Deck 20: Secured Transactions

Question 1

A secured party is any creditor who has a security interest in a debtor's collateral.

Answer 1

True

Question 2

A financing statement cannot be the same as the security agreement.

Answer 2

False

Question 3

A security interest cannot become perfected unless a financing statement is filed.

Answer 3

False

Question 4

To create an enforceable security interest, the secured party must give something of value to a debtor's other creditors.

Question 5

A security interest cannot be perfected without the filing of a financing statement.

Question 6

A security interest is enforceable only if the collateral is in the secured party's possession.

Question 7

A security interest is enforceable only if the debtor has title to the collateral.

Question 8

A debtor is the person in whose favor there is a security interest.

Question 9

A security agreement does not need to contain a description of the collateral.

Question 10

Attachment gives the creditor an enforceable security interest in the collateral.

Question 11

A purchase-money security interest (PMSI) in consumer goods is perfected automatically at the time the PMSI is created.

Question 12

In most situations, the state office in which a financing statement should be filed depends on the location of the collateral.

Question 13

Advances against lines of credit can be subject to a perfected security interest in certain collateral.

Question 14

Where and how to perfect a security interest sometimes depends on the classification of the collateral.

Question 15

Article 9 of the Uniform Commercial Code governs secured transactions.

Question 16

A purchase-money security interest in consumer goods is created when a person buys the goods on credit.

Question 17

Authenticate means to sign or to adopt any symbol on an electronic record that verifies the intent to adopt or accept the record.

Question 18

To create an enforceable security interest, the secured party must give value.

Question 19

A financing statement must include the creditor's signature.

Question 20

A financing statement is effective for five years from the date of filing.

Question 21

A security interest that provides for a security interest in collateral subject to future advances is a floating lien.

Question 22

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

Question 23

The payment of Janitorial Service's debt to Business Finance, Inc., is guaranteed by the service's personal property. Business Finance is​

A) ​a debtor.
B) ​a secured creditor.
C) ​a security interest.
D) ​a secured party.

Question 24

A buyer in the ordinary course of business has priority even if a previously perfected security interest exists as to the goods.

Question 25

The payment of Mo's debt to Neil is guaranteed by Mo's personal property. This is governed by​

A) ​the Uniform Commercial Code.
B) ​the Federal Trade Commission.
C) ​the U.S. Constitution's commerce clause.
D) ​the Bankruptcy Reform Act of 2005.

Question 26

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

Question 27

The payment of Valley Farm's debt to County Bank is guaranteed by the farm's personal property. This property is​

A) ​a future advance.
B) ​after-acquired property.
C) ​a floating lien.
D) ​collateral.

Question 28

Proceeds from the disposition of collateral after default are distributed in a certain order with any surplus generally going to the creditor.

Question 29

When consumer goods are involved, a termination statement must be filed within a month after the debt is paid.

Question 30

Market Credit Corporation is the secured party in a secured transaction with Northwest Outfitters. Market Credit could also be referred to as​

A) ​the debtor.
B) ​the secured creditor.
C) ​the security interest.
D) ​the filing officer.

Question 31

Whatever a secured party obtains on a sale of collateral is all that he or she can collect on the debt.

Question 32

Any breach of the terms of the security agreement can constitute default.

Question 33

Proceeds are whatever is received when collateral is sold.

Question 34

Most of the customers in any business are buyers in the ordinary course of business.

Question 35

On default, a secured party who chooses not to retain the collateral must dispose of it in a commercially reasonable manner.

Question 36

Once default has occurred and the secured party has obtained possession of the collateral, the secured party has no more options.

Question 37

The payment of Brian's debt to Chuck is guaranteed by Brian's personal property. This is

A) an attachment.
B) ​a secured transaction.
C) ​perfection.
D) ​a violation of most state laws.

Question 38

A floating lien cannot apply to the proceeds of the sale of after-acquired property.

Question 39

The concept of a floating lien applies to a constantly changing inventory.

Question 40

When more than one party claims an interest in the same collateral, a perfected secured party's interest has no priority.

Question 41

The payment of John's debt to Kirsten is guaranteed by John's personal property. Kirsten is most likely to perfect her interest by​

A) ​attaching a bright label to John's property.
B) ​calculating the precise amount of John's debt.
C) ​correcting grammatical errors in the parties' written agreement.
D) ​filing a financing statement with the appropriate authority.

Question 42

Lenders Bank files a financing statement regarding a transaction with Metro Construction Company. 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) ​Lenders' name.
D) ​Metro's name.

Question 43

The payment of Linda's debt to Pat is guaranteed by Linda's personal property. Pat is most likely to perfect her interest by​

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

Question 44

Fund Credit Corporation asks Gro-Sales Company to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired property. This is​

A) ​a first-in-time rule.
B) ​a floating lien.
C) ​a funds guaranty.
D) ​in violation of secured transactions law.

