Deck 18: Security Interests in Personal Property

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

An improper filing renders a secured party unperfected.

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

Proceeds consist of whatever is received when collateral is sold.

Question 21

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 22

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

Question 23

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 24

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 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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 35

A secured party can release the collateral described in a filed financing statement only if the debtor has paid the debt.

Question 36

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 37

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 38

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

Question 39

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

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

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

A)a written agreement and Summit's possession of the SUV.
B)a written agreement or Summit's possession of the SUV.
C)the vehicle seller's acknowledgement of the loan in writing.
D)Toby's possession of the SUV.

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 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 44

Select Furniture Store sells household consumer goods.To create a purchase-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 45

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

Question 46

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 47

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 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 Hu's debt to Ian is guaranteed by Hu's personal property.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 50

Refer to Fact Pattern 18-1.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 51

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 interest,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 52

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 53

Everyday Loans,Inc. ,takes possession of Ferbie's stock in Glade Electronics 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 54

County Bank wants to perfect its security interest in collateral owned by Direct 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 55

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 56

Prime Property Investments,Inc. ,files a financing statement to provide notice of its security interest in the property of Qwik Breakfast Restaurant.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 57

Refer to Fact Pattern 18-1.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 58

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 59

The payment of Yves's debt to Zac is guaranteed by Yves's personal property.Their agreement describes Yves's subject property by serial number.To establish Zac'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 60

Refer to Fact Pattern 18-1.A car in Fine's possession is probably

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

Question 61

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 $513 to Elias.
D)need not comply.

Question 62

Sara needs $1,513 to buy textbooks and other school supplies.Tomas agrees to loan Sara $1,513,accepting as collateral Tomas'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

Green Landscape Company buys a backhoe on credit from Heavy Equipment Corporation,but does not make a payment on the loan for several months.Heavy repossesses the backhoe by towing it from a public 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 64

Idle Investments,Inc. ,and Harbor 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 65

Fact Pattern 18-2
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 $513,000 from Interstate Bank, also for a security interest in the equipment. GLC defaults on the loans.

-Refer to Fact Pattern 18-2.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 66

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 67

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 68

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 69

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 70

Expert Capital Company and Frugal Financial Bank are secured parties with security interests in property owned by Grande 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 71

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 72

Fact Pattern 18-2
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 $513,000 from Interstate Bank, also for a security interest in the equipment. GLC defaults on the loans.

-Refer to Fact Pattern 18-2.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.