Deck 23: Secured Transactions

Question 1

Maddie enters into a secured consumer debt transaction with Friendly Bank.When Maddie pays the loan in full,Friendly Bank is required to file a statement indicating that it no longer claims a secured interest in the collateral.This statement must be filed within one month from the date the debt is fully paid.

Answer 1

True

Question 2

Revised Article 9 of the UCC only applies to goods and does not include intangibles such as accounts or chattel paper.

Answer 2

False

Question 3

Pharm-Ace holds a patent on a drug.Pharm-Ace used the patent (evidenced by the patent certificate)to secure a $1 million loan from First Bank.The patent is chattel paper.

Answer 3

False

Question 4

For a security interest to attach,there must be an agreement.

Question 5

Article 9 applies to any transaction intended to create a security interest in real property.

Question 6

Great State Bank and First Federal Bank have a security interest in TriColor's equipment.If neither secured party is perfected,the first to sue or repossess has priority over the collateral.

Question 7

Donna defaulted on her loan owed to Second State Savings and Loan.The loan was secured with Donna's car.Donna used the car for personal and family reasons.Which statement is correct?

A)Second State may take Donna's car without a court order if this can be done without a breach of the peace.
B)Second State may take Donna's car without a court order even if it means a breach of the peace.
C)Second State may not take Donna's car because it is a consumer good.
D)Second State may not take Donna's car because perfection was automatic.

Question 8

All but which of the following may be used as collateral in a secured transaction under UCC Revised Article 9?

A)Bank deposit accounts.
B)Personal injury tort claims of individuals.
C)Tort claims of a corporation.
D)A computer program if,by purchasing a computer,the buyer of the computer acquires the right to use that embedded program.
E)Both b and c.

Question 9

A PMSI can be created only in goods and software.

Question 10

Bagsby owns a business selling insects for organic gardening.Bagsby is seeking a loan from First Natural Bank.The loan officer is asking that the loan be secured by Bagsby's inventory of insects,now owned or hereafter acquired.In order to do this,a new security agreement will need to be signed each time Bagsby gets new insects or sells his insects.

Question 11

There is no way to attach a security interest in electronic chattel paper.

Question 12

Under Revised Article 9 of the UCC,electronic chattel paper may be used as collateral in a secured transaction.

Question 13

George's Wholesale agrees to purchase 1,000 pounds of bananas from Chickadee Exports at 39 cents per pound.George's does not have the money for the bananas now,but promises to pay in two months.Chickadee Exports wants to make the sale,but is worried about waiting for the payment,knowing the bananas are not "appealing" collateral.So,Chickadee prepares an instrument claiming George's $400 sorting machine as collateral.George's never signs the agreement,but accepts the shipment of bananas.This is an example of a:

A)check.
B)security interest.
C)promissory note.
D)None of the above.

Question 14

First Federal loaned Madeline $20,000 to purchase a new van.The van was for Madeline's personal and family use.First Federal's security interest is a purchase money security interest which perfects only upon filing a financing statement.

Question 15

Spicy & Hot,Inc.is interested in expanding its Mexican food restaurant into a Mexican food catering business.Spicy & Hot,Inc.buys a new delivery van from Van World.Spicy & Hot,Inc.is a buyer in the ordinary course of business when purchasing the van.

Question 16

To perfect a security interest in a negotiable instrument,Second State Savings and Loan should:

A)file a financing statement.
B)take possession of the instrument.
C)do nothing.Perfection is automatic.
D)secure a court order.

Question 17

Great State Bank loans money to Seth,securing the loan with property owned by Seth.Great State Bank is advised by its attorney to file a financing statement.Great State Bank doesn't understand why it should spend the extra money for this filing,since Seth has told them that he has no other creditors.Why should Great State Bank file a financing statement?

