Deck 29: A: Secured Transactions

Question 1

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

Answer 1

False

Question 2

The rights and remedies of secured parties are not cumulative-if a creditor is unsuccessful in enforcing rights by one method,he or she cannot pursue another method.

Answer 2

False

Question 3

A debtor's signature or authentication is required to create a security interest.

Answer 3

True

Question 4

A security agreement is an agreement that creates or provides for a security interest.

Question 5

Perfection is usually accomplished by filing a financing statement.

Question 6

Certificate-of-title statutes establish perfection requirements for security interest in certain types of goods.

Question 7

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

Question 8

A security interest in collateral does not give the secured party a security interest in the proceeds acquired from the sale of that collateral.

Question 9

When the debtor has fully paid the debt,if the secured party perfected the security interest by filing,the debtor is entitled to a termination statement.

Question 10

On default,a secured party who chooses not to retain the collateral must dispose of it in a commercially reasonable manner.

Question 11

A security agreement can be filed to perfect a security interest.

Question 12

If two conflicting security interests are unperfected,neither interest has priority.

Question 13

In most states,a financing statement must be filed centrally in the appropriate state office.

Question 14

A secured party can release any col?lateral described in the financing statement,thereby terminating its security interest in that collateral.

Question 15

A floating lien "floats" with an item of property,such as a specific piece of inventory,as its ownership transfers from seller to buyer.

Question 16

A buyer in the ordinary course of business takes the goods free from any security interest created by the seller unless the buyer knows of its existence.

Question 17

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

Question 18

The perfection of a security interest will always protect a secured party against other third parties having claims to the collateral.

Question 19

Proceeds from the disposition of collateral after default on the underlying debt are distributed equally among lienholders who have made demands.

Question 20

Where or how to perfect a security interest sometimes depends on the classification of collateral.

Question 21

The payment of Lewellyn's debt to Miklos is guaranteed by Lewellyn's personal property.Miklos is most likely to perfect his interest by

A)insuring Lewellyn's property for the full amount of its value.
B)calculating the precise amount of Lewellyn's debt.
C)correcting grammatical errors in the parties' written agreement.
D)filing a financing statement with the appropriate authority.

Question 22

Fact Pattern 29-1B
Call's Farm & Ranch Supply,Inc. ,uses its inventory as collat?eral for a loan from Deland County Bank.The bank files a financing statement with the secretary of state in the state in which Call's was chartered.One year later,Call's changes its name to Big C's,Inc.
Refer to Fact Pattern 29-1B.Deland County Bank's perfection will remain effec?tive for

A)four months after the date of the name change.
B)five business days after the date of the name change.
C)six years after the date of the original filing.
D)no time.

Question 23

Fact Pattern 29-2B
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 both loans.
Refer to Fact Pattern 29-2B.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 24

Darling is the secured party in a secured transaction with Elmo.In this transaction,Darling

A)has a security interest.
B)owes payment.
C)owes performance.
D)owns collateral.

Question 25

Kettlecorn Investments,Inc. ,and Lone Tree Bank are secured parties with security interests in property owned by Metal Fabrication 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 or attachment.
D)the "float" of the liens.

Question 26

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 27

Reliable Bank's financing statement in collateral owned by Sunsource Energy Corporation will expire in less than a year.With the filing of subsequent continuation statements,the effectiveness of the bank's statement can be continued

A)indefinitely.
B)for no longer than five years.
C)for no more than six months.
D)up to five years and six months.

Question 28

Fact Pattern 29-2B
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 both loans.
Refer to Fact Pattern 29-2B.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 29

Sterling Bank wants to perfect its security interest in timber owned by Ridgeline Lumber,Inc.Most likely,a financing statement should be filed with

A)the local chamber of commerce.
B)the county clerk.
C)a federal loan officer.
D)the secretary of state's office.

Question 30

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 31

Rollo's Super Store sells goods to consumers and businesses in a rural county in the Midwest.Most of the goods are sold on credit.Rollo's often takes a security interest with the goods as collateral.Classification of the collateral determines

A)when or how to perfect a security interest.
B)the terms of a sale.
C)the effective time duration of credit.
D)the general rules of priority.

Question 32

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 33

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 34

Gravel & Sand,Inc. ,buys a backhoe on credit from Heavy Equipment Corporation,but does not make a payment on the loan for sev?eral months.Heavy repossesses the backhoe by towing it from a pub?lic street.Green sues Heavy for breach of the peace.Gravel & Sand 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 Gravel & Sand did not default on the loan.
D)prevail,because the repossession was a breach of the peace.

Question 35

Quantum Financial Corporation is a secured party with a security interest in property owned by Revolving Sales Company.Perfection of this security in?ter?est may not protect Quantum 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 36

Everyday Loans,Inc. ,issues a line of credit in Glade Electronics Corporation under a security agreement.Later,Glade buys new HD TVs to add to its inventory.Everyday has a security interest in the new inventory

A)if the security agreement included an after-acquired property clause.
B)if Everyday has not yet filed a financing statement.
C)if Glade bought the inventory with Everyday funds.
D)under no circumstances.

Question 37

Comfort Furniture Store sells household consumer goods.To create a pur?chase-money security interest,Comfort 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 38

Roni,a debtor,wants to confirm the amount of her outstanding secured debt with Swifty Loan Corpora?tion.Roni can ask Swifty to confirm her view of the debt,without charge,every

A)month.
B)six months.
C)year.
D)five years.

Question 39

The payment of Dylan's debt to Ezra is guaranteed by Dylan's personal property.This is governed by

A)the Uniform Commercial Code.
B)the Federal Trade Commission.
C)the U.S.Constitution's commerce clause.
D)the U.S.Chamber of Commerce.

Question 40

Fact Pattern 29-1B
Call's Farm & Ranch Supply,Inc. ,uses its inventory as collat?eral for a loan from Deland County Bank.The bank files a financing statement with the secretary of state in the state in which Call's was chartered.One year later,Call's changes its name to Big C's,Inc.
Refer to Fact Pattern 29-1B.To continue the effectiveness of its perfected interest,Deland County Bank must file

A)a continuation statement after the original filing expires.
B)an amendment to the financing statement before the period expires.
C)a new financing statement immediately.
D)a notice of repossession with all interested creditors.

Question 41

Delgado is a retail seller of television sets.He sells a 3D HD TV set to Cummings.Cummings cannot pay cash,so she signs a security agreement,paying a certain amount down and agreeing to pay the balance in twelve equal installments.The security agreement gives Delgado a security interest in the set.Cummings makes six payments on time then goes into default because of unexpected financial problems.Delgado repossesses the set.Can he keep it in full satisfaction of the debt? Explain.

Question 42

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?