Question 45

Kyla holds a security interest in inventory owned by Luc. Kyla protects her claim to the inventory in the event of Luc's default by​

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

Question 46

The payment of Hu's debt to Intrastate Bank is guaranteed by Hu's personal property. To give notice of its interest in Hu's property to other creditors, the bank is most likely to​

A) ​attach a bright label to Hu's property.
B) ​e-mail other potential creditors.
C) ​file a financing statement with the appropriate authority.
D) ​publish a collection notice in local newspapers.

Question 47

Metro Motors files a financing statement giving notice to the public that it has a secured interest in collateral belonging to Nate's Limousine Service, which is the debtor named in the statement. A uniform financing statement used in all states is​

A) ​the UCC Financing Statement.
B) ​the UCC Collateral Form.
C) ​Form UCC-2.
D) ​none of the choices.

Question 48

Angie borrows $20,000 from Credit Line Company using a stand of timber as collateral. To perfect its security interest, Credit Line must file its financing statement with​

A) ​the county clerk.
B) ​the mayor.
C) ​the state lumbermen's association.
D) ​the secretary of state.

Question 49

City Bank's financing statement in collateral owned by Delta Corporation will expire in less than a year. Filed timely, a continuation statement could extend the effectiveness of the financing statement for​

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

Question 50

Ken's Auto Sales borrows money from Lenders Finance Corporation under a security agreement. With the money, Ken's buys six Mazda Miatas. The vehicles are​

A) ​beyond the extent of Lenders's interest.
B) ​after-acquired property.
C) ​a future advance.
D) ​proceeds.

Question 51

Capital Projects, Inc., files a financing statement to provide notice of its security interest in the property of Data Network Corporation. The initial effective term of a financing statement is a period of​

A) ​five days.
B) ​five months.
C) ​five weeks.
D) ​five years.

Question 52

Olaf is the creditor in a transaction with Phil. Once certain requirements are met, Olaf's rights will attach, which means that Olaf will have​

A) ​an indivisible ownership right to Phil's property.
B) ​an enforceable security interest in Phil's property.
C) ​a notice affixed to Phil's property.
D) ​the permission of a court to seize Phil's property.

Question 53

Jones lives in Illinois, but works in Indiana. Jones borrows $1,000 from Heartland Bank, using her car as collateral. To perfect its security interest, the bank must file its financing statement in at least​

A) ​every state.
B) ​Illinois.
C) ​Illinois and Indiana.
D) ​Indiana.

Question 54

Resource Investment Company and MegaBank are secured parties with security interests in property owned by LNG Gas Corporation. Between these security interests, the first to be filed or perfected has priority over other filed or perfected security interests in​

A) ​most circumstances.
B) ​no circumstances.
C) ​states that have not adopted Article 9 of the UCC.
D) ​states that require a security agreement to be signed and dated by the creditor.

Question 55

Fiona borrows $1,000 from Garden State Bank, using her recreational vehicle (RV), which she purchased at Hugo's RV Sales & Service, as collateral. To perfect its security interest, the bank must file its financing statement with​

A) ​the secretary of state.
B) ​the county clerk.
C) ​the city treasurer.
D) ​Hugo's RV.

Question 56

EZ Loans, Inc., issues a line of credit in Glade Electronics Corporation under a security agreement. Later, Glade buys new HD-TVs to add to its inventory. EZ has a security interest in the new inventory​

A) ​if the security agreement included an after-acquired property clause.
B) ​if EZ has not yet filed a financing statement.
C) ​if Glade bought the inventory with EZ funds.
D) ​under no circumstances.

Question 57

Brass & Woodwind Instruments, Inc., allows Clifton to keep a professional clarinet that he bought from Brass & Woodwind even though he has not paid the full price. Brass & Woodwind's legally sufficient financing statement in the goods need not include​

A) ​a description of the collateral.
B) ​a statement of the reason for allowing Clifton to take the goods.
C) ​Brass & Woodwind's name.
D) ​Clifton's name.

Question 58

Fiscal Credit Corporation asks Global Industries, Inc., to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired property. This is​

A) ​the first-in, first-out rule.
B) ​a floating lien.
C) ​a violation of most state laws.
D) ​a future advance.

Question 59

The payment of Chick's debt to Diamond is guaranteed by Chick's collection of eight restored autos. Their agreement describes Chick's subject property by serial number. To establish Diamond's interest, this is​

A) ​not sufficient because it is too specific.
B) ​not sufficient if it matches the description in the financing statement.
C) ​sufficient if it accurately describes the parties' agreement.
D) ​not sufficient without an added description of the autos' other identifying characteristics.