A)There are criminal penalties for failing to file.
B)The financing statement allows Great State Bank to repossess the collateral on default without a court order.
C)The financing statement will protect Great State's priority rights with other creditors by giving notice to other creditors that it claims a security interest in the collateral.
D)Filing the financing statement is necessary to complete the attachment requirement in order to create a security interest.

Question 18

First Federal had a perfected security interest in Vicor's printing press.Second Credit had a security interest in the same press,but its interest was not perfected.First Federal takes priority over Second Credit.

Question 19

Masterview,Inc.purchased a new computer system,which included some computer programs.When Masterview developed financial troubles,two competing creditors of Masterview claimed the right to repossess the computer system and the programs.The UCC distinguishes "software" from "goods" and treats them differently for some purposes,which would be important in this situation.

Question 20

Micky,a mechanic,repaired Daphane's Dodge.Daphane failed to pay the repair bill of $595.Since Micky was still storing the car,he could therefore claim a landlord's lien on the car.

Question 21

Which of the following is an example of a purchase money security interest in consumer goods?

A)A doctor purchasing a computer on credit to create a Webpage to make services and information available to her patients.
B)A doctor purchasing on credit a blood glucose monitor to check his own blood sugar levels.
C)A doctor purchasing a TV/VCR unit on credit to place in her office waiting room.
D)A doctor purchasing an exercise bike for his employees to use over the lunch hour.

Question 22

Country Bank,located in Indiana,loaned Chmelik $5,000 and obtained a security interest in a copyright Chmelik owns.Chmelik lives in Illinois,but works in Indiana.In order to perfect its interest,Country Bank files a financing statement in Indiana.The financing statement provides Chmelik's correct name,his business address,and a reasonable description of the copyright used as collateral.Is the financing statement sufficient?

A)Yes,it meets the UCC requirements for contents and filing.
B)No,if the debtor is an individual,the secured party must file in the state of the debtor's principal residence,which in this case would be Illinois.
C)No,the contents of the financing statement are incomplete.
D)Both b and c are correct.

Question 23

Byron bought a 50' yacht from Myrtle's Marina by entering into a note and security agreement promising the yacht as collateral for the purchase money security interest.When Byron faced some tough financial times,he failed to make three monthly payments.Myrtle's Marina repossessed the yacht by removing the yacht engine and advertised a public auction of the yacht.Byron appealed to his good friend Charles and managed to pay off the debt balance and the Marina's expenses of repossessing and advertising the sale.Byron's actions represent:

A)strict foreclosure.
B)redemption.
C)silent bidding at the auction.
D)an artisan's lien.

Question 24

Florence borrows $1,500 from Fremont,leaving her gold necklace with Fremont as collateral.Two weeks earlier,Florence had borrowed $1,000 from Corner Bank.Florence signed a security agreement and a financing statement giving Corner Bank a security interest in the same gold necklace.The financing statement is filed in the appropriate location.If Florence defaults on both loans,which creditor has the superior rights to the necklace?

A)Fremont,because his loan was the first to attach.
B)Fremont,because possession takes priority over filing.
C)Corner Bank,because Fremont did not perfect his interest.
D)Corner Bank,because Fremont did not have a written security agreement.

Question 25

On April 10,Amy agreed to buy a riding lawn mower from Mowers Plus,signing a promissory note and security agreement giving Mowers Plus a security interest in the mower.On April 15,Amy took delivery of the mower.On May 1,Mowers Plus filed a financing statement.Which of the following is correct?

A)Despite the agreement,Mowers Plus could not create a security interest in the mower since it is a consumer good.
B)Mowers Plus has attachment of a security interest in Amy's mower.
C)Mowers Plus completed the attachment of a security interest in the mower when it filed the financing statement on May 1.
D)The security interest has not attached,but attachment is unimportant to enforceability of a security interest.

