Deck 43: Security Interests in Personal Property

Question 1

If no expiry date is stated in the financing statement,it is valid for six months.

Answer 1

False

Question 2

The agreement between the creditor and the debtor cannot authorize the creditor to repossess the collateral under any circumstance.

Answer 2

False

Question 3

Under the Uniform Commercial Code,a fixture is defined as goods:

A) bought primarily for business, personal, or household use.
B) held for sale or lease to be used under contracts of service.
C) that are considered to be a part of the real property.
D) other than inventory, farm products, or consumer goods.

Answer 3

C
Explanation: The Uniform Commercial Code (UCC) breaks down personal property into a number of different classifications, which are important in determining how a creditor obtains an enforceable security interest in a particular kind of collateral. Fixtures are defined as goods that are so affixed to real property that they are considered a part of the real property.

Question 4

Instruments are goods that will be so affixed to real property that they are considered a part of the real property.

Question 5

A conditional sales contract is an example of a(n):

A) chattel paper.
B) document of title.
C) negotiable instrument.
D) investment property.

Question 6

The attachment of a security interest to collateral automatically gives the secured party a security interest in the proceeds on the disposal of the collateral by the debtor.

Question 7

Change of possession of commercial collateral from a debtor to a creditor/secured party perfects the security interest.

Question 8

A retailer of consumer goods who relies on attachment of a security interest to perfect its security interest prevails over other creditors of the debtor-buyer.

Question 9

A creditor who loans money to enable a consumer to buy goods can obtain perfection of a security interest by attaching the security interest to the goods.

Question 10

The law covering security interests in personal property is contained in _____ of the Uniform Commercial Code.

A) Article 6
B) Article 4
C) Article 3
D) Article 9

Question 11

The basic rule established by the Uniform Commercial Code is that when more than one security interest in the same collateral has been filed,the last security interest to be filed has priority over any that is filed later.

Question 12

Article 9 of the UCC defines what constitutes default.

Question 13

A security interest is not legally enforceable against a debtor until it is attached to a particular item or items of the debtor's property.

Question 14

The conflicting interest of an owner of the real property has priority over a perfected security interest in fixtures if the security interest is a purchase money security interest.

Question 15

A creditor can perfect a security interest by filing a public notice of the security interest.

Question 16

An interest in fixtures that a creditor obtains to secure performance of an obligation is called a(n):

A) ownership equity.
B) financial leverage.
C) security interest.
D) income trust.

Question 17

Documents of title include:

A) stock and bonds.
B) dock warrants and dock receipts.
C) certificates of deposit.
D) conditional sales contracts.

Question 18

Article 9 of the Uniform Commercial Code does not include general intangibles,such as copyrights and software,in its definition of personal property.

Question 19

If state law requires a certificate of title for motor vehicles,then a creditor who takes a security interest in a vehicle can rely on attachment of its security interest in the car to perfect it.

Question 20

An interest in personal property that a creditor obtains to secure payment of an obligation is a security interest.

Question 21

Milt borrowed $200 from Femi.He agreed verbally that Femi could take possession of his books and keep them until he had repaid the loan in full.The next day,after Femi had the books in her possession,Orin offered to purchase the books from Milt for $150.Milt accepted the offer and took Orin's money to retrieve the books from Femi.Femi,however,refused to give up possession of the books until she was paid in full.Both Milt and Orin now claim that Femi has no rights to the books because she does not have a signed security agreement and has not filed a financing statement.In this case,which of the following statements is true according to the Uniform Commercial Code?

A) Femi's security interest in the collection will protected only if she files a financing statement.
B) Femi's security interest is not attached in the absence of a written security agreement even though she maintained possession of the books.
C) Femi's possession of the collection satisfies the perfection requirement because it puts a third party like Orin on notice of Femi's interest in the property.
D) Femi's failure to file a public notice rejects the perfection of the agreement even though she is in possession of the collateral.

Question 22

Which of the following is true of perfecting security interests?

A) A continuation statement may be filed within a year before the five-year expiration date.
B) A financing statement is effective for a period of one year from the date of filing.
C) Filing a financing statement in the appropriate public office is one of the least used ways of perfecting a security interest.
D) Possession, a possible way of perfecting a security interest in inventory, is sometimes achieved through a field warehousing arrangement.

Question 23

A financing statement is valid:

A) for a period of five years from the date of filing.
B) till a continuation statement is filed after its expiry.
C) till the creditor is in possession of the collateral.
D) for a period of ten years from the date of filing.

