

Question 46

To buy furniture, Gina, a consumer, signs a purchase agreement with Home Store, the seller, to pay $100 down and $50 per month until the price is paid. Home Store takes a security interest in the furniture. Because it was created as part of purchase agreement with a consumer, the security interest

A)is automatically perfected.
B)cannot be perfected.
C)can be perfected only by repossession.
D)can be perfected only by filing.

Question 47

The payment of Commerce Inc.'s debt to Debt Service LLC is guaranteed by the firm's property. Debt Service is most likely to perfect its interest by

A)insuring the property for the full amount of its value.
B)calculating the precise amount of the debt.
C)correcting grammatical errors in the parties' written agreement.
D)filing a financing statement with the appropriate authority.

Question 48

In a security agreement with AAA Machine Parts Inc., Business Loan Company wants to include a description of the collateral. A sufficient description would be

A)"all the debtor's personal property."
B)"all the debtor's assets."
C)"all the debtor's present and future inventory."
D)any of the choices.

Question 49

Guaranty Capital Corporation is given value by Housewares Wholesale Inc. in the form of a commitment to sell goods on credit. In terms of creating an enforceable security interest, this is

A)the only requirement.
B)a factor but not a requirement.
C)irrelevant.
D)required.

Question 50

Equity Bank files a financing statement regarding a transaction with Fabrication LLC. To be valid, the financing statement must contain all of the following except

A)a description of the collateral.
B)a statement of the purpose for the transaction.
C)the creditor's name.
D)the debtor's name.

Question 51

Bay Marina borrows funds from Credit Union secured by Bay's interest in the marina. If Credit Union fails to perfect its claim to the collateral, the claim will be reduced to that of

A)an unsecured creditor.
B)a state or local official.
C)a secured party.
D)a debtor.

Question 52

Mobile Talk LLC sells phones. The phones are the collateral for a loan from Noble Bank to the seller. The parties agree to extend the UCC's automatic-perfection period for proceeds. In regard to the bank's interest in the proceeds, this agreement

A)permits the interest to remain perfected.
B)extinguishes the interest after the automatic-perfection period.
C)effectively relinquishes the bank's interest.
D)has no effect on the bank's interest.

Question 53

In a financing statement to give notice of a loan to Lumber Yard Inc., Metro Finance Company wants to include a description of the collateral. A sufficient description would be

A)"all the debtor's personal property."
B)"all the debtor's assets."
C)"all the debtor's present and future inventory."
D)any of the choices.

Question 54

Loan Office Inc. has a security interest against Manufacturing Company that is enforceable. In other words, with respect to the collateral, the creditor's rights are said to

A)attach.
B)mature.
C)perfect.
D)process.

Question 55

To buy a delivery truck, Food-To-Go LLC borrows funds from Grow-Your-Business Inc. secured by the borrower's interest in the truck. The lender files a financing statement but not a continuation statement. Food-To-Go sells the truck to Haul-Away Corporation, a purchaser for value, and later defaults on the debt to Grow-Your-Business. Entitled to the truck is

A)Food-To-Go LLC.
B)Grow-Your-Business Inc.
C)Haul-Away Corporation.
D)the state in which Food-To-Go LLC is registered.

Question 56

To create an enforceable security interest for a loan, in terms of the collateral, the debtor must have

A)rights in it.
B)title to it.
C)possession of it.
D)proof of its value.

Question 57

Bob's Barber Shop borrows from first Credit Company and then Debit Loans LLC, using the same property as collateral for both loans. Debit Loans perfects its security interest. Credit Company does not. The debtor defaults on both loans. The party with first rights to the collateral is

A)Credit Company.
B)Debit Loans LLC.
C)Credit and Debit in proportion to the outstanding value of their loans.
D)Bob's Barber Shop.

Question 58

Ready Credit Inc. holds a security interest in inventory owned by Soy Products Inc. Ready Credit can protect its claim to the inventory in the event of Soy Products' default by

A)assignment.
B)perfection.
C)redemption.
D)retention.

Question 59

To obtain working capital, Mining Company puts up all of its equipment as security to borrow $100,000 from National Bank, which agrees to advance up to $100,000 more in the future. The bank properly perfects its security interest. To use the same collateral as security for a future advance, the bank must

A)execute a new security agreement.
B)re-perfect its security interest by possession.
C)none of the choices.
D)file a new financing statement.

