Deck 32: Secured Transactions

Question 1

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

Answer 1

True

Question 2

A financing statement must include a description of the collateral by type or item.

Answer 2

True

Question 3

The method of perfecting a security interest does NOT depend on the classification of the collateral.

Answer 3

False

Question 4

The office in which a financing statement should be filed depends on the creditor's location.

Question 5

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

Question 6

Secured transactions are governed by the Uniform Commercial Code (UCC).

Question 7

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

Question 8

A financing statement must include the creditor's signature.

Question 9

Perfection refers to the quality of the collateral that secures a creditor's interest in a debtor's debt.

Question 10

The person who owes the payment of a secured obligation is the secured party.

Question 11

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

Question 12

The failure to pay a debt as promised is known as default.

Question 13

For a creditor to have an enforceable security interest,the debtor must have rights in the collateral.

Question 14

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

Question 15

All security agreements automatically provide for coverage of after-acquired property.

Question 16

A security interest is not enforceable after the creditor's rights have at?tached to the collateral.

Question 17

Attachment makes the security interest between a debtor and se?cured party ineffective.

Question 18

A continuation statement is effective only if it is filed within six months before the expiration of a financing statement.

Question 19

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

Question 20

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

Question 21

A buyer in the ordinary course of business has priority over any security interest created by the seller.

Question 22

To qualify as a commercially reasonable sale,a secured party's sale of col?lateral,after default and repossession,must be private.

Question 23

Proceeds consist of whatever is received when collateral is sold.

Question 24

In most situations,a termination statement must be filed or sent within twenty days after the debt is paid.

Question 25

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

Question 26

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

Question 27

Intermittent advances against a line of credit can be subject to the same collateral.

Question 28

Jane is the secured party in a secured transaction with Margaret.Jane could also be referred to as the

A)debtor.
B)secured creditor.
C)collateral.
D)filing officer.

Question 29

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 30

A buyer in the ordinary course of business cannot know about the existence of a perfected security interest.

Question 31

The "first-in-time" rule means that an unperfected security interest takes priority over a perfected security interest if the unperfected security interest was attached first.

Question 32

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

Question 33

The payment of Eden's debt to Flem is guaranteed by Eden's personal property.This property is

A)a secured party.
B)a secured transaction.
C)a security interest.
D)collateral.

Question 34

The payment of Frida's debt to Gianini is guaranteed by Frida's personal property.Gianini is

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

Question 35

On default,unless the security agreement states otherwise,the secured party has the right to take possession of the collateral.

Question 36

The price that a secured party obtains on a sale of collateral is all that the creditor can recover on the debt.

Question 37

A secured party in possession of the col?lateral must use reasonable care in preserving it.

Question 38

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

Question 39

The payment of Mo's debt to Neil is guaranteed by Mo's personal prop?erty.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 40

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

Question 41

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

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

Question 42

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 43

City Bank's financing statement in collateral owned by Delta Waters 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 44

The payment of Hu's debt to Ian is guaranteed by Hu's personal prop?erty.To give notice of his interest in Hu's property to other creditors,Ian 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 45

Jim files a financing statement giving notice to the public that he has a secured interest in collateral belonging to Phil,who is the debtor named in the statement.The financing statement is referred to as the

A)UCC-1 form.
B)UCC Collateral form.
C)UCC-2 form.
D)security interest.

Question 46

Everyday 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.Everyday has a security interest in the new inventory

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

Question 47

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

A)the county clerk.
B)the mayor.
C)the city counsel.
D)the secretary of state.

Question 48

Olaf is the creditor in a transaction with Phil.Once certain require?ments 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 49

Select Furniture Store sells household consumer goods on credit for which Select files a financing statement to perfect a security interest in the goods. With the filing of subsequent continuation statements,the ef?fectiveness of the statement can be continued

A)indefinitely.
B)for no longer than five years.
C)for no more than six months.
D)up to five years and six months.

Question 50

The payment of Eric's debt to Ryan is guaranteed by Eric's 2002 Volkswagen Bug.Ryan filed the financing statement on July 1,2012.If Ryan does nothing else,the financing statement will be effective until

A)July 1,2013.
B)July 1,2014.
C)July 1,2017.
D)July 1,2022.

Question 51

Kathy is the secured party in a transaction with Julie,who is the debtor.The collateral is a 2007 Chevrolet F150 pick-up truck. Kathy files a financing statement in which she describes the collateral as "a vehicle." To perfect Kathy's interest this is

A)not sufficient.
B)sufficient.
C)sufficient as long as the financing statement also includes Julie's signature.
D)sufficient as long as the financing statement also includes the location of the collateral.

Question 52

Corporate Bank wants to perfect its security interest in inventory owned by Direct Sales Company.Most likely,a financing statement should be filed with

A)the bank manager.
B)the county clerk.
C)the federal loan officer.
D)the secretary of state.

Question 53

Middling Credit Corporation asks Little Supply Company to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired prop?erty.This is

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

Question 54

Khalil holds a security interest in inventory owned by Luc.Khalil pro?tects his claim to the inventory in the event of Luc's default by

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

Question 55

Joan borrows money from Jake under a security agreement.After borrowing the money,Joan purchases a new sports car.The sports car is considered

A)collateral.
B)after-acquired property.
C)a future advance.
D)proceeds.

