Question 1

Lena borrows from Mac and Nicol, using the same collateral for both loans. Only Nicol has a perfected security interest. Lena defaults on both loans. The party with first rights to the collateral is

Accepted Answer

Nicol has a perfected security interest, which means that they have priority over Mac in the event of a default by Lena. Therefore, Nicol would have the first rights to the collateral. Mac would have the right to any proceeds from the sale of the collateral in proportion to Lena's debt to them, but they would not have the first rights to it. Lena, as the borrower, does not have any rights to the collateral once she defaults on the loans.

Question 2

The payment of Jose's debt to Klint is guaranteed by Jose's personal property. The process by which Klint can protect himself against the claims of third parties to this property is

Accepted Answer

The process by which Klint can protect himself against the claims of third parties to Jose's personal property is perfection. Perfection refers to the process of establishing a security interest in the property, such as by recording a lien or filing a financing statement, which gives notice to third parties of Klint's interest in the property. This helps protect Klint's rights to the property if there are competing claims from other creditors or if Jose defaults on the debt. Attachment refers to the legal process of seizing property to satisfy a debt, while communication and search and seizure are not relevant to this scenario.

Question 3

The payment of Eden's debt to Flem is guaranteed by Eden's personal property. This property is

Accepted Answer

Eden's personal property serves as collateral to guarantee payment of the debt to Flem. Therefore, it is best described as collateral. Choice A refers to a person or entity that holds a security interest, choice B refers to the entire process of creating a security interest, and choice C refers specifically to the interest held by the secured party in the collateral.

Question 4

Fact Pattern 29-1A 
Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.
-Refer to Fact Pattern 29-1A. Holly, a professional driver, buys an Excel from Fine to drive in a Grand Prix race. Holly's Excel is

Accepted Answer

Since Holly is a professional driver and she bought the Excel to drive in a Grand Prix race, it can be classified as equipment.

Question 5

The payment of John's debt to Kirsten is guaranteed by John's personal property. Kirsten is most likely to perfect her interest by

Accepted Answer

The best choice to perfect Kirsten's interest in John's personal property is by filing a financing statement with the appropriate authority. This puts any potential future creditors or purchasers on notice that Kirsten has a security interest in the property and that they would need to satisfy that interest before they could claim any ownership rights. Attaching a bright label or calculating the precise amount of debt do not provide any legal protection or notice to others, and correcting grammatical errors does not affect the substance of the agreement.

Question 6

The payment of Brian's debt to Chuck is guaranteed by Brian's personal property. This is

Accepted Answer

A secured transaction occurs when a borrower pledges collateral to a lender as security for a debt. Brian's personal property serves as collateral, which means it is pledged as security for his debt to Chuck. Therefore, this scenario represents a secured transaction. Reorganization and suretyship agreement are not applicable here, and the fourth option about violation of most state laws is incorrect.

Question 7

The payment of Hu's debt to Ian is guaranteed by Hu's personal prop?erty. To give public notice of his interest in Hu's property, Ian is most likely to

Accepted Answer

To give public notice of his interest in Hu's property and have priority over other potential creditors, Ian should file a financing statement with the appropriate authority. This puts other creditors on notice that Ian has a claim on the property, and ensures that he will be paid before any subsequent creditors in the event that Hu defaults on his debt. Attaching a label or publishing a collection notice may not be sufficient or legally valid, and e-mailing other potential creditors is not an appropriate method for giving public notice.

Question 8

Fact Pattern 29-1A 
Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.
-Refer to Fact Pattern 29-1A. A car in Fine's possession is probably

Accepted Answer

Since Fine Auto Sales sells cars to consumers and businesses, the car in Fine's possession is likely inventory - goods held for sale in the ordinary course of business.

Question 9

Best Credit Corporation lends funds to Cody, a consumer, to apply to the cost of a sport utility vehicle (SUV), which is the collateral for the loan. An enforceable security interest requires

Accepted Answer

An enforceable security interest in collateral, such as the SUV in this case, can be created by either a written agreement or by Best's possession of the SUV. However, either requirement alone is not enough for an enforceable security interest. Therefore, choice B, which includes both options, is the best choice.

