Deck 29: Secured Transactions

Question 1

A security agreement must be filed in person to be valid and enforceable.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

A security interest is enforceable only if the collateral is not in the debtor's possession.

Answer 3

False

Question 4

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

Question 5

An improper filing renders a secured party unperfected.

Question 6

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

Question 7

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

Question 8

A pledge is a promise by a debtor to take reasonable care of the collateral.

Question 9

To be valid, a security agreement must contain a description of the collateral.

Question 10

Filing a financing statement with the appropriate public office is the only way to per?fect a purchase-money security interest in consumer goods.

Question 11

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

Question 12

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

Question 13

A purchase-money security interest arises only when a seller pro?vides a buyer with the "purchase money" to buy goods.

Question 14

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

Question 15

Collateral is the subject of a security interest.

Question 16

A purchase-money security interest in consumer goods is perfected automatically at the time of a credit sale.

Question 17

A description of collateral as "all the debtor's as?sets" is too general to reasonably identify the subject of a security agreement.

Question 18

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

Question 19

A financing statement is effective only if it is filed electronically.

Question 20

A security interest may attach to intangible collateral but cannot be perfected.

Question 21

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

Question 22

The price that a secured party obtains on a sale of collateral is not all that the creditor can recover on the debt if there is a deficiency.

Question 23

When a secured debt is paid, the secured party must file a termination statement regardless of the goods' classification.

Question 24

Cross-collateralization occurs when an asset that is not the subject of a loan is used to collateralize that loan.

Question 25

Under certain conditions, a purchase-money security interest will take priority over a previous creditor's interest in after-acquired property.

Question 26

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

Question 27

The concept of a floating lien does not apply to a shifting stock of goods.

Question 28

A future advance against a line of credit must be of the same type as the original advance to be subject to the same collateral.

Question 29

Proceeds consist of whatever is received when collateral is sold.

Question 30

If collateral consists of consumer goods subject to a purchase-money security interest, the secured party must "purchase" the goods on default.

Question 31

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

Question 32

A financing statement is effective for no more than five months from the date of filing.

Question 33

A secured party can release the col?lateral described in a filed fi?nancing statement only if the debtor has paid the debt.

Question 34

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

Question 35

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

Question 36

A security interest that provides for a security interest in proceeds is a floating lien.

Question 37

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

Question 38

When two conflicting security interests are unperfected, the first to attach has priority.

Question 39

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

Question 40

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

Question 41

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 42

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) communication.
C) perfection.
D) search and seizure.

Question 43

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 44

Fact Pattern 29-1A
Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.
Refer to Fact Pattern 29-1A. Holly, a professional driver, buys an Excel from Fine to drive in a Grand Prix race. Holly's Excel is

A) a consumer good.
B) an accession.
C) equipment.
D) inventory.

Question 45

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 46

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

A) a reorganization.
B) a secured transaction.
C) a suretyship agreement.
D) a violation of most state laws.

Question 47

The payment of Hu's debt to Ian is guaranteed by Hu's personal prop?erty. To give public notice of his interest in Hu's property, 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 48

Fact Pattern 29-1A
Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.
Refer to Fact Pattern 29-1A. A car in Fine's possession is probably

A) a consumer good.
B) an accession.
C) equipment.
D) inventory.

Question 49

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

A) a written agreement and Best's possession of the SUV.
B) a written agreement or Best's possession of the SUV.
C) a written agreement only.
D) Best's possession of the SUV only.

Question 50

Rich Financial, Inc., files a financing statement regarding a transaction with Supreme Business 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) Rich's name.
D) Standard's name.

Question 51

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 52

Region Bank wants to perfect its security interest in timber owned by Superior Lumber, Inc. Most likely, a financing statement should be filed with

A) the local chamber of commerce.
B) the county clerk.
C) the federal loan officer.
D) the secretary of state's office.

Question 53

Fact Pattern 29-1A
Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.
Refer to Fact Pattern 29-1A. Ira, a police officer, buys an Excel from Fine to drive in his off-duty hours. Ira's Excel is

A) a consumer good.
B) an accession.
C) equipment.
D) inventory.

Question 54

Quality Appliance Company allows Reba to take a set of kitchen appli?ances that she bought from Quality even though she has not paid the full price. Quality'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 Reba to take the goods.
C) Quality's name.
D) Reba's name.

Question 55

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 56

Dag is the secured party in a secured transaction with Elmo. In this transaction, Dag

A) has a security interest.
B) owes payment.
C) owes performance.
D) owns collateral.

Question 57

Fact Pattern 29-1B
Tech Support Corporation uses its office equipment as collat?eral for a loan from United Bank. The bank files a financing statement with the secretary of state in the state in which Tech Support was chartered. One year later, Tech Support changes its name to Vector, Inc.
Refer to Fact Pattern 29-1B. United Bank's perfection will remain effec?tive for

A) four months after the date of the name change.
B) five business days after the date of the name change.
C) six years after the date of the original filing.
D) no time.