Question 56

Summit Credit Corporation lends funds to Toby,a consumer,to apply to the cost of a sport utility vehicle (SUV),which is the collateral for the loan.An enforceable security interest also requires

A)a written agreement and Summit's possession of the SUV.
B)a written agreement or Summit's possession of the SUV.
C)the vehicle seller's acknowledgement of the loan in writing.
D)Toby's possession of the SUV.

Question 57

The payment of Yves's debt to Zac is guaranteed by Yves's personal property.Their agreement identifies Yves's property by serial number.To establish Zac's interest,this is most likely

A)irrelevant.
B)not sufficient.
C)sufficient if it accurately describes the collateral.
D)sufficient unless it is too tedious to review.

Question 58

Jason is the creditor in a transaction with Carol,who is the debtor.Which of the following requirements is NOT necessary for Jason to have an enforceable security interest?

A)The collateral must be in Jason's possession,or there must be a written security agreement.
B)Jason must give value to Carol.
C)Carol must have rights to the collateral.
D)The collateral must be tangible.

Question 59

Mona borrows $1,000 from National Bank,using her motorcycle as col?lateral.To perfect its security in?terest,the bank must file its financing statement with

A)the secretary of state.
B)the county clerk.
C)the city treasurer.
D)the ward alderman.

Question 60

The payment of Jose's debt to Klint is guaranteed by Jose's personal property.The process by which Klint can protect himself against the claims of third parties to this property is

A)attachment.
B)default.
C)perfection.
D)termination.

Question 61

Hal's Hardware store defaults on a debt to Intrastate Bank,which takes possession of the collateral securing the debt.Intrastate sells the collat?eral.The proceeds from the sale are applied first to

A)Hal's debt to Intrastate.
B)Hal's debts to other creditors.
C)Intrastate's fees for the sale.
D)payments Hal's made on the debt to Intrastate.

Question 62

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 63

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

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

Question 64

Quotient Financial Corporation is a secured party with a security inter?est in property owned by Retail Sales Company.Perfection of this secu?rity in?ter?est may not protect Quotient 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 65

Elias repays his debt,incurred to buy consumer goods,to Fidelity Bank and immediately files a written request for a termination state?ment.Fidelity

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 Elias.
D)need not comply.

Question 66

Fact Pattern 32-1(Questions 27-28 apply)
General Leasing Company (GLC) buys equipment for use as inventory,borrow?ing $1 million from Helpful Finance Corporation for a security in?terest in the equipment.The next day,GLC borrows $500,000 from Interstate Bank,also for a security interest in the equipment.GLC defaults on the loans.
Refer to Fact Pattern 32-1.Suppose that Helpful perfects its se?curity in?ter?est when GLC takes possession of the equipment.In that cir?cum?stance,the party with pri?ority to the collateral on GLC's default would be

A)GLC.
B)Helpful and Interstate proportionately.
C)Helpful only.
D)Interstate only.

Question 67

Fact Pattern 32-1(Questions 27-28 apply)
General Leasing Company (GLC) buys equipment for use as inventory,borrow?ing $1 million from Helpful Finance Corporation for a security in?terest in the equipment.The next day,GLC borrows $500,000 from Interstate Bank,also for a security interest in the equipment.GLC defaults on the loans.
Refer to Fact Pattern 32-1.Suppose that two weeks after GLC takes pos?session of the equipment,Helpful and Interstate file financing state?ments,with Interstate fil?ing first.In that cir?cum?stance,the party with priority to the equipment is

A)GLC.
B)Helpful and Interstate proportionately.
C)Helpful only.
D)Interstate only.

Question 68

Peter borrows $5,000 from Willy in a secured transaction using Peter's sports car as collateral.Peter then borrows $7,000 from Jane using the same sports car as collateral.Neither Willy nor Jane perfects their security interests.Peter defaults on the loans.The party with priority is

A)Willy,because his interest was the first to attach.
B)Jane,because Peter owes her more money.
C)Jane,because her interest was the second to attach.
D)Willy,because Peter owes him less money.

Question 69

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 secu?rity interest in Efrem's present inventory and any after-acquired inven?tory as collateral for the loan.The bank properly perfects the security in?terest 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 en?tire 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 70

Idle Investments,Inc.,and Harbor Bank are secured parties with secu?rity interests in property owned by GR8 Manufacturing 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.
D)the time the security agreement was signed.

Question 71

Sweetwater Café defaults on debts to Town & Country Bank and Uno Loan Company.Town & Country perfected its security interest before Uno.Town & Country takes possession of the collateral in which it has a security interest.On a sale of the collat?eral,the proceeds will be applied first to

A)Sweetwater's previous payments on the debts.
B)Sweetwater's unpaid payments on the debts.
C)the balance of Sweetwater's debt to Town & Country.
D)the balance of Sweetwater's debt to Uno.

Question 72

David is the secured party in a secured transaction with James,who is the debtor.The collateral is James's collection of baseball cards.David is in possession of the baseball cards.David leaves the cards on his kitchen table during a party and a guest spills beer on them and ruins them.David is

A)liable for breach of duty of reasonable care of collateral.
B)not liable for anything.
C)liable for one-third of the value of the baseball cards.
D)liable for one-half of the value of the baseball cards.