Question 1

Fact Pattern 20-1 (Questions 5-7 apply)
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 20-1.Ira,a police officer,buys an Excel from Fine to drive in his off-duty hours.Ira's Excel is

Accepted Answer

Since Ira purchased the Excel for personal use and not for resale, it is considered a consumer good.

Question 2

Each of the following owns a Cut-Rite brand food processor: Diner's Res?taurant;Eve,a consumer;Frank,a cooking-school student;and Great Deals,a discount store.As collateral,the processor that would be classi?fied as inventory is owned by

Accepted Answer

Great Deals is a discount store, hence they would classify the Cut-Rite brand food processor as inventory.

Question 3

Agricultural Investments,Inc. ,files a financing statement to provide no?tice of its security interest in the property of Bay Farms.The initial ef?fec?tive term of a financing statement is a period of

Accepted Answer

The initial effective term of a financing statement is five years, as per the Uniform Commercial Code (UCC). After the initial term, it can be continued by filing a continuation statement.

Question 4

Dependable Credit Corporation asks Elevator 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

Accepted Answer

A floating lien allows for collateral to be added to a security agreement after it has been established, which includes the proceeds from the sale of after-acquired property. A first-in,first-out rule pertains to inventory management, a funds guaranty pertains to the guarantee of funds from a specific source, and a future advance pertains to a loan agreement where funds will be advanced at a later date.

Question 5

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

Accepted Answer

A buyer in the ordinary course of business generally takes goods free of a security interest created by the seller, even if the security interest is perfected.

Question 6

Credit Extender,Inc.(CE),a creditor,wants to perfect its interest in property owned by Dandy Goods,Inc.(DG).Filing a financing statement

Accepted Answer

Filing a financing statement gives notice to other creditors of CE's security interest, which is important in case of DG's bankruptcy or any other legal dispute related to the property. This way, CE can establish priority over other creditors in claiming the proceeds from the sale of the property. It does not transfer the property into CE's possession or reduce CE's status as a secured creditor.

Question 7

Rich Financial,Inc. ,files a financing statement regarding a transaction with Standard Business Company.To be valid,the financing statement must contain all of the following except

Accepted Answer

While the financing statement may include a statement of the purpose for the transaction, it is not a requirement for validity. The essential information required for a valid financing statement includes a description of the collateral, Rich's name, and Standard's name.

Question 8

Mona lives in New Jersey,but she works in New York.Mona borrows $1,000 from National Bank,using her motorcycle as collateral.To perfect its security in?terest,the bank must file its financing statement in at least

Accepted Answer

The answer of Mona lives in New Jersey,but she works...

Question 9

Show-Me Display Company,a creditor,agrees to sell display cases to Total Retail,Inc.(TRI).TRI agrees to make monthly payments on the cases,which serves as collateral for the debt until the balance is paid.To protect its claim in the collateral,Show-Me should

Accepted Answer

Filing a financing statement with the appropriate state or local official is the best choice because it puts other potential creditors on notice of Show-Me's claim to the collateral. This protects Show-Me's interest in the collateral and helps ensure that it will be paid if TRI defaults on the payments. The other choices are not necessary or effective in protecting Show-Me's claim.

Question 10

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

Accepted Answer

A purchase-money security interest (PMSI) is created when a seller extends credit to the buyer for part or all of the purchase price of the goods being sold.

Question 11

Regional Bank wants to perfect its security interest in timber owned by Standing Timber,Inc.Most likely,a financing statement should be filed with

Accepted Answer

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

Question 12

Extenda Loan,Inc. ,takes possession of Flo's stock in Gem Corporation to perfect Extenda's security interest in the stock.This is

Accepted Answer

Taking possession of Flo's stock in Gem Corporation is a pledge, which is a type of security interest where the debtor (Flo) gives possession of the collateral (the stock) to the creditor (Extenda Loan, Inc.) in order to secure a debt.