Question 10

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

Accepted Answer

A statement of the purpose for the transaction is not a requirement for a valid financing statement. However, the financing statement must contain Rich's name (the secured party) and Standard's name (the debtor), as well as a description of the collateral.

Question 11

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

Accepted Answer

Olaf is a creditor and in a transaction with Phil, Olaf's rights will attach once certain requirements are met. This means Olaf will have an enforceable security interest in Phil's property, which gives him the right to seize the property if Phil doesn't fulfill the requirements of the transaction. Olaf does not have an indivisible ownership right to Phil's property, nor does he need permission from a court to seize Phil's property. A notice affixed to Phil's property may be an indication of Olaf's security interest, but it does not grant Olaf any legal rights.

Question 12

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

Accepted Answer

The answer of Region Bank wants to perfect its security...

Question 13

Fact Pattern 29-1A 
Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.
-Refer to Fact Pattern 29-1A. Ira, a police officer, buys an Excel from Fine to drive in his off-duty hours. Ira's Excel is

Accepted Answer

Ira's Excel is a consumer good because it is being purchased for personal use and not for resale or business purposes.

Question 14

Quality Appliance Company allows Reba to take a set of kitchen appli?ances that she bought from Quality even though she has not paid the full price. Quality's legally sufficient financing statement in the goods need not include

Accepted Answer

A financing statement needs to include a description of the collateral, Quality's name as the secured party, and Reba's name as the debtor. However, it does not need to include a statement of the reason for allowing Reba to take the goods.

Question 15

The payment of Frida's debt to Gianini is guaranteed by Frida's personal property. Gianini is

Accepted Answer

Gianini is considered a secured party because they have a security interest in Frida's personal property as collateral for the debt owed.

Question 16

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

Accepted Answer

As the secured party, Dag has a security interest in the collateral owned by Elmo. This means that Dag has the legal right to repossess the collateral if Elmo does not meet the terms of the agreement.

Question 17

Fact Pattern 29-1B 
Tech Support Corporation uses its office equipment as collat?eral for a loan from United Bank. The bank files a financing statement with the secretary of state in the state in which Tech Support was chartered. One year later, Tech Support changes its name to Vector, Inc.
-Refer to Fact Pattern 29-1B. United Bank's perfection will remain effec?tive for

Accepted Answer

United Bank's perfection will remain effective for four months after the date of the name change, during which time the bank must amend the financing statement to reflect the new name.

Question 18

The payment of Nero's debt to Olly is guaranteed by Nero's personal property. Nero is located in Pennsylvania. Olly communicates to the appropriate state official a security agreement that uses only Quality Engineering, the trade name of Nero's business. To perfect Olly's interest, this is

Accepted Answer

A security interest in personal property must be attached, meaning the security agreement is authenticated by both parties, value is given, and the debtor has rights in the collateral. It must also be perfected. In this case, Olly's security agreement using only Quality Engineering, the trade name of Nero's business, is not sufficient to perfect Olly's interest. This is because a trade name cannot be used as collateral for a security interest, and the appropriate state official has not been notified of the security interest. Therefore, Olly would need to use Nero's personal property as collateral and comply with Pennsylvania's specific procedures for perfecting a security interest in personal property.

Question 19

Fact Pattern 29-1B 
Tech Support Corporation uses its office equipment as collat?eral for a loan from United Bank. The bank files a financing statement with the secretary of state in the state in which Tech Support was chartered. One year later, Tech Support changes its name to Vector, Inc.
-Refer to Fact Pattern 29-1B. To continue the effectiveness of its perfected interest, United Bank must file

Accepted Answer

United Bank must file an amendment to the financing statement before the period expires to reflect the debtor's name change and maintain the effectiveness of its perfected interest.

Question 20

The payment of Mo's debt to Neil is guaranteed by Mo's personal property. This is

Accepted Answer

The guarantee of a debt by personal property falls under the scope of secured transactions, which are governed by Article 9 of the UCC.

Quiz 29: Secured Transactions