Question 58

The payment of Nero's debt to Olly is guaranteed by Nero's personal property. Nero is located in Pennsylvania. Olly communicates to the appropriate state official a security agreement that uses only Quality Engineering, the trade name of Nero's business. To perfect Olly's interest, this is

A) irrelevant.
B) not sufficient.
C) sufficient if Quality Engineering is a sole proprietorship.
D) sufficient if the trade name is spelled correctly or misspelled slightly.

Question 59

Fact Pattern 29-1B
Tech Support Corporation uses its office equipment as collat?eral for a loan from United Bank. The bank files a financing statement with the secretary of state in the state in which Tech Support was chartered. One year later, Tech Support changes its name to Vector, Inc.
Refer to Fact Pattern 29-1B. To continue the effectiveness of its perfected interest, United Bank must file

A) a continuation statement after the original filing expires.
B) an amendment to the financing statement before the period expires.
C) a new financing statement immediately.
D) a notice of repossession with all interested creditors.

Question 60

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

A) governed by Article 2 of the UCC.
B) governed by Article 3 of the UCC.
C) governed by Article 9 of the UCC.
D) not governed by the UCC.

Question 61

Khalil holds a security interest in inventory owned by Luc. Khalil assigns his interest in the inventory to Mal. Mal becomes the secured party of record

A) automatically.
B) if Khalil advises Luc of the assignment.
C) if Mal advises Luc of the assignment.
D) if Mal files a uniform amendment form.

Question 62

Kwik 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, first-out rule.
B) a floating lien.
C) a funds guaranty.
D) in violation of secured transactions law.

Question 63

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 64

Expert Capital Company and First National Bank are secured parties with security interests in property owned by Grande Corpora?tion. Between these security interests, the first to be filed or perfected has prior?ity over other filed or per?fected 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 65

Quotient Financial Corporation is a secured party with a security interest in property owned by Retail Sales Company. Perfection of this security 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 66

Everyday Loans, Inc., takes possession of Frank's stock in Gamma Corporation to perfect Everyday's security interest in the stock. This is

A) after-acquired property.
B) a pledge.
C) a purchase-money security interest.
D) proceeds.

Question 67

Computer World (CW), after repossessing a multimedia system from Dave, a consumer, decides to keep the system instead of reselling it. CW sends written notice to Dave. CW can now keep the system

A) only after attempting an unsuccessful public sale of the system.
B) only after notifying any other appropriate secured party.
C) unless Dave objects.
D) under any circumstances.

Question 68

The payment of Yves's debt to Zach is guaranteed by Yves's personal property. Their agreement describes Yves's subject property by serial number. To establish Zach's interest, this is

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

Question 69

County Bank wants to perfect its security interest in collateral owned by Delta Sales Company. Most likely, a financing statement should be filed with

A) the local chamber of commerce.
B) the county clerk.
C) the federal loan officer.
D) the secretary of state's office.

Question 70

Property Investments, Inc., files a financing statement to provide no?tice of its security interest in the property of Qwik's Restaurant. The initial ef?fec?tive term of a financing statement is a period of

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

Question 71

Excel Investments, Inc., and First State Bank are secured parties with security 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 72

Green Landscape Company buys a backhoe on credit from Heavy Equipment Corporation, but does not make a payment on the loan for sev?eral months. Heavy repossesses the backhoe by towing it from a pub?lic street. Green sues Heavy for breach of the peace. Green will probably

A) not prevail, because Heavy did not use judicial process.
B) not prevail, because the repossession was not a breach of the peace.
C) prevail, because Green did not default on the loan.
D) prevail, because the repossession was a breach of the peace.

Question 73

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 74

Mona lives in New Jersey, but she works in New York. Mona borrows $1,000 from National Bank, using her motorcycle as collateral. To perfect its security in?terest, the bank must file its financing statement in at least

A) every state.
B) New Jersey.
C) New Jersey and New York.
D) New York.

Question 75

Select Furniture Store sells household consumer goods. To create a pur?chase-money security interest, Select Furniture 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 76

Fact Pattern 29-2B
General Leasing Company 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 29-2B. 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 77

Fact Pattern 29-2B
General Leasing Company 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 29-2B. Suppose that two weeks after GLC takes possession of the equipment, Helpful and Interstate file financing statements, 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 78

Dependable Credit Corporation asks Electric 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, first-out rule.
B) a floating lien.
C) a funds guaranty.
D) a future advance.

Question 79

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

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 80

Ron does not make a payment on his car loan for several months. The dealer, Star Auto, repossesses the car by towing it from a public parking lot. Ron sues Star for breach of the peace. Ron will probably

A) prevail, because Ron has not formally defaulted on the car loan.
B) prevail, because the car was parked in a public lot when it was towed.
C) not prevail, because the repossession was not a breach of the peace.
D) not prevail, because a creditor can repossess property in which it holds an interest if no threats or force are used against a debtor.