Deck 34: Secured Transactions in Personal Property

Question 1

A security agreement need not describe the collateral involved.

Answer 1

False

Question 2

A security interest may be possessory or nonpossessory.

Answer 2

True

Question 3

Attachment provides creditors with rights.

Answer 3

True

Question 4

A debtor has sufficient rights in the collateral for a security interest to attach only if the debtor owns the collateral.

Question 5

The property that is subject to the security interest is called collateral.

Question 6

When a security interest in property is inferior to other interests and claims to the property, it is said to be perfected.

Question 7

A financing statement need not be filed in a public place.

Question 8

A secured transaction covers proceeds from the collateral unless such interest is expressly excluded.

Question 9

In most cases, value, which allows attachment of a security interest, is any consideration that supports a simple contract.

Question 10

Grund, a night club performer, financed the purchase of a drum set to be used in his night club act. The collateral is classified as a consumer good.

Question 11

An after-acquired property clause in a consumer security agreement can cover only goods acquired by the debtor within thirty (30) days after the creditor gave value to the debtor.

Question 12

Consumer goods are not subject to perfection of a security interest.

Question 13

For a security interest to attach, the creditor must file a financing statement.

Question 14

In a security agreement, the creditor and the debtor agree that the creditor has a security interest.

Question 15

A security interest is a property right that enables the creditor to take possession of the property if the debtor does not pay the amount owed.

Question 16

Under Revised UCC Article 9, a financing statement must be signed by the debtor.

Question 17

Perfection can occur merely by possession of the collateral by the creditor.

Question 18

Consumer goods are classified into different categories based on the debtor's intended use, not the physical characteristics of the goods.

Question 19

A security interest need only be attached, not perfected, if there are no competing claims for the collateral.

Question 20

A security interest gives a creditor more protection than is afforded by a right to sue on the debt.

Question 21

A debtor may redeem collateral at any time prior to the time that the secured party has disposed of the collateral or entered into a binding contract for resale by tendering the entire obligation that is owed plus any legal costs and expenses incurred by the secured party.

Question 22

When a seller sells on credit and is given a security interest in the goods, that interest is called:

A) a purchase money security interest.
B) a future transaction.
C) a floating lien.
D) none of the above.

Question 23

An interest in personal property or fixtures that secures payment or performance of an obligation is called a:

A) guaranty holding.
B) security interest.
C) guaranty interest.
D) good-faith guaranty.

Question 24

If the collateral is in the possession of the creditor:

A) a financing statement must be filed to perfect the interest.
B) the security interest is perfected.
C) only a security interest has been obtained.
D) the type of goods will determine the method of perfection.

Question 25

Generally, a secured creditor who has repossessed collateral may retain the collateral and cancel the debt.

Question 26

Wellfix Corporation manufactures electric toasters and sells them to retail appliance stores. Which of the following statements is true?

A) The toasters are considered equipment in the hands of the appliance stores that purchase them.
B) The toasters are considered inventory in the hands of Wellfix.
C) The toasters are considered equipment in the hands of Wellfix.
D) The toasters are considered consumer goods in the hands of Wellfix.

Question 27

A security interest that is effective against third persons as well as against the buyer is called a:

A) universal security interest.
B) prohibitive security interest.
C) perfected security interest.
D) protective security interest.

Question 28

Upon the debtor's default, the creditor may sell the collateral at a public or private sale, or lease it to a third party.

Question 29

If two creditors have a security interest in the same collateral, their priority is determined according to the "last in-first out" provision.

Question 30

Which is not an element of attachment?

A) the filing of a financing statement
B) a security agreement
C) value received by the debtor
D) the debtor has rights in the collateral

Question 31

Self-help repossession of collateral upon a buyer's default is contrary to public policy and never is allowed.

Question 32

With regard to future goods:

A) no security interest is possible.
B) a financing statement must be filed to create a security interest.
C) the security interest does not attach until the buyer has rights in the goods.
D) a security interest may be held only by a bank.

Question 33

A security agreement must:

A) identify the parties involved.
B) contain a reasonable description of the collateral.
C) demonstrate that the creditor intends to have a security interest.
D) all of the above.

Question 34

UCC Article 9 makes a statutory lien for repairs or storage subordinate to a perfected security interest in the same collateral.

Question 35

Compulsory resale of collateral is not recognized by the Uniform Commercial Code.

Question 36

The steps in terminating a financing transaction upon full payment by the debtor include the preparation of a termination statement by the creditor and the presentation of the statement to the filing officer, who marks the record "terminated."

