Question 1

Security agreements allow for "blanket" descriptions of collateral that do not provide specific details on the specific type of collateral involved.

Accepted Answer

False

Question 2

Electronic chattel paper is a record of a right to payment or property that is stored in an electronic medium.

Accepted Answer

Electronic chattel paper is indeed a record of a right to payment or property that is stored in an electronic medium, as defined by the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN).

Question 3

A security interest is like a lien on personal property that allows the creditor to take possession of the property if the debtor defaults.

Accepted Answer

A security interest is indeed like a lien on personal property that gives the creditor the right to possess the property in case the debtor defaults on their loan or debt.

Question 4

A security agreement must be backed by a written record even if the creditor has possession of the collateral.

Accepted Answer

A security agreement does not need to be backed by a written record if the creditor has possession of the collateral, as possession itself can serve as evidence of the security interest.

Question 5

Field warehousing is an example of perfection by the mere by possession of the collateral.

Accepted Answer

Field warehousing refers to the practice of storing crops or other agricultural commodities in a warehouse that is owned or controlled by a lender, as collateral for a loan. If the borrower defaults on the loan, the lender can take possession of the stored goods and sell them to recover their losses. Thus, by possessing the collateral, the lender has a certain degree of protection against default, which can be seen as a form of perfection.

Question 6

Creditors cannot legally request collateral on a previously unsecured loan.

Accepted Answer

Creditors can legally request collateral on a previously unsecured loan if the borrower defaults on payments or violates the terms of the loan agreement. This may result in the creditor taking possession of the collateral to satisfy the outstanding debt.

Question 7

Attachment provides creditors with rights against debtors.

Accepted Answer

Attachment is a legal process that allows creditors to seize a debtor's property or assets to satisfy a debt. It gives creditors rights against debtors.

Question 8

Consumer goods are classified into different categories based on the physical characteristics of the goods.

Accepted Answer

Consumer goods are classified based on their usage and consumer buying behavior, not just their physical characteristics.

Question 9

A debtor must have rights in the collateral for a security interest to attach.

Accepted Answer

This is true. In order for a security interest to attach, the debtor must have rights in the collateral being used as security. Without these rights, there is nothing that the creditor can secure their interest with.

Question 10

A security interest needs to be perfected, regardless of whether there are competing claims for the collateral.

Accepted Answer

The answer of A security interest needs to be perfected,...

Question 11

Grund, a professional night club musician, financed the purchase of a drum set to be used in his night club act.Under Article 9, the drum set will be classified as a consumer good.

Accepted Answer

The drum set is not intended for personal, family or household purposes and is being used in a commercial setting as equipment for his business. Therefore, it would not be classified as a consumer good under Article 9.

Question 12

Collateral may change its form and character during the course of a security agreement.

Accepted Answer

Collateral may change in form, for example, from cash to securities, or in character, for example, from inventory to accounts receivable. This may happen due to various reasons like sales, replacement, or depreciation. However, such changes should be allowed and specified in the security agreement.

Question 13

An after-acquired property clause in a consumer security agreement means that a creditor has a lien in the shifting stock of goods of the debtor.

Accepted Answer

The answer of An after-acquired property clause in a consumer...

Question 14

A creditor must file a financing statement for a security interest to attach.

Accepted Answer

A security interest attaches when it becomes enforceable against the debtor with respect to the collateral, which generally requires a value to be given, the debtor to have rights in the collateral, and either the debtor's authentication of a security agreement describing the collateral or the secured party taking possession of the collateral. Filing a financing statement is related to perfection of the security interest, not its attachment.

Question 15

Property that is subject to a security interest is called collateral.

Accepted Answer

Collateral refers to property or assets that are used to secure a loan or debt and are subject to a security interest.

Question 16

A purchase money security interest in consumer goods is automatically perfected without a creditor's filing or possession of the collateral.

Accepted Answer

According to the Uniform Commercial Code (UCC), a purchase money security interest in consumer goods is automatically perfected at the time of attachment, without the need for a creditor's filing or possession of the collateral.

Question 17

Secured transactions are governed by Article 2 of the Uniform Commercial Code.

Accepted Answer

Secured transactions are governed by Article 9 of the Uniform Commercial Code. Article 2 governs the sale of goods.

Question 18

When a consumer gives a creditor a security interest in forthcoming health insurance proceeds, the creditor must file a statement with the insurance company in order to have a perfected security interest.

Accepted Answer

Perfection of a security interest in insurance proceeds typically involves filing a financing statement under Article 9 of the Uniform Commercial Code (UCC) rather than filing a statement with the insurance company. The process of perfection generally does not require direct notification to the insurance company by the creditor.

Question 19

Claim in a changing or shifting stock of the buyer's goods is known as after-acquired goods.

Accepted Answer

The answer of Claim in a changing or shifting stock...

Question 20

In a secured transaction, the person to whom the money is owed is secured party and the buyer is the debtor.

Accepted Answer

In a secured transaction, the person who lends money is the secured party and the person who borrows money is the debtor.

Quiz 33: Secured Transactions in Personal Property