Deck 20: Security Interest in Personal Property

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Collateral is the subject of a security interest.

Answer 3

True

Question 4

A financing statement's description of collateral as "all the debtor's as?sets" is sufficient to reasonably identify the property.

Question 5

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

Question 6

To have an enforceable security interest in collateral that is in the pos?ses?sion of the secured party,there must be a written security agreement.

Question 7

A secured creditor's right to cash proceeds exists for twenty days after re?ceipt only if the cash is forwarded to the secured party.

Question 8

An improper filing renders a secured party unperfected.

Question 9

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

Question 10

A chair bought by a business office would be classified as a consumer good.

Question 11

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 12

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

Question 13

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

Question 14

To be valid,a financing statement must contain a description of the collateral.

Question 15

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

Question 16

A purchase-money security interest arises only when a buyer "pur?chases" goods with "money."

Question 17

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

Question 18

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

Question 19

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

Question 20

A financing statement is not effective if it is filed electronically.

Question 21

A perfected security interest will always have priority over an unper?fected security interest in the same collateral.

Question 22

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

Question 23

Laser Loan Company has a security interest in collateral owned by Magma Tool & Die Company.A security interest in collateral

A)eliminates the need for a financing statement.
B)is enforceable when attachment occurs.
C)is lost when attachment occurs.
D)must be obtained by possession.

Question 24

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

Question 25

After the proper disposition of collateral,if the secured party has not col?lected all that the debtor owes,the creditor must accept the deficiency.

Question 26

When two parties have perfected security interests in the same collat?eral,neither party has priority.

Question 27

The concept of the floating lien applies to after-acquired inven?tory.

Question 28

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

Question 29

Fact Pattern 20-1 (Questions 5-7 apply)
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 20-1.A car in Fine's possession is probably

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

Question 30

When two parties have unperfected security interests in the same collat?eral,neither party has priority.

Question 31

The concept of the floating lien does not apply to future advances.

Question 32

The payment of Josie's debt to Kym is guaranteed by Josie's personal property.The process by which Kym can protect herself against the claims of third parties to this property is

A)attachment.
B)description.
C)perfection.
D)redemption.

Question 33

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

Question 34

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

Question 35

A buyer in the ordinary course of business takes goods free of any se?cu?rity interest in the seller's inventory.

Question 36

After a default,and before a secured party disposes of the collateral,a debtor can exercise the right of redemption.

Question 37

A financing statement cannot be amended once it has been filed.

Question 38

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

Question 39

Best Credit Corporation lends funds to Cathy,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 40

Bob,a forest-service engineer,buys a four-wheel-drive vehicle to use only for off-road recreational use.Under UCC Article 9,this vehicle would likely be characterized as

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

Question 41

Fact Pattern 20-1 (Questions 5-7 apply)
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 20-1.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 42

Each of the following owns a Cut-Rite brand food processor: Diner's Res?taurant;Eve,a consumer;Frank,a cooking-school student;and Great Deals,a discount store.As collateral,the processor that would be classi?fied as inventory is owned by

A)Diner's Restaurant.
B)Eve.
C)Frank.
D)Great Deals.

Question 43

Agricultural Investments,Inc. ,files a financing statement to provide no?tice of its security interest in the property of Bay Farms.The initial ef?fec?tive term of a financing statement is a period of

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

Question 44

Dependable Credit Corporation asks Elevator 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 45

First 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 First 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 46

Credit Extender,Inc.(CE),a creditor,wants to perfect its interest in property owned by Dandy Goods,Inc.(DG).Filing a financing statement

A)gives notice to other creditors of CE's security interest.
B)is a technicality that has no practical effect.
C)reduces CE,on DG's bankruptcy,to an unsecured creditor.
D)transfers DG's property into CE's possession.

Question 47

Rich Financial,Inc. ,files a financing statement regarding a transaction with Standard 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 48

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 49

Show-Me Display Company,a creditor,agrees to sell display cases to Total Retail,Inc.(TRI).TRI agrees to make monthly payments on the cases,which serves as collateral for the debt until the balance is paid.To protect its claim in the collateral,Show-Me should

A)personally contact TRI's other creditors.
B)file a financing statement with the appropriate state or local offi?cial.
C)send notice by mail to TRI's potential customers.
D)station a Show-Me employee on TRI's premises.

