Question 1

Masterview,Inc.purchased a new computer system,which included some computer programs.When Masterview developed financial troubles,two competing creditors of Masterview claimed the right to repossess the computer system and the programs.The UCC distinguishes "software" from "goods" and treats them differently for some purposes,which would be important in this situation.

Accepted Answer

The UCC distinguishes between "software" and "goods" and treats them differently for some purposes. Therefore, in the situation described above, whether the computer programs are considered "goods" or "software" under the UCC could impact the competing creditors' claims to repossess the computer system and programs.

Question 2

To perfect a security interest in a negotiable document,Second State Savings and Loan should

Accepted Answer

To perfect a security interest in a negotiable document, Second State Savings and Loan should take possession of the instrument. This is known as possessory perfection and is the most common method for perfecting a security interest in negotiable documents. Filing a financing statement or amendment (choice A) is not sufficient for perfecting a security interest in negotiable documents. Perfection of a security interest in negotiable documents is not automatic (choice C) and does require some affirmative action by the secured party. A court order (choice D) may be necessary in some situations (such as if the borrower refuses to surrender possession of the document), but it is not the primary means of perfecting a security interest in negotiable documents.

Question 3

A PMSI in consumer goods perfects automatically,without filing.

Accepted Answer

A PMSI in consumer goods does not perfect automatically without filing. It requires the filing of a UCC-1 financing statement to perfect the security interest.

Question 4

All but which of the following may be used as collateral in a secured transaction under UCC Article 9?

Accepted Answer

Personal injury tort claims of individuals cannot be used as collateral in a secured transaction under UCC Article 9 because they are considered nonassignable.

Question 5

First Federal loaned Madeline $20,000 to purchase a new van.The van was for Madeline's personal and family use.First Federal's security interest is a purchase money security interest which perfects only upon filing a financing statement.

Accepted Answer

A purchase money security interest (PMSI) in consumer goods, such as a van for personal and family use, generally perfects automatically upon attachment without the need to file a financing statement.

Question 6

For a security interest to attach,there must be an agreement.

Accepted Answer

According to the Uniform Commercial Code (UCC), which governs secured transactions in the United States, a security interest can only attach if there is an agreement between the debtor and the secured party. This agreement can take the form of a written contract, a security agreement, or an oral agreement, but it must exist in order for the security interest to be valid.

Question 7

First Bank loaned $400,000 to Thomas,taking a security interest in his yacht.Thomas defaulted on the loan and First Bank repossessed the boat.First Bank sold the yacht at a public sale.The sale yielded $50,000 more than the debt.First Bank

Accepted Answer

When a secured party sells collateral and the sale yields more than the amount of the debt, the surplus must be returned to the debtor.

Question 8

Bagsby owns a business selling insects for organic gardening.Bagsby is seeking a loan from First Natural Bank.The loan officer is asking that the loan be secured by Bagsby's inventory of insects,now owned or hereafter acquired.In order to do this,a new security agreement will need to be signed each time Bagsby gets new insects or sells his insects.

Accepted Answer

A security agreement for a loan can be drafted to include after-acquired property, meaning it can automatically cover inventory that Bagsby acquires in the future without the need to sign a new agreement each time new insects are acquired or sold.

Question 9

Article 9 of the UCC only applies to goods and does not include intangibles such as accounts or chattel paper.

Accepted Answer

Article 9 of the UCC covers secured transactions and includes both tangible goods and intangibles like accounts and chattel paper.

Question 10

Great State Bank loans money to Seth,securing the loan with property owned by Seth.Great State Bank is advised by its attorney to file a financing statement.Great State Bank doesn't understand why it should spend the extra money for this filing,since Seth has told them that he has no other creditors.Why should Great State Bank file a financing statement?

Accepted Answer

Filing a financing statement will protect Great State Bank's priority rights with other creditors by giving notice to other creditors that it claims a security interest in the collateral. Even if Seth has no other known creditors at the time of the loan, he may acquire them in the future. Filing a financing statement ensures that Great State Bank's security interest in the collateral is secure and protected, should any other creditors emerge.

