Deck 32: Secured Transactions

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

A secured party is any creditor who has a security interest in a debtor's collateral.

Question 6

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

Question 7

A security agreement does not need to contain a description of the collateral.

Question 8

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

Question 9

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

Question 10

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

Question 11

To create an enforceable security interest,the secured party must give something of value to a debtor's other creditors.

Question 12

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

Question 13

Perfection is usually accomplished without filing a financing statement.

Question 14

The state office in which a financing statement should be filed depends on the location of the collateral.

Question 15

Attachment gives the creditor an enforceable security interest in the collateral.

Question 16

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

Question 17

A financing statement must include the creditor's signature.

Question 18

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

Question 19

A continuation statement will continue the effectiveness of a financing statement for five years.

Question 20

A security interest is enforceable only if the debtor has title to the collateral.

Question 21

Once default has occurred and the secured party has obtained possession of the collateral,the secured party has no more options.

Question 22

A buyer in the ordinary course of business has priority even if a previously perfected security interest exists as to the goods.

Question 23

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

Question 24

A security interest that provides for a security interest in collateral subject to future advances is a floating lien.

Question 25

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

Question 26

The payment of Mo's debt to Neil is guaranteed by Mo's personal property.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 27

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

Question 28

The payment of Allen Janitorial Service's debt to Business Finance,Inc.,is guaranteed by Allen's personal property.Business Finance is 

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

Question 29

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

Question 30

Market Credit Corporation is the secured party in a secured transaction with Northwest Outfitters.Market Credit could also be referred to as 

A) ​the debtor. 
B) ​the secured creditor. 
C) ​the security interest. 
D) ​the filing officer.

Question 31

The payment of Eden Valley Farm's debt to First County Bank is guaranteed by Eden's personal property.This property is 

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

Question 32

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

Question 33

Proceeds consist of whatever is received when collateral is sold.

Question 34

Whatever a secured party obtains on a sale of collateral is all that he or she can collect on the debt.

Question 35

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 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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 41

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

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

Question 42

Kayla's Auto Sales borrows money from Lenders Finance Corporation under a security agreement.With the money,Kayla's buys six Miatas.The Miatas are 

A) ​beyond the extent of Lenders's interest. 
B) ​after-acquired property. 
C) ​a future advance. 
D) ​proceeds.

Question 43

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 44

Fiona borrows $1,000 from Garden State Bank,using her recreational vehicle (RV)motor home,which she purchased at Hugo's RV Sales & Service,as collateral.To perfect its security interest,the bank must file its financing statement with 

A) ​the secretary of state. 
B) ​the county clerk. 
C) ​the city treasurer. 
D) Hugo's RV Sales & Service.​

Question 45

Jones lives in Illinois,but works in Indiana.Jones borrows $1,000 from Heartland Bank,using her car as collateral.To perfect its security interest,the bank must file its financing statement in at least 

A) ​every state. 
B) ​Illinois. 
C) ​Illinois and Indiana. 
D) ​Indiana.

Question 46

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 47

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 property.This is 

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

Question 48

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 49

The payment of Chick's debt to Diamond is guaranteed by Chick's collection of eight restored autos.Their agreement describes Chick's subject property by serial number.To establish Diamond's interest,this is 

A) ​not sufficient because it is too specific. 
B) ​not sufficient if it matches the description in the financing statement. 
C) ​sufficient if it accurately describes the parties' agreement. 
D) ​not sufficient without an added description of the autos' other identifying characteristics.

Question 50

Brass & Woodwind Instruments,Inc.,allows Clifton to keep a professional clarinet that he bought from Brass & Woodwind even though he has not paid the full price.Brass & Woodwind'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 Clifton to take the goods. 
C) ​Brass & Woodwind's name. 
D) ​Clifton's name.

Question 51

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 52

Capital Projects,Inc.,files a financing statement to provide notice of its security interest in the property of Data Network Corporation.The initial effective term of a financing statement is a period of 

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

Question 53

Natural Resource Investment Company and Mega Bank are secured parties with security interests in property owned by LNG Gas Corporation.Between these security interests,the first to be filed or perfected has priority over other filed or perfected 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 54

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 55

The payment of Hu's debt to Ian is guaranteed by Hu's personal property.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 56

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 57

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 58

City Bank's financing statement in collateral owned by Delta Bottled 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 59

Metro Motors & Credit files a financing statement giving notice to the public that it has a secured interest in collateral belonging to Nate's Limousine Service,which is the debtor named in the statement.The financing statement is referred to as 

A) ​Form UCC-1. 
B) ​the UCC Collateral Form. 
C) ​Form UCC-2. 
D) ​none of the choices.

Question 60

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

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

Question 61

Gina borrows from Hilltop Bank the funds to buy a car.The car secures the debt.Gina defaults on the loan.Hilltop takes possession of the car,planning to sell it to recover some of the unpaid debt.Before Hilltop sells the car or enters into a contract for its sale,Gina can pay the bank what she owes and take back the car.This is 

A) ​a deficiency judgment. 
B) ​a floating lien. 
C) ​the right of redemption. 
D) ​the right of retention.

Question 62

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 63

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.

Question 64

Fact Pattern 32-1General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation for a security interest 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 possession of the equipment,Helpful and Interstate file financing statements,with Interstate filing first.In that circumstance,the party with priority to the equipment is 

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

Question 65

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

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 security interest in Efrem's present inventory and any after-acquired inventory as collateral for the loan.The bank properly perfects the security interest 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 entire 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 67

Fact Pattern 32-1General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation for a security interest 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 security interest when GLC takes possession of the equipment.In that circumstance,the party with priority to the collateral on GLC's default would be 

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

Question 68

Elias repays his debt,incurred to buy consumer goods,to Fidelity Bank and immediately files a written request for a termination statement.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 69

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 70

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 collateral,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 71

Hal's Hardware store defaults on a debt to Intrastate Bank,which takes possession of the collateral securing the debt.Intrastate sells the collateral.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

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.