Question 24

Obtaining a security interest enforceable against third parties is a:

A) two-step process consisting of attachment and priority.
B) two-step process consisting of priority and perfection.
C) three-step process consisting of priority, attachment, and perfection.
D) two-step process consisting of attachment and perfection.

Question 25

A purchase money security interest may be automatically perfected if it covers:

A) future advances.
B) inventory.
C) consumer goods.
D) proceeds.

Question 26

When the security interest is perfected and the buyer knows of its existence,a buyer in the ordinary course of business:

A) is subject to the security interest created by his seller.
B) takes the purchase free from a security interest created by his seller.
C) takes the purchase free from a security interest only if the person is buying farm products from a person engaged in a farming operation.
D) is not protected if the dealership is in default of its loan agreement.

Question 27

The most common way of perfecting a security interest is by:

A) automatic perfection.
B) filing a financing statement.
C) taking possession of the collateral.
D) mere attachment of the security interest.

Question 28

Which of the following statements is true of change of possession?

A) It is the most common way of perfecting a security interest.
B) It is the only way to perfect a security interest in money.
C) It is the most convenient way of perfecting a security interest in consumer goods.
D) It is not a practical method of perfecting security interests in commercial collateral.

Question 29

To be sufficient,a financial statement must:

A) indicate that the creditor is in possession of the collateral.
B) be effective for a period of two years from the date of filing.
C) be filed only in the state of the debtor's residence.
D) indicate the collateral covered by the financing statement.

Question 30

A continuation statement can be filed:

A) a month after the expiration date.
B) within ten months before the expiration date.
C) within three months after the expiration date.
D) within six months before the expiration date.

Question 31

A purchase money security interest in noninventory collateral prevails over a prior perfected security interest if the:

A) purchase money security interest is perfected at the time the debtor takes possession or within 20 days afterward.
B) notification states that the person expects to acquire a purchase money security interest in inventory of the debtor and describes the inventory.
C) holder of the competing security interest received notification within five years before the debtor receives the inventory.
D) purchase money secured party gives notification in writing to the prior secured creditor before the debtor receives the inventory.

Question 32

Possession of collateral by _____ is often the best way to perfect a security interest in chattel paper and negotiable documents of title.

A) the creditor
B) the debtor
C) the court
D) a third secure party

Question 33

A perfected purchase money security interest in inventory is likely to have priority over a conflicting security interest in the same inventory if the:

A) purchase money security interest is perfected three months after the debtor receives possession of the inventory.
B) purchase money secured party gives an oral notification to the prior secured creditor before the debtor receives the inventory.
C) holder of the competing security interest received notification within eight years before the debtor receives the inventory.
D) notification states that the person expects to acquire a purchase money security interest in inventory of the debtor and describes the inventory.

Question 34

Maya borrowed money from Solvent National Bank and gave the bank a security interest in her business equipment,both present and after-acquired.She later borrowed money from Resilient Savings and Loans to purchase additional business equipment.Three weeks after Maya purchased the new equipment and took possession of it,an employee of Resilient discovered the bank has filed financing statement concerning the bank's loan to Maya.Resilient immediately recorded a financing statement,so as to perfect its purchase money security interest in the equipment.Maya then defaulted on the obligation owed to the bank and on the obligation owed to Resilient.Who has the first priority security interest in the equipment purchased by Maya with the funds borrowed from Resilient Savings and Loans?

A) Solvent National Bank
B) Resilient Savings and Loans
C) Both Resilient and Solvent have equal priority
D) Both Maya and Resilient have equal priority

Question 35

Identify the statement that is true of perfection by attachment of consumer goods.

A) If the secured party filed a financing statement for the collateral, the new buyer takes the collateral free of any security interest.
B) If the goods are to become fixtures, the creditor can get full protection through perfection by attachment.
C) If the new buyer buys from the debtor without knowledge of the interest, for value, and for personal use, the new buyer takes free of the security interest.
D) If the consumer goods are motor vehicles for which the state issues certificates of title, perfection by attachment to the vehicle is effective.

Question 36

Which of the following statements is true of an artisan's lien?

A) It is ineffective against other creditors unless a proper financing statement has been filed.
B) It may be given priority even over perfected security interests in collateral if the artisan has possession of the goods.
C) It is invalid if the artisan did not inform the debtor that he intended to claim a lien before beginning the work.
D) It gives the retailer prevalence over someone who buys the collateral from the debtor if the buyer gives value for goods.

Question 37

A perfected security interest:

A) protects a creditor's security interest in collateral against other creditors of a debtor.
B) becomes effective even when a creditor does not give anything of value to a debtor.
C) gives a creditor protection against other creditors of the collateral but not against other purchasers of the collateral.
D) does not provide a creditor rights vis-à-vis a debtor.