Question 60

Kiosk Jewelers borrows from Lender Inc. and Mortgage Company, using the same collateral. Only Mortgage Company has a perfected security interest. Kiosk defaults on both loans. The party with first rights to the collateral is

A)Kiosk Jewelers.
B)none of the choices.
C)Lender Inc.
D)Mortgage Company.

Question 61

Credit Financing Inc. and Debt Lending Company hold security interests in property owned by Fleet Cartage Inc. Both lenders' interests are perfected. 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.
D)the time of attachment.

Question 62

Maritime Bank holds a security interest in Ned's fishing trawler. Ned defaults on the debt. Maritime takes possession of the boat and notifies Ned that it will be sold to recover some of the unpaid debt. Before the sale, Ned can regain possession by

A)obtaining a deficiency judgment.
B)agreeing to a floating lien.
C)exercising the right of redemption.
D)requesting a commercially reasonable sale.

Question 63

Sara needs $1,500 to buy textbooks and other school supplies. Tomas agrees to loan Sara $1,500, accepting as collateral Sara's car. They put their agreement in writing and sign it. Sara keeps possession of the car. Does Tomas have an enforceable security interest? How can Tomas let other creditors know of his interest in the car?

Question 64

Rolling Funds perfects a security interest in Steel Mill Inc.'s equipment by filing. When Steel Mill finally pays the debt, the debtor is entitled to the filing of

A)none of the choices.
B)a termination statement.
C)a confirmation request.
D)an amendment.

Question 65

Proceeds from the disposition of collateral after default on the underlying debt are distributed first to pay

A)reasonable expenses incurred by the secured party to sell the collateral.
B)the balance of the debt owed to the secured party.
C)junior lienholders who have made timely demands.
D)the debtor.

Question 66

The UCC does not define the term default . This encourages the parties to a secured transaction to

A)include standards that align with the concept of unconscionability.
B)run counter to the UCC's provision regarding good faith.
C)stipulate the conditions that will constitute a default.
D)provide the creditor with the maximum protection possible.

Question 67

Best Feed Company and Countywide Loans Inc. each hold a security interest in property owned by Dairy Farm. Neither lender's interest is perfected. 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.
D)the time of attachment.

Question 68

Bauxite Mine borrows $60,000 from Commerce Bank, with the loan secured by the borrower's property. The debtor defaults on the loan. Commerce relinquishes its security interest to seek a judicial remedy. To obtain funds to satisfy the debt by a seizure and sale of the borrower's nonexempt property, after a writ is issued, the creditor can use the process of

A)retention.
B)execution.
C)levy.
D)redemption.

Question 69

Bayou Financial Corporation holds a security interest in property owned by Cajun Farms. Perfection of this security interest may not protect Bayou against the claim of

A)a bank.
B)a buyer in the ordinary course of business.
C)a subsequent lien creditor.
D)a trustee in bankruptcy.

Question 70

Because the rights and remedies of secured parties under Article 9 are cumulative, if a secured creditor is unsuccessful in enforcing rights by one method, the creditor

A)must notify any other secured party with an interest in the collateral.
B)is required to renounce or modify the creditor's other rights.
C)can pursue another method.
D)is forced to forego collection of the debt.

Question 71

Ezra owns Fans & Players, a retail sporting goods shop. When Great Lodge, a new ski resort, is built in the area, Ezra decides to expand and obtains a loan from Home Bank. The bank takes a security interest in Ezra's present inventory and after-acquired inventory as collateral for the loan. The bank properly perfects the security interest by filing a financing statement. Ezra's business is profitable, and he begins doubling his inventory. A year later, an avalanche destroys the ski resort. Ezra's business takes a turn for the worse, and he defaults on his debt to the bank. The bank seeks possession of his entire inventory, even though it is twice as large as it was when the loan was made. Ezra claims that the bank has rights to only half of his inventory. Is Ezra correct? Explain.

Question 72

Bond Bank assigns to Capital Invest LLC the bank's security interest in certain real property owned by Developer Inc. Capital Invest becomes the secured party of record. The bank's security interest in the collateral is

A)extended.
B)terminated.
C)floated to other property owned by Developer Inc.
D)subordinated to the assignee's interest.

Question 73

Rico borrows funds from Suburban Bank secured by Rico's house. Rico defaults on the debt. The bank's options include

A)retaining the security interest and pursuing a judicial remedy.
B)destroying the collateral and collecting the unpaid debt from Reg.
C)disposing of the collateral in any commercially reasonable manner.
D)repossessing the collateral and disavowing the security interest.