Question 37

Perfection of a security interest takes place:

A) upon the creditor's possession of the collateral.
B) upon attachment in the case of a purchase money security interest in consumer goods.
C) upon the filing of a financing statement.
D) all of the above.

Question 38

Goods held for sale or lease are:

A) inventory.
B) equipment.
C) consumer goods.
D) none of the above.

Question 39

The concept of perfection concerns:

A) the creation of the security interest.
B) protection against the claims of others to the collateral.
C) the rights of the creditor against the debtor.
D) converting unsecured creditors into secured creditors.

Question 40

Under Revised UCC Article 9, a debtor may authorize a financing statement by acquiring the collateral that is subject to the security agreement.

Question 41

Mark purchased a very expensive automobile on credit. Within a week, Mark discovered that a tune-up was necessary, for he was in the habit of driving at an excessive rate of speed. When the car was repaired, the bill was more than $1,000. Mark does not have the money to pay for the car repairs or the monthly car payments. The credit company as well as the repair shop are concerned over who has priority of repayment. Who has priority and why?

Question 42

A buyer in the ordinary course of business who purchases inventory goods from a debtor who had placed a security interest on those goods in favor of a creditor:

A) is not subject to the security interest.
B) is not subject to the security interest unless it was perfected.
C) is not subject to the security interest unless the buyer was aware of it.
D) is subject to the security interest.

Question 43

When a state statute requires a security interest in a motor vehicle to be noted on the certificate of title, the security interest is perfected:

A) by the certificate notation, when a non-inventory motor vehicle is involved.
B) by filing under the UCC, regardless of how the vehicle is classified.
C) by filing under the UCC, when the motor vehicle is inventory.
D) either by the certificate notation or by a UCC filing, depending on how the state statute defines the term motor vehicle.

Question 44

In most states, __________ provides that a security interest in a non-inventory motor vehicle must be noted on the vehicle title registration.

A) a non-Code statute
B) UCC Article 2
C) UCC Article 9
D) judicial precedent

Question 45

What is the purpose of a financing statement?

A) to meet UCC accounting requirements under Article 9
B) to create a security interest
C) to amend a security agreement
D) to alert third persons that a creditor has a security interest in the collateral described

Question 46

A security interest will be perfected without filing when:

A) the transaction involves any consumer goods.
B) the transaction involves inventory goods.
C) the transaction involves equipment.
D) the transaction involves a purchase money security interest in consumer goods.

Question 47

A(n) __________ statement is a document, which may be requested by a paid-up debtor, stating that a security interest is no longer claimed under the specified financing statement.

A) execution
B) discharge
C) termination
D) hold harmless

Question 48

When the filing of a financing statement is defective:

A) the security interest is lost.
B) the filing fails to perfect the security interest.
C) the security interest is perfected through the court's application of equitable principles.
D) none of the above.

Question 49

King Electronics, a retailer of video equipment, sold two DVRs to Larson, a psychologist, for use in her professional practice, which was located in her home. The sale to Larson was made on credit. King retained a security interest in the DVRs sold but did not file a financing statement. Mills, another creditor of Larson, has asserted that his lien on the two DVRs is superior to King's security interest. Is he right? As you decide, remember to classify the DVRs as collateral in the hands of King and Larson.

Question 50

The perfection obtained by filing a financing statement lasts for __________.

A) five (5) years, and is renewable.
B) five (5) years, and is non-renewable.
C) ten (10) years, and is renewable.
D) ten (10) years, and is non-renewable.

Question 51

Upon a default by a buyer, the secured seller may resell the collateral:

A) not less than three (3) months after the buyer's default.
B) not less than six (6) months after the buyer's default.
C) only at a public sale.
D) at either a public or a private sale.

Question 52

Morris made two purchases. He purchased his neighbor Cordelia's typewriter and a computer from Crazy Computers. Regarding the typewriter, Cordelia had bought it on credit from Jack's Typewriters. Cordelia had financed the purchase with Jack's and signed a promissory note and a security agreement covering the purchase. The creditor, Jack's, did not file a financing statement, relying on the concept of automatic perfection for purchase money security interests in consumer goods. Morris was unaware of the history of the typewriter. The computer was subject to a security interest in favor of Country Bank, which had perfected its security interest by filing. Morris, by coincidence, knew of this security interest when Morris purchased the computer. Unfortunately, neither Cordelia nor Crazy Computers paid the secured creditors who now seek to repossess the collateral from Morris. What will be the likely outcome of this case?