Deck 43: Security Interests in Personal Property

Question 1

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.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

Under the UCC,when more than one security interest in the same collateral has been filed,the first security interest to be filed has priority over any that is filed later.

Answer 3

True

Question 4

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

Question 5

Article 9 of the UCC does not define what constitutes default.

Question 6

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 7

The law covering security interests in personal property is contained in:

A)Article 6 of the Uniform Commercial Code.
B)Article 4 of the Uniform Commercial Code.
C)Article 3 of the Uniform Commercial Code.
D)Article 9 of the Uniform Commercial Code.

Question 8

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

Question 9

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

Question 10

Under the UCC,a fixture is defined as:

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

Question 11

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 12

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

Question 13

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

Question 14

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 15

A retailer of consumer goods who relies on attachment of a security interest to perfect its security interest does not prevail over other creditors of the debtor-buyer.

Question 16

The agreement between the creditor and the debtor may authorize the creditor to repossess the collateral in case of default.

Question 17

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

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

Question 18

Documents of title include:

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

Question 19

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

Question 20

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

Question 21

Under the revised Article 9 of the Uniform Commercial Code:

A)the debtor is required to sign a security agreement to create an enforceable interest in the collateral that supports the loan obligation.
B)the security interest in the after-acquired property cannot attach to that property until the debtor obtains some property rights in the new property.
C)the creditor cannot use the collateral to protect his interest in repayment of the money advanced to the debtor by covering future advances.
D)the creditor is not allowed to file an "authenticated record" in substitution for a paper "financing statement" using e-commerce applications.

Question 22

Milt borrowed $200 from Anne.He promised to pay the money back in two weeks.As a showing of his good faith,he agreed verbally that Anne could take possession of his baseball card collection and keep it until he had repaid the loan in full.The next day,after Anne had the baseball card collection in her possession,Orin heard that Milt was in need of money.Knowing that Milt's baseball card collection could be worth a great deal of money in a few years,Orin offered to purchase the collection from Milt for $150.Milt accepted the offer,took Orin's money,and promised to retrieve the collection from Anne and deliver it to Orin the next day.Anne,however,refused to give up possession of the collection until she was paid in full.Both Milt and Orin now take the position that Anne has no rights in and to the collection because she does not have a signed security agreement and she has not filed a financing statement.Which of the following statements is true?

A)Milt and Orin are correct in their arguments.
B)Anne's security interest is not attached in the absence of a written security agreement even though she maintained possession of the baseball card collection.
C)Anne's possession of the collection satisfies the perfection requirement because it puts a third party like Orin on notice of Anne's interest in the property.
D)Anne's failure to file a public notice rejects the perfection of the agreement even though she is in possession of the collateral.

Question 23

Change of possession is:

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

Question 24

A security interest in money can be perfected:

A)by filing a financing statement.
B)by change of possession.
C)by filing a public notice.
D)by mere attachment.

Question 25

A perfected purchase money security interest in inventory has priority over a conflicting security interest in the same inventory if :

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

Question 26

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 27

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 28

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 free from a security interest created by his seller.
C)takes 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 29

An artisan's lien:

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

Question 30

To be sufficient,a financial statement:

A)must not provide any additional information concerning the property on which the collateral is located.
B)must be effective for a period of two years from the date of filing.
C)must be filed only in the state of the debtor's residence.
D)must indicate the collateral covered by the financing statement.

Question 31

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

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

Question 32

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

A)automatic perfection.
B)filing a financing statement in the appropriate public office.
C)posting private notice of the interest.
D)mere attachment of the security interest.

Question 33

A financing statement is valid for a period of:

A)five years from the date of filing.
B)one year from the date of filing.
C)two months from the date of filing.
D)five months from the date of filing.

Question 34

In a field warehousing arrangement,perfection of a security interest in inventory is accomplished by:

A)central filing.
B)local filing.
C)possession.
D)automatic perfection.

Question 35

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

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

Question 36

A "perfected" security interest:

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

Question 37

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

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

Question 38

Identify the statement that is true of perfection of 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 is effective.

Question 39

A continuation statement:

A)can be filed a month before the expiration date.
B)can be filed within five months before the expiration date.
C)can be filed within three months before the expiration date.
D)can be filed within six months before the expiration date.

Question 40

Nellie 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 Loan to purchase additional business equipment.Three weeks after Nellie purchased the new equipment and took possession of it,an employee of Resilient discovered the bank's filed financing statement concerning the bank's loan to Nellie.Resilient immediately recorded a financing statement,so as to perfect its purchase money security interest in the equipment.Nellie 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 Nellie with the funds borrowed from Resilient?

A)Solvent National Bank
B)Resilient Savings and Loan
C)Both Resilient and Solvent have equal priority
D)Both Nellie and Resilient have equal priority

Question 41

Explain how a security interest is created.

Question 42

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 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 for himself.
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% 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% or more of the purchase price,the creditor must sell the repossessed collateral.

Question 44

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

Question 46

Under Article 9 of the UCC,in which 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 47

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

Question 48

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

Question 49

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

Question 50

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