Question 50

Fancee Furniture Store sells household consumer goods.To create a pur?chase-money security interest,Fancee 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 51

Regional Bank wants to perfect its security interest in timber owned by Standing Timber,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 52

Extenda Loan,Inc. ,takes possession of Flo's stock in Gem Corporation to perfect Extenda's security interest in the stock.This is

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

Question 53

Fact Pattern 20-2
Technical 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 Technical Support was chartered.One year later,Technical Support changes its name to Vector,Inc.
Refer to Fact Pattern 20-2.United Bank's perfection will remain effec?tive for

A)five years from the date of the name change.
B)five years from the date of the original filing.
C)six months from the date of the name change.
D)no time.

Question 54

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 55

First Federal Bank wants to perfect its security interest in the property of Global Services Company.The most common method of perfecting a se?curity interest is for

A)the creditor to file a financing statement in a public office.
B)the creditor to retain possession of the collateral.
C)the debtor to give value to the creditor.
D)the interest to attach automatically.

Question 56

Pure Capital Corporation wants to perfect a security interest in a nego?tia?ble instrument owned by Quality Securities,Inc. ,and payable to Right Investment Company.This can be accomplished by

A)contacting the party to whom the instrument is payable.
B)filing a financing statement.
C)notifying the appropriate federal officer.
D)taking possession of the instrument.

Question 57

Fact Pattern 20-1 (Questions 5-7 apply)
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 20-1.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

Fact Pattern 20-2
Technical 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 Technical Support was chartered.One year later,Technical Support changes its name to Vector,Inc.
Refer to Fact Pattern 20-2.To continue the effectiveness of its original fil?ing,United Bank must

A)file a continuation statement after the original filing expires.
B)file a continuation statement before the original filing expires.
C)file a new financing statement within four months of the name change.
D)repossess the equipment that served as collateral for the loan.

Question 59

Eagle Capital Company and First National Bank are secured parties with security interests in property owned by Great Commercial 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 60

Verna,a debtor,and Wick,a creditor,sign a security agreement con?tain?ing a specific description of the collateral.Wick subsequently files a financing statement that contains a more general description.This description

A)invalidates the financing statement only.
B)invalidates the security agreement only.
C)invalidates the financing statement and the security agreement.
D)is sufficient.

Question 61

Fact Pattern 20-3
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 20-3.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 62

Computer World (CW),after repossessing a multimedia system from Dave,a consumer,decides to keep 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 63

Qwik Credit Corporation lends $20,000 to Ross.A financing statement is filed on May 1,but the security agreement is not signed until Ross gets the money on May 4.Ross also borrows money from State Bank,which advances funds,files a financing statement,and signs a security agree?ment on May 2.Ross used the same property as collateral for both loans.In a dispute between the lenders over rights to the collateral,Qwik Credit will

A)lose,because State Bank perfected first.
B)lose,because State Bank's interest attached first.
C)win,because Qwik Credit filed first.
D)win,because Qwik Credit's interest attached first.

Question 64

Consumer Credit Corporation loans $15,000 to Dave to buy a car,which is used as collateral to secure the loan.Dave pays less than half of the loan,before he defaults.What are the lender's alternatives?

Question 65

Ed repays his debt,incurred to buy consumer goods,to First City Bank and immediately files a written request for a termination statement.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 Ed.
D)need not comply.

Question 66

Fred,a debtor,wishes to know the amount of his outstanding secured debt with Genuine Credit Corporation.Fred may submit a written statement for approval to Genuine Credit,without paying a fee,

A)never.
B)once.
C)once every five years.
D)once every six months.

Question 67

Edie needs $1,500 to buy textbooks and other school supplies.Frank agrees to loan Edie $1,500,accepting as collateral Edie's car.They put their agreement in writing and sign it.Edie keeps possession of the car.Does Frank have an enforceable security interest? How can Frank let other creditors know of his interest in the car?

Question 68

EZ Credit,Inc. ,repossesses a TV set (a consumer good that is not a pur?chase-money security interest)from Fran,intending to install it in EZ's office instead of reselling it.EZ tells Fran of this in?tent.EZ must notify

A)all of Fran's creditors.
B)all of Fran's secured creditors.
C)none of Fran's secured creditors.
D)secured parties who have notified EZ of claims to the set and those whose claims to the set are in the public records.

Question 69

Fact Pattern 20-3
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 20-3.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 70

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 71

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

Question 72

Manuel holds a security interest in inventory owned by Newt.Manuel assigns his interest in the inventory to Olan.Olan becomes the secured party of record

A)automatically.
B)if Manuel advises Newt of the assignment.
C)if Olan advises Brad of the assignment.
D)if Olan files a uniform amendment form.