Question 13

Fact Pattern 20-2 
Technical 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 Technical Support was chartered.One year later,Technical Support changes its name to Vector,Inc.
-Refer to Fact Pattern 20-2.United Bank's perfection will remain effec?tive for

Accepted Answer

United Bank's perfection will remain effective for five years from the date of the original filing. A financing statement remains effective for five years after the filing date, regardless of any changes to the debtor's name or location.

Question 14

County Bank wants to perfect its security interest in collateral owned by Delta Sales Company.Most likely,a financing statement should be filed with

Accepted Answer

The secretary of state's office is typically responsible for maintaining records related to secured transactions and therefore is the most appropriate place to file a financing statement to perfect a security interest in collateral.

Question 15

First Federal Bank wants to perfect its security interest in the property of Global Services Company.The most common method of perfecting a se?curity interest is for

Accepted Answer

Filing a financing statement in a public office is the most common and widely recognized method of perfecting a security interest. This statement puts third parties on notice of the creditor's interest in the property and establishes priority among other creditors. Retaining possession of collateral (B) is less common and may not be practical or feasible for certain types of property. Giving value (C) is a requirement for creating a security interest but does not automatically perfect it. While some security interests may attach automatically (D), they still need to be perfected through filing a financing statement in order to establish priority.

Question 16

Pure Capital Corporation wants to perfect a security interest in a nego?tia?ble instrument owned by Quality Securities,Inc. ,and payable to Right Investment Company.This can be accomplished by

Accepted Answer

The best way for Pure Capital Corporation to perfect a security interest in a negotiable instrument owned by Quality Securities, Inc., and payable to Right Investment Company is to take possession of the instrument itself. This is because negotiable instruments, such as checks or promissory notes, are considered "cash equivalents," and possession of the instrument is the most reliable and secure way to ensure that the party claiming an interest in the instrument actually has ownership and control over it. Filing a financing statement or notifying a federal officer may be appropriate for other types of personal property or security interests, but they are not typically used for negotiable instruments. Contacting the party to whom the instrument is payable may be informative, but it does not provide any legal protection or enforceability for a security interest.

Question 17

Fact Pattern 20-1 (Questions 5-7 apply)
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 20-1.Holly,a professional driver,buys an Excel from Fine to drive in a Grand Prix race.Holly's Excel is

Accepted Answer

Holly's Excel is not a consumer good because it was not bought for personal, family, or household use. It is also not an accession because she did not acquire it through a natural increase or attachment to other property. It cannot be considered inventory of Fine Auto Sales because it was sold specifically to Holly, and not for resale. Instead, it is considered equipment because it was acquired for use in a specific activity, i.e. the Grand Prix race.

Question 18

Fact Pattern 20-2 
Technical 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 Technical Support was chartered.One year later,Technical Support changes its name to Vector,Inc.
-Refer to Fact Pattern 20-2.To continue the effectiveness of its original fil?ing,United Bank must

Accepted Answer

The answer of Fact Pattern 20-2 
Technical Support Corporation uses...

Question 19

Eagle Capital Company and First National Bank are secured parties with security interests in property owned by Great Commercial Corpora?tion.Between these security interests,the first to be filed or perfected has prior?ity over other filed or per?fected security interests in

Accepted Answer

Under the general rule of priority in Article 9 of the UCC, the first to file or perfect a security interest has priority over later-filed or perfected security interests in most circumstances, unless there is a subordination agreement or a super-priority rule applies.

Question 20

Verna,a debtor,and Wick,a creditor,sign a security agreement con?tain?ing a specific description of the collateral.Wick subsequently files a financing statement that contains a more general description.This description

Accepted Answer

A financing statement can contain a more general description of the collateral than the security agreement, as long as it reasonably identifies the collateral.

Quiz 20: Security Interest in Personal Property

Fact Pattern 20-1 (Questions 5-7 apply) 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 20-1.Ira,a police officer,buys an Excel from Fine to drive in his off-duty hours.Ira's Excel is