Question 26

Landscaper Lottie used her machinery,employee labor,and her expertise to landscape Opal's new guest home.Opal fails to pay for the landscaping because she has run out of money.Lottie files a lien against the real property.This lien is called:

A)an artisan's lien;her landscape design is a work of art.
B)a landlord's lien;Opal is planning to rent the guest house to a tenant.
C)a mechanic's lien;it was created by improving real property.
D)a purchase money security interest.

Question 27

Morefield Custom Design sends 30 recliners by rail to Danville Furniture.To show where the goods will be shipped and who gets them when they arrive,Morefield will obtain ____,which can be used as collateral in a secured transaction.

A)a warehouse receipt.
B)a bill of lading.
C)chattel paper.
D)a deposit account.

Question 28

A security interest in money may be perfected by:

A)filing a financing statement.
B)creating a PMSI.
C)possession only.
D)redemption.

Question 29

Which of the following is correct concerning termination statements?

A)A secured party must file a termination statement when consumer goods are involved and the debtor has paid for them.
B)The termination statement clears the debtor's public record with regard to old,irrelevant financing statements so that the same collateral can be used again to secure a future loan.
C)The secured party must file a termination statement within 20 days of a consumer debtor's demand,provided the debtor has paid the full debt.
D)All of the above are correct concerning termination statements.

Question 30

The initial term for which a financing statement will be effective is:

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

Question 31

Wombart Manufacturing sells a machine on credit to Cryslie Printing Co.Wombart insists on a security interest in the machine to:

A)give itself a legal interest in the machine.
B)give itself a legal interest in all of Cryslie's property.
C)establish a priority claim in the machine ahead of other creditors of Cryslie.
D)Both a and c

Question 32

At her neighbor's garage sale,Constance buys a vanity dressing table from her neighbor,Carlos,for $160.Constance purchased the vanity table for her own personal use,without any knowledge that Carlos had signed a security agreement giving All Purpose Furniture,Inc.a security interest in the vanity table.All Purpose Furniture did not file a financing statement.Constance does not know that Carlos is still paying off the purchase money security interest and owes All Purpose Furniture,Inc.$400.Under these circumstances:

A)Constance takes the vanity table subject to All Purpose's security interest because All Purpose's security interest automatically perfected.A perfected security interest takes priority.
B)Constance takes the vanity table free of All Purpose's security interest because she is a buyer of consumer goods
C)Constance takes the vanity table free of All Purpose's security interest because she is a buyer in the ordinary course of business.
D)Constance must pay All Purpose $400 or the table must be resold,and she and All Purpose will proportionately share the proceeds from the sale of the table.

Question 33

First Bank loaned $400,000 to Thomas,taking a security interest in his yacht.Thomas defaulted on the loan and First Bank repossessed the boat.First Bank sold the yacht at a public sale.The sale yielded $50,000 more than the debt.First Bank:

A)must pay Thomas the $50,000.
B)is entitled keep the $50,000.
C)must share the $50,000 equally with Thomas.
D)must pay the surplus to the Secretary of State.

Question 34

Wedney,Inc.sold a meat processing machine to Yoro Chickens,taking a security interest in the machine.Yoro Chickens defaulted on the loan.Wedney repossessed the machine.Wedney would like to retain the machine to use as a model.Which of the following statements is correct?

A)Wedney must notify the debtor that it intends to retain the machine and give Yoro 20 days to object.
B)By taking possession,Wedney automatically foreclosed on the collateral.Wedney has valid title and need do nothing else.
C)Since the machine is equipment,Wedney cannot retain the machine.Wedney must dispose of the collateral in a commercially reasonable manner.
D)Wedney can retain the machine but must pay Yoro the surplus,the difference between the fair market value of the machine and the amount of the debt.

Question 35

Which of the following parties can defeat a perfected security interest?

A)A "buyer in ordinary course of business."
B)A buyer of consumer goods if the buyer is not aware of the security interest,gives value for the goods,will continue to use the goods as consumer goods,and the secured party has not filed a financing statement.
C)A buyer who purchases chattel paper or an instrument in the ordinary course of business,and then takes possession.
D)All of the above are correct.

