Deck 16: Secured Transactions

Question 1

At her neighbor's garage sale, Constance buys a vanity dressing table from her neighbor, Carlos, for $160. Constance purchased the vanity table for her own personal use, without any knowledge that Carlos had signed a security agreement giving All Purpose Furniture, Inc. a security interest in the vanity table. All Purpose Furniture did not file a financing statement. Constance does not know that Carlos is still paying off the purchase money security interest and owes All Purpose Furniture, Inc. $400. Under these circumstances

A)Constance takes the vanity table subject to All Purpose's security interest because All Purpose's security interest automatically perfected. A perfected security interest takes priority.
B)Constance takes the vanity table free of All Purpose's security interest because she is a buyer of consumer goods.
C)Constance takes the vanity table free of All Purpose's security interest because she is a buyer in the ordinary course of business.
D)Constance must pay All Purpose $400 or the table must be resold, and she and All Purpose will proportionately share the proceeds from the sale of the table.

Answer 1

B

Question 2

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

Answer 2

True

Question 3

To perfect a security interest in a negotiable document, Second State Savings and Loan should

A)file a financing amendment.
B)take possession of the instrument.
C)do nothing. Perfection is automatic.
D)secure a court order.

Answer 3

B

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.

Question 5

First Federal loaned Madeline $20,000 to purchase a new van. The van was for Madeline's personal and family use. First Federal's security interest is a purchase money security interest which perfects only upon filing a financing statement.

Question 6

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.

Question 7

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?

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.

Question 8

Dieter is a debtor to Maxwell, the secured party. Dieter lives in Ohio and works in Kentucky. Maxwell lives in Indiana and works in Iowa. Where must the secured party file the financing statement?

A)Ohio
B)Kentucky
C)Indiana
D)Iowa

Question 9

Eduardo is starting a floral shop and owns a 10-year-old delivery van. He borrows $50,000 from First National Bank, which takes a security interest in the van. When Eduardo purchases a greenhouse in which to grow plants and a large cooler to keep them fresh, the bank's security interest attaches to these items, which are referred to as

A)fixtures.
B)instruments.
C)after-acquired property.
D)inventory.

Question 10

Hiram is a debtor to Central Credit Union, a secured party. If Hiram fails to maintain insurance on the collateral, he has likely

A)attached the security agreement.
B)defaulted on the security agreement.
C)terminated the security agreement.
D)perfected the security agreement.

Question 11

Maddie enters into a secured consumer debt transaction with Friendly Bank. When Maddie pays the loan in full, Friendly Bank is required to file a statement indicating that it no longer claims a secured interest in the collateral.

Question 12

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

Question 13

The property subject to a security interest is called

A)a fixture
B)collateral
C)consideration
D)an account

Question 14

Article 9 of the UCC governs secured transactions in personal property.

Question 15

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.

Question 16

A PMSI in consumer goods perfects automatically, without filing.

Question 17

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?

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 18

What occurs when a secured party takes back collateral because the debtor has failed to make payments when due?

A)repossession
B)default
C)authentication
D)perfection

Question 19

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.

Question 20

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.

Question 21

The initial term for which a financing statement will be effective is

A)one year.
B)five years.
C)ten years.
D)two years.

Question 22

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

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

Question 23

Explain the difference between attachment and perfection.

Question 24

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?

Question 25

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.

Question 26

Country Bank, located in Indiana, loaned Chmelik $5,000 and obtained a security interest in a copyright Chmelik owns. Chmelik lives in Illinois, but works in Indiana. In order to perfect its interest, Country Bank files a financing statement in Indiana. The financing statement provides Chmelik's correct name, his business address, and a reasonable description of the copyright used as collateral. Is the financing statement sufficient?

A)Yes, it meets the UCC requirements for contents and filing.
B)No, if the debtor is an individual, the secured party must file in the state of the debtor's principal residence, which in this case would be Illinois.
C)No, the secured party needed to file a financing statement in both Indiana and Illinois.
D)No, a security interest cannot be attached to a copyright.

Question 27

Gateway sold a big-screen TV and entertainment center to Iris for $2,000 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 $1,780, 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)Is Iris able to redeem the property? 
(B)If Iris does not redeem and the TV and entertainment center are sold for $1,750, how will the money be disbursed?