Deck 25: Secured Transactions

Question 1

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

Answer 1

False

Question 2

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.

Answer 2

True

Question 3

Macig enters into a secured consumer debt transaction with Friendly Bank.When Macig 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.This statement must be filed within one month from the date the debt is fully paid.

Answer 3

True

Question 4

In the case In Re CFLC,Inc.,the court ruled that Expeditors had a security interest in Everex's goods.

Question 5

A PMSI can be created only in goods and software.

Question 6

Article 9 applies to any transaction intended to create a security interest in real property.

Question 7

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

Question 8

Frank purchased a plasma TV with his store credit card.He later sold the TV to Greg.Frank defaulted on his payments to the store and declared bankruptcy.The store may:

A)repossess the TV as it has a security interest in it.
B)not repossess the TV if Greg shows he did not know about the security interest the store had in the TV.
C)not repossess the TV as security interests may not be attached to consumer goods.
D)repossess the TV as Frank's title was void.

Question 9

All but which of the following may be used as collateral in a secured transaction under UCC Revised Article 9?

A)Bank deposit accounts.
B)Personal injury tort claims of individuals.
C)Tort claims of a corporation.
D)A computer program if, by purchasing a computer, the buyer of the computer acquires the right to use that embedded program.
E)Both b and

Question 10

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

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 11

Goods that have become attached to real estate are called collaterals.

Question 12

A security interest may be attached in electronic chattel paper.

Question 13

Vicor,Inc.holds a patent on a drug.Vicor used the patent to secure a $1 million loan from First Bank.The patent is a general intangible.

Question 14

The case Citizens Bank of Americus v.Federal Financial Services,Inc.deals with a conflict between a purchase money security interest and an earlier perfected interest.

Question 15

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

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

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.

Question 17

In the case Citizens Bank of Americus v.Federal Financial Services,Inc.the court ruled that:

A)Federal Financial had a perfected security interest which took priority.
B)Citizens Bank's security interest took priority as Federal Financial's interest had not been perfected.
C)Federal Financial's interest was a valid PMSI and took priority.
D)PMSIs may never take priority over earlier perfected interests.

Question 18

A buyer in ordinary course of business takes the goods free of a security interest unless the security interest is perfected.

Question 19

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 20

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

Question 21

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

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

Question 22

Which of the following statements about a buyer in ordinary course of business (BIOC)is true?

A)The BIOC takes the goods and is liable for the attached security interest provided it has been perfected.
B)The BIOC takes the goods and is liable for the security interest if the goods are consumer goods.
C)The BIOC takes the goods free of a security interest even though the security interest is perfected.
D)None of the above is true.

Question 23

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:

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 24

A security interest in money may be perfected by:

A)filing a financing statement.
B)creating a PMSI.
C)possession only.
D)redemption.

Question 25

Which of the following is 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 26

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

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 27

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?

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 had 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 28

Wedney,Inc.sold a meat processing machine to Yoro Chickens,taking a security interest in the machine.Yoro Chickens defaulted on the loan.Wedney repossessed the machine.Wedney would like to retain the machine to use as a model.Which of the following statements is correct?

A)Wedney must notify the debtor that it intends to retain the machine and give Yoro 20 days to object.
B)By taking possession, Wedney automatically foreclosed on the collateral.Wedney has valid title and need do nothing else.
C)Since the machine is equipment, Wedney cannot retain the machine.Wedney must dispose of the collateral in a commercially reasonable manner.
D)Wedney can retain the machine but must pay Yoro the surplus, the difference between the fair market value of the machine and the amount of the debt.

Question 29

Which of the following is an example of a purchase money security interest in consumer goods?

A)A doctor purchasing a computer on credit to create a Webpage to make services and information available to her patients.
B)A doctor purchasing on credit a blood glucose monitor to check his own blood sugar levels.
C)A doctor purchasing a TV/VCR unit on credit to place in her office waiting room.
D)A doctor purchasing an exercise bike for his employees to use over the lunch hour.

Question 30

At her neighbor's garage sale,Constance buys a vanity dressing table from her neighbor,Carlos,for $1600.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.$1000.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 $1000 or the table must be resold, and she and All Purpose will proportionately share the proceeds from the sale of the table.

Question 31

Wombart Manufacturing sells a machine on credit to Cryslie Printing Co.Wombart insists on a security interest in the machine to:

A)give itself a legal interest in the machine.
B)give itself a legal interest in all of Cryslie's property.
C)establish a priority claim in the machine ahead of other creditors of Cryslie.
D)Both a and c.

Question 32

In the case In Re CFLC,Inc.,the court ruled that:

A)Expeditors had a security interest in Everex's goods because the latter were consumer goods.
B)Expeditors' security interest in Everex's goods had not been perfected.
C)Expeditors did not have a security interest in Everex's goods absent an agreement.
D)Expeditor's security interest was void because it was obtained by fraud.

Question 33

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

A)one year.
B)five years.
C)ten years.
D)It depends on what the secured party decides.

Question 34

Danson Corp.sends 15 snow blowers by rail to Gene Hardware.To show where the goods will be shipped and who gets them when they arrive,Danson will obtain ____,which can be used as collateral in a secured transaction.

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

Question 35

Wedney,Inc.has a purchase money security interest in one of Yoro Chicken's meat processing machines.Wedney filed a financing statement on the day the machine was delivered,perfecting its interest.Great State Bank already had a security interest in the machine.Which party has superior priority rights in the meat processing machine?

A)Wedney.A PMSI in collateral other than inventory takes priority over a conflicting security interest if the PMSI is perfected at the time the debtor receives the collateral or within 20 days after he receives it.
B)Great State Bank, since it had an earlier security interest.
C)The party who is first to repossess the collateral.
D)The creditors have equal priority.

Question 36

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:

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 37

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 contents of the financing statement are incomplete.
D)Both b and c are correct.

Question 38

February 5,Panda Gardens puts up its Chinese cookie inventory as well as any future inventory as collateral for a loan from Fortune Bank.Fortune Bank perfects by filing a financing statement the same day.June 10,Panda Gardens buys unstuffed fortune cookies from Olga under a purchase money security interest.Olga notifies Fortune Bank of her PMSI and perfects the PMSI by filing a financing statement before Panda Gardens takes possession of the unstuffed cookies.Panda Gardens,failing to predict hard times,filed for bankruptcy.As between Fortune Bank and Olga,who has the superior interest in the unstuffed fortune cookies purchased on June 10?

A)Fortune Bank.The first to file has the priority interest in the inventory.
B)Olga, in this situation.Her PMSI in inventory has met the conditions in order to take priority over a conflicting perfected security interest.
C)Olga and Fortune Bank share proportionately the priority interest in the inventory.
D)Neither Olga nor Fortune have a priority interest.The employees and the IRS have superior claims.

Question 39

If repossessed collateral is sold or otherwise disposed of by the creditor,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 40

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

A)recollection.
B)redemption.
C)disposal of the collateral.
D)termination.

Question 41

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.

Question 42

Explain the difference between attachment and perfection.

Question 43

Faith owns a copyright in a book she recently wrote.She applies for a $10,000 loan through Cumberland Bank and wants to use the copyright as collateral.Explain if and how the bank can perfect a security interest in such collateral.

Question 44

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?

Question 45

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 46

Discuss the concept of software under Article 9.