Question 60

Sam is the secured party in a transaction with Lilly, who is the debtor. Sam files a financing statement with the appropriate state official. The financing statement must contain​

A) ​Lilly's signature.
B) ​Sam's bank account information.
C) ​Lilly's credit report.
D) ​a photograph of the collateral.

Question 61

Gina borrows from Regional Loan Company the funds to buy a car. The car secures the debt. Gina defaults on the loan. Regional takes possession of the car, planning to sell it to recover some of the unpaid debt. Before the creditor sells the car or enters into a contract for its sale, Gina can pay what she owes and take back the car. This is​

A) ​a deficiency judgment.
B) ​a floating lien.
C) ​the right of redemption.
D) ​the right of retention.

Question 62

Fact Pattern 20-1
General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Business Finance Corporation for a security interest in the equipment. The next day, GLC borrows $500,000 from Commercial Bank, also for a security interest in the equipment. GLC defaults on the loans.
Refer to Fact Pattern 20-1.Suppose that Business Finance perfects its security interest when GLC takes possession of the equipment. In that circumstance, the party with priority to the collateral on GLC's default would be​

A) ​GLC.
B) ​Business Finance and Commercial Bank proportionately.
C) ​Business Finance only.
D) ​Commercial Bank only.

Question 63

Bagels Café defaults on debts to Country Bank and Hillside Loan Company. Country Bank perfected its security interest before Hillside. The bank takes possession of the collateral in which it has a security interest. On a sale of the collateral, the proceeds will be applied first to​

A) ​the debtor's previous payments on the debts.
B) ​the debtor's unpaid payments on the debts.
C) ​the balance of the debtor's debt to Country Bank.
D) ​the balance of the debtor's debt to Hillside Loan.

Question 64

Efrem owns Fans & Players, a retail sporting goods shop. When Great Hill Lodge, a new ski resort, is built in the area, Efrem decides to expand and borrows a large sum from Hometown Bank. The bank takes a security interest in Efrem's present inventory and any after-acquired inventory as collateral for the loan. The bank properly perfects the security interest by filing a financing statement. Efrem's business is profitable, and he begins doubling his inventory. A year later, an avalanche destroys the ski slope and lodge. Efrem'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 the inventory is twice as large as it was when the loan was made. Efrem claims that the bank has rights to only half of his inventory. Is Efrem correct? Explain.

Question 65

Lena borrows from Mac and Nicole, using the same collateral for both loans. Only Nicole has a perfected security interest. Lena defaults on both loans. The party with first rights to the collateral is​

A) ​Lena.
B) ​Mac and Nicole, in proportion to Lena's debt to each.
C) ​Mac only.
D) ​Nicole only.

Question 66

Fact Pattern 20-1
General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Business Finance Corporation for a security interest in the equipment. The next day, GLC borrows $500,000 from Commercial Bank, also for a security interest in the equipment. GLC defaults on the loans.
Refer to Fact Pattern 20-1.Suppose that two weeks after GLC takes possession of the equipment, Business Finance and Commercial Bank file financing statements, with Interstate filing first. In that circumstance, the party with priority to the equipment is​

A) ​GLC.
B) ​Business Finance and Commercial Bank proportionately.
C) ​Business Finance only.
D) ​Commercial Bank only.

Question 67

Rural Financial Corporation is a secured party with a security interest in property owned by Strawberry Fields, Inc. Perfection of this security interest may not protect Rural Financial 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 68

Don repays his debt, incurred to buy consumer goods, to EZ Retail Credit and immediately files a written request for a termination statement. EZ​

A) ​must comply within one month of receipt of the letter.
B) ​must comply within twenty days of receipt of the letter.
C) ​must refund $500 to Don.
D) ​need not comply.

Question 69

AAA Loans, Inc., holds a security interest in kitchen and restaurant equipment owned by Brunch n' Lunch Bistro. AAA assigns its interest in the equipment to Commercial Investments Corporation. Commercial Investments becomes the secured party of record​

A) ​automatically.
B) ​if AAA advises Brunch n' Lunch of the assignment.
C) ​if Commercial Investments advises Brunch n' Lunch of the assignment.
D) ​if Commercial Investments files a uniform amendment form.

Question 70

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 71

Credit Financing, Inc., and Equity Lending Company are secured parties with security interests in property owned by Fleet Shipping Corporation. 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 or attachment.
D) ​the "float" of the liens.

Question 72

Dave's Hardware store defaults on a debt to Equity Bank, which takes possession of the collateral securing the debt. The bank sells the collateral. The proceeds from the sale are applied first to​

A) ​the balance of Dave's debt to the bank.
B) ​Dave's debts to other creditors.
C) ​the bank's expenses for the sale.
D) ​the minimum amount Dave's needs to stay in business.