Deck 23: Security Interests in Personal Property

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

A financing statement must include the creditor's signature.

Question 17

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

Question 18

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

Question 19

Proceeds consist of whatever is received when collateral is sold.

Question 20

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

Question 21

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

Question 22

Proceeds from the disposition of collateral after default on the underlying debt are distributed equally among lienholders who have made demands.

Question 23

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

Question 24

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

Question 25

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 26

A security agreements may provide for coverage of after-acquired property.

Question 27

A secured party can release any col?lateral described in the financing statement, thereby terminating its security interest in that collateral.

Question 28

The payment of Waldo's debt to Main Street Bank is guaranteed by Waldo'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 29

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 or authenticated security agreement.
B) Jason must give value to Carol.
C) Carol must have rights to the collateral.
D) The collateral must be tangible.

Question 30

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 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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 36

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

Question 37

To take goods free of any security interest, a buyer in the ordinary course of business cannot know about the interest.

Question 38

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

Question 39

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

Question 40

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

Question 41

Fiona borrows $1,000 from Garden State 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 42

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 43

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 44

Saf-T Lenders, Inc., takes possession of Tiara's stock in Urgent Care Corporation to perfect Saf-T's security interest in the stock. This is

A) after-acquired property.
B) a pledge.
C) a purchase-money security interest.
D) a violation of most state laws.

Question 45

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 46

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 47

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 48

Valley Furniture Store sells household consumer goods on credit for which Valley 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 49

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 50

The payment of Paul's debt to Ryan is guaranteed by Paul's 2002 Honda Civic. 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

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 52

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 53

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 54

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 55

Jim files a uniform 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. This uniform statement form is now used in

A) all states.
B) no states.
C) only one state-Pennsylvania.
D) some states with several different forms used in other states.

Question 56

Clear Lake Credit Corporation lends funds to Donny, a consumer, to apply to the cost of a boat, which is the collateral for the loan. An enforceable security interest requires

A) a written agreement and Clear Lake's possession of the boat.
B) a written agreement or Clear Lake's possession of the boat.
C) the boat seller's acknowledgement of the loan in writing.
D) Donny's possession of the boat.

Question 57

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 58

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 59

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 60

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 61

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 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

Fact Pattern 20-1
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 20-1. 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 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 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 65

Lena borrows from Mac and Nicol, using the same farm equipment as 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 66

Fact Pattern 20-1
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 20-1. 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

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 68

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 69

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 70

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 71

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 72

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

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