Question 38

If the creditor has possession of the collateral,the security agreement:

A) should specify the collateral.
B) need not be in writing.
C) need not specify the collateral.
D) should be in writing.

Question 39

Under the revised Article 9 of the Uniform Commercial Code,_____.

A) a creditor cannot protect her security interest in collateral against other creditors of a debtor and other third persons
B) a security interest in an after-acquired property cannot attach to that property until the debtor obtains some property rights in the new property
C) a creditor cannot use the collateral to protect his interest in repayment of the money advanced to a debtor by covering future advances
D) the attachment of a security interest to the collateral does not automatically give a secured party a security interest in the proceeds on the disposal of the collateral by the debtor

Question 40

When a consumer debtor completely fulfills all debts and obligations secured by a financing statement,he or she is entitled to a:

A) continuation statement.
B) termination statement.
C) statement of benefits.
D) statement of claims and defenses.

Question 41

Define future advances and explain how covering future advances in the security agreement benefits the creditor.

Question 42

Under Article 9 of the Uniform Commercial Code,in what order are proceeds from the sale of collateral by the creditor to be distributed?

A) First, any expenses of repossessing the collateral are paid. Second, the proceeds are used to satisfy the debt. Third, any other junior liens are paid. Finally, if any proceeds remain, the debtor is entitled to them.
B) First, the proceeds are used to satisfy the debt. Second, junior liens are paid. Third, any expenses of repossessing the collateral are paid. Finally, if any proceeds remain, the debtor is entitled to them.
C) First, the proceeds are used to satisfy the debt. Second, any expenses of repossessing the collateral. Lastly, the debtor is entitled to remaining proceeds. Finally, if any proceeds remain, the debtor is entitled to them.
D) First, the junior liens are paid. Second, any expenses of repossessing the collateral are paid. Third, the proceeds are used to satisfy the debt. Finally, if any proceeds remain, the debtor is entitled to them.

Question 43

Which of the following statements is true of sale of collateral?

A) In disposing of the collateral, the creditor must use a commercially reasonable method to produce the greatest benefit to himself and not to the debtor.
B) The creditor must sell the collateral unless the consumer orally objects to the sale, otherwise, the creditor may keep the collateral in satisfaction of the debt.
C) If less than 80 percent of the purchase price has been paid, the creditor may propose to the debtor that the creditor keep the collateral in satisfaction of the debt.
D) If the creditor has a security interest in consumer goods and the debtor has paid 60 percent or more of the purchase price, the creditor must sell the repossessed collateral.

Question 44

Explain a creditor's three potential courses of action upon default.

Question 45

An appliance store sells a television set to Adam for $750 on a conditional sales contract,reserving a security interest in the set until Adam has paid for it.The store does not file a financing statement but relies on attachment for perfection.Adam later borrows money from a credit union and gives it a security interest in the television set neither of them perfected the security interest.Adam defaults on his loans and the credit union tries to claim the set.Under these circumstances,_____.

A) the credit union has a better claim to the set than does the appliance store
B) the appliance store cannot claim the set as they relied on attachment for perfection
C) the appliance store has a better claim to the set than the credit union
D) neither the appliance store nor the credit union can claim the set

Question 46

A perfected security interest in fixtures has priority over the conflicting interest of an encumbrancer or owner of the real property:

A) only if the debtor is in possession of the real property.
B) if the security interest is a purchase money security interest.
C) if the interest of the encumbrancer arose after the goods became fixtures.
D) if the fixtures' security interest is perfected by a "fixtures filing" anytime after the goods became fixtures.

Question 47

Explain the meaning of a purchase money security interest in consumer goods with an example.

Question 48

Explain how a security interest is created.

Question 49

If the proceeds of sale of collateral are not sufficient to satisfy the debt,then the creditor is usually entitled to a:

A) future advance.
B) deficiency judgment.
C) fixture filing.
D) warehousing arrangement.

Question 50

Denis bought a diamond ring on credit from Pavel as an engagement present for his fiancée.He signed a purchase money security agreement giving Pavel a security interest in the ring until it was paid for.Pavel did not file a financing statement covering its security interest.Denis filed for bankruptcy.The bankruptcy trustee claimed that the diamond ring was part of the bankruptcy estate because Pavel did not perfect his security interest.Pavel claimed that it had a perfected security interest in the ring.Did Pavel have to file a financing statement to perfect its security interest in the diamond ring?