Question 1

Middling Credit Corporation asks Little Supply Company to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired prop?erty. This is
A) a first-in-time rule.
B) a floating lien.
C) a funds guaranty.
D) in violation of secured transactions law.

Accepted Answer

A security agreement that provides coverage for proceeds from the sale of after-acquired property is a floating lien. This type of lien allows the creditor to secure liens on both existing property and future property to ensure repayment of a debt.

Question 2

Sara needs $1,500 to buy textbooks and other school supplies. Tomas agrees to loan Sara $1,500, accepting as collateral Sara's car. They put their agreement in writing and sign it. Sara keeps possession of the car. Does Tomas have an enforceable security interest? How can Tomas let other creditors know of his interest in the car?

Accepted Answer

The answer of Sara needs $1,500 to buy textbooks and...

Question 3

Fact Pattern 20-1
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 the loans.
-Refer to Fact Pattern 20-1. Suppose that two weeks after GLC takes pos?session of the equipment, Helpful and Interstate file financing state?ments, 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.

Accepted Answer

When two parties have competing security interests in the same collateral, the party that first files a valid financing statement has priority. In this case, since Interstate filed first, they have priority to the equipment over Helpful. Therefore, the answer is D) Interstate only.

Question 4

Efrem owns Fans & Players, a retail sporting goods shop. When Great Hill Lodge, a new ski resort, is built in the area, Efrem decides to expand and borrows a large sum from Hometown Bank. The bank takes a secu?rity interest in Efrem's present inventory and any after-acquired inven?tory as collateral for the loan. The bank properly perfects the security in?terest by filing a financing statement. Efrem's business is profitable, and he begins doubling his inventory. A year later, an avalanche destroys the ski slope and lodge. Efrem's business takes a turn for the worse, and he defaults on his debt to the bank. The bank seeks possession of his en?tire inventory, even though the inventory is twice as large as it was when the loan was made. Efrem claims that the bank has rights to only half of his inventory. Is Efrem correct? Explain.

Accepted Answer

The answer of Efrem owns Fans & Players, a retail...

Question 5

Lena borrows from Mac and Nicol, using the same farm equipment as 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
A) Lena.
B) Mac and Nicol, in proportion to Lena's debt to each.
C) Mac only.
D) Nicol only.

Accepted Answer

Nicol has first rights to the collateral because they have a perfected security interest. This means they have filed a legally binding document that establishes their priority position in any claims for the collateral in the event of default. Mac can still claim a portion of the collateral based on Lena's debt to them, but Nicol has priority. Lena does not have rights to the collateral as she used it as collateral for the loans.

Question 6

Fact Pattern 20-1
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 the loans.
-Refer to Fact Pattern 20-1. 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.

Accepted Answer

Since Helpful has a perfected security interest, they have priority over Interstate Bank under the first-to-file rule. Therefore, Helpful would be the party with priority to the collateral on GLC's default.

Question 7

Quotient Financial Corporation is a secured party with a security inter?est in property owned by Retail Sales Company. Perfection of this secu?rity in?ter?est may not protect Quotient Financial 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.

Accepted Answer

The answer of Quotient Financial Corporation is a secured party...

Question 8

Idle Investments, Inc., and Harbor Bank are secured parties with secu?rity interests in property owned by GR8 Manufacturing 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.
D) the time the security agreement was signed.

Accepted Answer

Priority between security interests is generally determined by the time of perfection, which is when the secured party has taken all necessary steps, such as filing a financing statement, to protect its interest in the collateral. The first party to perfect its security interest generally has priority over subsequent parties.

Question 9

Sweetwater Café defaults on debts to Town & Country Bank and Uno Loan Company. Town & Country perfected its security interest before Uno. Town & Country takes possession of the collateral in which it has a security interest. On a sale of the collat?eral, the proceeds will be applied first to
A) Sweetwater's previous payments on the debts.
B) Sweetwater's unpaid payments on the debts.
C) the balance of Sweetwater's debt to Town & Country.
D) the balance of Sweetwater's debt to Uno.

Accepted Answer

When a creditor with a perfected security interest takes possession of the collateral, they have priority over other creditors who have not perfected their security interest. The proceeds from the sale of the collateral must first be applied to the balance of Sweetwater's debt to Town & Country before any other creditors can receive payment. Therefore, the answer is C.

Question 10

Elias repays his debt, incurred to buy consumer goods, to Fidelity Bank and immediately files a written request for a termination state?ment. Fidelity
A) must comply within one month of receipt of the letter.
B) must comply within twenty days of receipt of the letter.
C) must refund $500 to Elias.
D) need not comply.

Accepted Answer

According to the Truth in Lending Act, Fidelity Bank must comply with Elias's request for a termination statement within 20 days of receiving the request. (Option A is incorrect as it states one month, which is not accurate.) The repayment of the debt and the request for a termination statement do not involve a refund, so options C and D are incorrect.

Question 11

Hal's Hardware store defaults on a debt to Intrastate Bank, which takes possession of the collateral securing the debt. Intrastate sells the collat?eral. The proceeds from the sale are applied first to
A) Hal's debt to Intrastate.
B) Hal's debts to other creditors.
C) Intrastate's fees for the sale.
D) payments Hal's made on the debt to Intrastate.

Accepted Answer

The answer of Hal's Hardware store defaults on a debt...

Question 12

Pete borrows $5,000 from Willy in a secured transaction using Pete's BMW as collateral. Pete then borrows $7,000 from Janet using the same car as collateral. Neither Willy nor Janet perfects their security interests. Pete defaults on the loans. The party with priority is
A) Willy, because his interest was the first to attach.
B) Janet, because Pete owes her more money.
C) Janet, because her interest was the second to attach.
D) Willy, because Pete owes him less money.

Accepted Answer

Willy has priority because his security interest attached first. Even though Janet loaned more money, her interest came later and therefore is subordinate to Willy's interest. The fact that neither party perfected their interest is irrelevant in this situation.

Quiz 23: Security Interests in Personal Property

Middling Credit Corporation asks Little Supply Company to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired prop?erty. This is

Lena borrows from Mac and Nicol, using the same farm equipment as 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

Quotient Financial Corporation is a secured party with a security inter?est in property owned by Retail Sales Company. Perfection of this secu?rity in?ter?est may not protect Quotient Financial against the claim of

Idle Investments, Inc., and Harbor Bank are secured parties with secu?rity interests in property owned by GR8 Manufacturing Corporation. Priority between these security interests is generally determined by

Sweetwater Café defaults on debts to Town & Country Bank and Uno Loan Company. Town & Country perfected its security interest before Uno. Town & Country takes possession of the collateral in which it has a security interest. On a sale of the collat?eral, the proceeds will be applied first to

Elias repays his debt, incurred to buy consumer goods, to Fidelity Bank and immediately files a written request for a termination state?ment. Fidelity

Hal's Hardware store defaults on a debt to Intrastate Bank, which takes possession of the collateral securing the debt. Intrastate sells the collat?eral. The proceeds from the sale are applied first to

Pete borrows $5,000 from Willy in a secured transaction using Pete's BMW as collateral. Pete then borrows $7,000 from Janet using the same car as collateral. Neither Willy nor Janet perfects their security interests. Pete defaults on the loans. The party with priority is