Question 36

Great State Bank took a security interest in Gresham,Inc.'s meat processing equipment.Gresham defaulted on the loan.Which statement is correct?

A)Great State Bank may take possession of the collateral.
B)Great State Bank may ignore its rights in the collateral and sue Gresham for the money owed.
C)Both a and b are courses of action that Great State Bank may follow.
D)Neither a nor b are courses of action that Great State Bank may follow.

Question 37

Wedney,Inc.has a purchase money security interest in one of Yoro Chicken's meat processing machines.Wedney filed a financing statement on the day the machine was delivered,perfecting its interest.Great State Bank already had a security interest in the machine.Which party has superior priority rights in the meat processing machine?

A)Wedney.A PMSI in collateral other than inventory takes priority over a conflicting security interest if the PMSI is perfected at the time the debtor receives the collateral or within 20 days after he receives it.
B)Great State Bank,since it had an earlier security interest.
C)The party who is first to repossess the collateral.
D)The creditors have equal priority.

Question 38

If repossessed collateral is sold or otherwise disposed of by the creditor,the time,place,manner,and method of disposal must be:

A)commercially reasonable.
B)scheduled with the debtor so that the debtor is able to attend.
C)court ordered.
D)perfected.

Question 39

Which of the following may not be used as collateral within the scope of UCC Article 9?

A)Certificates of deposit.
B)Accounts receivable.
C)Goodwill.
D)A 250-acre farm.

Question 40

Wanderlust gave a security interest in his Conestoga wagon to Iowa Bank who perfected its security interest by filing a financing statement with the appropriate officials in Iowa.Five months later,Wanderlust hit the trail again,moving to Montana.If Iowa Bank wants to continue its perfected interest in the Conestoga wagon,it should:

A)file a continuation statement for another five years in Iowa before Wanderlust moves on.
B)re-perfect by filing a financing statement in the appropriate place in Montana,according to Montana law,within four months of Wanderlust's entering Montana.
C)repossess the Conestoga wagon.
D)file a continuation statement for another four months in Iowa before Wanderlust moves on.

Question 41

Explain the difference between attachment and perfection.

Question 42

Faith owns a copyright in a book she recently wrote.She applies for a $10,000 loan through Cumberland Bank and wants to use the copyright as collateral.Explain if and how the bank can perfect a security interest in such collateral.

Question 43

Ken decided to open a retail boat dealership.He expects that many of his sales will be credit sales.What should Ken do to protect his interests in the collateral in the credit sales that he makes?

Question 44

Aubry purchased a washing machine,a freezer,and a refrigerator from Gateway Appliances on credit,giving Gateway a security interest in the appliances.The appliances were for Aubry's household use.Gateway did not file a financing statement.Six months later,Aubry had a garage sale and sold the appliances to Tam.Tam bought the appliances for her student rental property.Aubry left town owing money on the appliances.If Gateway can trace the appliances to Tam,can Gateway repossess the appliances? Explain in detail.

Question 45

Fowler Bros.has applied to Gibralter Bank for a $50,000 loan for its business expansion.If Fowler Bros.plans to use its account at Gibralter Bank as collateral,discuss what the bank needs to do for a security interest to attach.

Question 46

Gateway sold a big-screen TV and entertainment center to Iris for $2000 on credit.Iris signed a promissory note and gave Gateway a security interest in the TV and entertainment center.Gateway filed a financing statement in the appropriate public office.When Iris defaulted on her monthly payments owing a balance of $1780,Gateway's attorney made arrangements to have the TV and entertainment center repossessed.The attorney then placed classified ads in the local newspaper to sell the goods.The attorney's fees are $300,the repo company charged $150,and the advertising costs are $50.
(A)If Iris chooses to redeem the property,how much must she pay to Gateway to recover the property?
(B)If Iris does not redeem and the TV and entertainment center are sold for $1750,how will the money be disbursed?