Question 1

A buyer in the ordinary course of business:

Accepted Answer

A buyer in the ordinary course of business (other than a person buying farm products from a person engaged in farming operations)takes free from a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence [UCC 9-320(a)].

Question 2

Which of the following statements is true regarding a secured creditor's disposition of the collateral after the debtor's default?

Accepted Answer

If the debtor defaults,the secured creditor may forget the collateral,and sue the debtor on his note or promise to pay.

Question 3

Which of the following corresponds to the priority rule for purchase money security interests in inventory?

Accepted Answer

One of the requirements for a perfected purchase money security interest in inventory to have priority over a conflicting security interest in the same inventory is that it is perfected at the time the debtor receives possession of the inventory.

Question 4

Generally,a buyer in the ordinary course of business can take property free from any security interest.Which of the following buyers is an exception?

Accepted Answer

A buyer in the ordinary course of business (other than a person buying farm products from a person engaged in farming operations)takes free from a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence [UCC 9-320(a)].

Question 5

Mark filed a financing statement on Daniel's collateral on March 2.However,attachment of this interest did not occur until March 4.Meanwhile,Charles,who had attached a security interest on the same collateral on March 1,filed a financing statement on March 3.Which interest has priority and why?

Accepted Answer

The basic rule established by the Code is that when more than one security interest in the same collateral has been filed (or otherwise perfected),the first security interest to be filed (or perfected)has priority over any that is filed (or perfected)later [UCC 9-322(a) (1)].However,if none of the conflicting security interests has been perfected,then the first security interest to be attached to the collateral has priority [UCC 9-322(a) (3)].

Question 6

A perfected purchase money security interest in a manufacturer's stock has priority over a conflicting security interest in the same stock if the notification states that the person expects to acquire a purchase money security interest in stock of the debtor and describes the stock.Which of the following priority rules does this statement correspond to?

Accepted Answer

One of the requirements for a perfected purchase money security interest in inventory to have priority over a conflicting security interest in the same inventory is that the notification states that the person expects to acquire a purchase money security interest in inventory of the debtor and describes the inventory [UCC 9-324(b)].

Question 7

With regard to a prior perfected security interest in goods for which a financing statement has been filed,which of the following parties is most likely to have a superior interest in the same collateral?

Accepted Answer

A buyer in the ordinary course of business (other than a person buying farm products from a person engaged in farming operations)takes free from a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence [UCC 9-320(a)].

Question 8

Which section of the UCC defines what constitutes default in a secure transaction?

Accepted Answer

The UCC does not define what constitutes default.Usually,the creditor and the debtor state in their agreement what events constitute a default by the buyer.

Question 9

In which of the following cases will perfection by attachment not be effective?

Accepted Answer

Perfection by attachment is not effective if the consumer goods are motor vehicles for which the state issues certificates of title and has only limited effectiveness if the goods are fixtures [UCC 9-303].

Question 10

Which of the following is the only form of perfection that occurs without the giving of public notice?

Accepted Answer

Perfection by mere attachment of the security interest,sometimes known as automatic perfection,is the only form of perfection that occurs without the giving of public notice.It occurs automatically when all the requirements of attachment are complete.

Question 11

A retailer of consumer goods who relies on attachment of a security interest to perfect it does not prevail over a bona fide purchaser:

Accepted Answer

The retailer does not prevail over someone who buys the collateral from the debtor if the buyer (1)has no knowledge of the security interest; (2)gives value for the goods;and (3)buys the goods for his personal,family,or household use [UCC 9-320(b)].

Question 12

Acorn Marina Inc.sells and services boat motors.On April 1,1989,Acorn financed the purchase of its entire inventory with GAC Finance Company.GAC required Acorn to execute a security agreement and financing statement covering the inventory and proceeds of sale.On April 14,1989,GAC filed the financing statement pursuant to the UCC.On April 27,1989,Acorn sold one of the motors to Mike for use in his charter business.Mike,who had once worked for Acorn,knew that Acorn regularly financed its inventory with GAC.Acorn has defaulted on its obligations to GAC.The motor purchased by Mike is:

Accepted Answer

A buyer in the ordinary course of business (other than a person buying farm products from a person engaged in farming operations)takes free from a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence [UCC 9-320(a)].

Question 13

Smith Auto Sales has a secured loan on its inventory through Northshore Credit Union,which Northshore filed in February.In March,Smith Auto Sales has another secured loan on its inventory from GMAC credit.GMAC files its security interest in May.Which creditor will have priority in the event of a default by Smith Auto Sales?

