Deck 30: Secured Transactions

Question 1

In general, it is sufficient to provide only the debtor's trade name (or fictitious name) in a financing statement for perfection.

Answer 1

False

Question 2

A security interest can cover property in which the debtor has ownership or possessory rights in the present or in the future.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

The rights and remedies of secured parties are not cumulative-if a creditor is unsuccessful in enforcing rights by one method, he or she cannot pursue another method.

Question 5

The debtor has the right to request a confirmation of the unpaid debt or list of collateral without charge every six months.

Question 6

A buyer in the ordinary course of business takes the goods free from any security interest created by the seller unless the security interest is perfected.

Question 7

The UCC requires that a financing statement be filed under the name of the creditor.

Question 8

On a debtor's default, he perfection of a security interest will not always protect a secured party against other third parties having claims to the collateral.

Question 9

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

Question 10

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

Question 11

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

Question 12

When more than one party claims an interest in the same collateral, a perfected secured party's interest has priority over the interest of most other parties.

Question 13

A financing statement is an agreement that creates or provides for a security interest.

Question 14

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

Question 15

Attachment gives the debtor a defense against a creditor's attempt to enforce a security interest in the debtor's collateral.

Question 16

Either the security agreement or the financing statement-but not both-must describe the collateral in which the secured party has a security interest.

Question 17

Perfection is usually accomplished without filing a financing statement.

Question 18

Authentication means to sign, execute, or adopt any symbol on an electronic record that verifies that the person signing has the intent to adopt or accept the record.

Question 19

A security agreement need not be in writing if the collateral is transferred to the secured party.

Question 20

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

Question 21

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 22

Janet is the secured party in a secured transaction with Michelle. Janet could also be referred to as the

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

Question 23

Pizza Now!, a delivery, dine-in, or takeout restaurant, buys a delivery vehicle on credit from Quality Auto & Truck Dealers Corporation, but does not make a payment on the loan for sev?eral months. Quality Auto repossesses the vehicle by towing it from a pub?lic street. Pizza Now! sues Quality Auto for breach of the peace. Pizza Now! will probably

A) not prevail, because Quality Auto did not use judicial process.
B) not prevail, because the repossession was not a breach of the peace.
C) prevail, because Pizza Now! did not default on the loan.
D) prevail, because the repossession was a breach of the peace.

Question 24

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 25

Joan borrows money from Jake under a security agreement. After borrowing the money, Joan buys a new kayak. The kayak is considered

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

Question 26

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

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

Question 27

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 if the financing statement also includes Julie's signature.
D) sufficient if the financing statement also includes the location of the collateral.

Question 28

Debit & 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 29

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 30

Dredging, Inc., borrows $50,000 from Equity Financing Corporation in a secured transaction using Dredging's equipment as collateral. Dredging then borrows $70,000 from First Choice Lenders, Inc., using the same equipment as collateral. Neither Equity Financing nor First Choice perfects its security interest. Dredging defaults on the loans. The party with priority is

A) Equity Financing, because its interest was the first to attach.
B) First Choice, because Dredging owes it more money.
C) First Choice, because its interest was the second to attach.
D) Equity Financing, because Dredging owes it less money.

Question 31

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

A) automatically.
B) if A-One 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 32

Rural Financial Corporation is a secured party with a security interest in property owned by Strawberry Fields, Inc. Perfection of this security in?ter?est 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 33

Corporate Bank wants to perfect its security interest in inventory owned by Outdoor Outfitters, Inc. Most likely, a financing statement should be filed with

A) the bank manager.
B) the county clerk.
C) the U.S. Department of the Interior.
D) the secretary of state.

Question 34

Super Discount Store sells goods to consumers and businesses in several states in the Midwest. Most of the goods are sold on credit. Super Discount often takes a security interest with the goods as collateral. The state in which a financing statement should be filed depends on the location of

A) the debtor.
B) the collateral.
C) the store in which the goods were sold.
D) the place from which Super Discount manages its operations.

Question 35

Fact Pattern 30-1B (Questions B15-B16 apply)
Resource Drilling Company buys equipment for use in its operations, borrow?ing $1 million from Security Finance Corporation for a security in?terest in the equipment. The next day, Resource Drilling borrows $500,000 from Touchstone Loans, also for a security interest in the equipment. Resource Drilling defaults on both loans.
Refer to Fact Pattern 30-1B. Suppose that Security Finance perfects its se?curity in?ter?est when Resource Drilling takes possession of the equipment. In that cir?cum?stance, the party with pri?ority to the collateral on Resource Drilling's default would be

A) Resource Drilling.
B) Security Finance and Touchstone Loans proportionately.
C) Security Finance only.
D) Touchstone Loans only.

Question 36

The payment of Olinda's debt to Pari is guaranteed by Olinda's personal property. Pari is most likely to perfect her interest by

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

Question 37

Home2U Stores, Inc., sells household consumer goods. To create a pur?chase-money security interest, Home2U must

A) assign, to a collecting agent, a portion of its accounts payable.
B) assign, to a collecting agent, a portion of its accounts receivable.
C) extend credit for part or all of the purchase price of the goods.
D) refer purchasers to a third-party lender.

Question 38

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 39

Fact Pattern 30-1B (Questions B15-B16 apply)
Resource Drilling Company buys equipment for use in its operations, borrow?ing $1 million from Security Finance Corporation for a security in?terest in the equipment. The next day, Resource Drilling borrows $500,000 from Touchstone Loans, also for a security interest in the equipment. Resource Drilling defaults on both loans.
Refer to Fact Pattern 30-1B. Suppose that two weeks after Resource Drilling takes possession of the equipment, Security Finance and Touchstone Loans file financing statements, with Touchstone Loans fil?ing first. In that cir?cum?stance, the party with priority to the equipment is

A) Resource Drilling.
B) Security Finance and Touchstone Loans proportionately.
C) Security Finance only.
D) Touchstone Loans only.

Question 40

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 41

Digital Devices is a retail seller of entertainment media. Digital Devices sells a 3D HD TV set to Edmund. Edmund cannot pay cash, so he signs a security agreement, paying a certain amount down and agreeing to pay the balance in twelve equal installments. The security agreement gives Digital Devices a security interest in the set. Edmund makes six payments on time then goes into default because of unexpected financial problems. Digital Devices repossesses the set. Can the creditor keep it in full satisfaction of the debt? Explain.

Question 42

Town Loan Center agrees to loan Sara $1,500, accepting as collateral her car. They put their agreement in writing and sign it. Sara keeps possession of the car. Does Town Loan have an enforceable security interest? How can Town Loan let other creditors know of its interest in the car?