Accepted Answer

According to UCC 9-322(a) (1),the basic rule is that when more than one security interest in the same collateral has been filed or perfected then priority is established by who filed first.

Question 14

Which of the following is a means of obtaining control over the collateral?

Accepted Answer

A secured party can provide a form of public notice by controlling the collateral [UCC 9-314].Control is the only perfection method if the collateral is a deposit account [UCC 9-312(b) (1)].One of the ways a secured party obtains control is by becoming the bank's customer for the deposit account.

Question 15

Carter sold a $20,000 boat to Davis on credit for personal use.As part of the deal,Davis completed an installment note payable to Carter and a security agreement giving Carter a security interest in the boat,which was attached on July 1.Carter never filed a financing statement.On August 1,Davis borrowed $15,000 from Bank,by completing a security agreement giving the Bank a security interest in the boat.This interest attached on the same day and the Bank filed a financing statement on August 6.Davis defaulted on both his installment payments to Carter and his loan obligation to the Bank.Each of these parties wants to satisfy Davis's obligation by repossessing and selling the boat.Whose security interest in the boat has priority and why?

Accepted Answer

The basic rule established by the Code is that when more than one security interest in the same collateral has been filed (or otherwise perfected),the first security interest to be filed (or perfected)has priority over any that is filed (or perfected)later [UCC 9-322(a) (1)].However,if none of the conflicting security interests has been perfected,then the first security interest to be attached to the collateral has priority [UCC 9-322(a) (3)].

Question 16

Which section of the UCC governs the prioritization of competing security interests in collateral for secured loans?

Accepted Answer

UCC section 9-322 governs how to establish priority when there are competing security interests in the same collateral.

Question 17

Which of the following is true about perfection of fixtures?

Accepted Answer

A creditor with a security interest in consumer goods (including consumer goods that will become fixtures)obtains perfection merely by attachment of her security interest to a consumer good.

Question 18

A typewriter,which was subject to a prior UCC security interest,was delivered to Ed Fogel for repair.Fogel,who is engaged in the business of repairing typewriters,repaired the typewriter.However,the owner of the typewriter now refuses to pay for the services performed by Fogel.The state in which Fogel operates his business has a statute,which gives Fogel a mechanic's lien on the typewriter.Fogel's mechanic's lien:

Accepted Answer

The Code provides that certain liens arising by operation of law (such as an artisan's lien)have priority over a perfected security interest in the collateral [UCC 9-333].

Question 19

Cutco Lawn Products Manufacturing Company sells 100 riding lawn mowers to the Smith Hardware Company,a retailer in the same industry.Smith pays for the mowers with a $50,000 loan from the Bass Bank.The Bank takes a security interest in the mowers to secure payment of the loan,and perfects it by filing.Later,Smith sells one of the mowers to Carl,a consumer,who buys in good faith and in the ordinary course of Smith's business.However,Carl knows that the Bank has a security interest in the mowers.Smith defaults on its loan payments,and the Bank moves to repossess all the mowers.Can it repossess the mower sold to Carl?

Accepted Answer

A buyer in the ordinary course of business (other than a person buying farm products from a person engaged in farming operations)takes free from a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence [UCC 9-320(a)].

Question 20

For which of the following is the filing of a financing statement necessary for perfection to occur?

Accepted Answer

Filing a financing statement is the only way to perfect a security interest in accounts receivable and general intangibles.

Quiz 29: Security Interests in Personal Property

A buyer in the ordinary course of business:

Which of the following statements is true regarding a secured creditor's disposition of the collateral after the debtor's default?

Which of the following corresponds to the priority rule for purchase money security interests in inventory?

Generally,a buyer in the ordinary course of business can take property free from any security interest.Which of the following buyers is an exception?

Mark filed a financing statement on Daniel's collateral on March 2.However,attachment of this interest did not occur until March 4.Meanwhile,Charles,who had attached a security interest on the same collateral on March 1,filed a financing statement on March 3.Which interest has priority and why?

With regard to a prior perfected security interest in goods for which a financing statement has been filed,which of the following parties is most likely to have a superior interest in the same collateral?

Which section of the UCC defines what constitutes default in a secure transaction?

In which of the following cases will perfection by attachment not be effective?

Which of the following is the only form of perfection that occurs without the giving of public notice?

A retailer of consumer goods who relies on attachment of a security interest to perfect it does not prevail over a bona fide purchaser:

Which of the following is a means of obtaining control over the collateral?

Which section of the UCC governs the prioritization of competing security interests in collateral for secured loans?

Which of the following is true about perfection of fixtures?

For which of the following is the filing of a financing statement necessary for perfection to occur?