Question 11

Under Article 9 of the UCC,electronic chattel paper may be used as collateral in a secured transaction.

Accepted Answer

Under Article 9 of the UCC, electronic chattel paper is recognized as a type of collateral that can be used in a secured transaction. This allows for electronic records of ownership and transfer of goods to be used as collateral, rather than traditional paper documents.

Question 12

Great State Bank and First Federal Bank have a security interest in TriColor's equipment.If neither secured party is perfected,the first to sue or repossess has priority over the collateral.

Accepted Answer

When neither secured party is perfected, priority is generally determined by the order of attachment, not by who first sues or repossesses the collateral.

Question 13

Pharm-Ace holds a patent on a drug.Pharm-Ace used the patent (evidenced by the patent certificate)to secure a $1 million loan from First Bank.The patent is chattel paper.

Accepted Answer

A patent is considered an intangible asset or intellectual property, not chattel paper. Chattel paper refers to a document or documents that evidence both a monetary obligation and a security interest in or a lease of specific goods. In this case, the patent certificate evidences the intellectual property rights but does not in itself constitute chattel paper.

Question 14

Micky,a mechanic,repaired Daphane's Dodge.Daphane failed to pay the repair bill of $595.Since Micky was still storing the car,he could therefore claim a landlord's lien on the car.

Accepted Answer

Micky could claim a mechanic's lien, not a landlord's lien, because the lien is for repair services provided to the vehicle, not for storage or rental space.

Question 15

Spicy & Hot,Inc.is interested in expanding its Mexican food restaurant into a Mexican food catering business.Spicy & Hot,Inc.buys a new delivery van from Van World.Spicy & Hot,Inc.is a buyer in the ordinary course of business when purchasing the van.

Accepted Answer

Since Spicy & Hot, Inc. is buying a delivery van as part of their ordinary business operations, they are considered a buyer in the ordinary course of business.

Question 16

Maddie enters into a secured consumer debt transaction with Friendly Bank.When Maddie pays the loan in full,Friendly Bank is required to file a statement indicating that it no longer claims a secured interest in the collateral.This statement must be filed within one month from the date the debt is fully paid.

Accepted Answer

This statement is required under the Uniform Commercial Code (UCC), specifically UCC § 9-513, and must be filed within one month from the date the debt is fully paid.

Question 17

There is no way to attach a security interest in electronic chattel paper.

Accepted Answer

It is possible to attach a security interest in electronic chattel paper through the use of a properly executed security agreement and control of the electronic record. The Uniform Commercial Code has specific provisions for electronic chattel paper and its attachment and perfection of security interests.

Question 18

First Federal had a perfected security interest in Vicor's printing press.Second Credit had a security interest in the same press,but its interest was not perfected.First Federal takes priority over Second Credit.

Accepted Answer

According to the rules of priority in secured transactions, a perfected security interest takes priority over an unperfected security interest. Since First Federal had a perfected security interest in the printing press, it takes priority over Second Credit, whose security interest was not perfected.

Question 19

Article 9 applies to any transaction intended to create a security interest in personal property or fixtures.

Accepted Answer

Article 9 of the Uniform Commercial Code (UCC) governs secured transactions and applies to any transaction that involves creating a security interest in personal property or fixtures.

Question 20

Donna defaulted on her loan owed to Second State Savings and Loan.The loan was secured with Donna's car.Donna used the car for personal and family reasons.Which statement is correct?

Accepted Answer

When a loan is secured with collateral, such as Donna's car, the lender has the right to repossess the property if the borrower defaults on the loan. However, in most states, the lender cannot repossess the property without a court order unless the repossession can be done without a breach of the peace. Therefore, option A is the correct answer. Option B is incorrect because a breach of the peace is not allowed. Option C is incorrect because a car is not considered a consumer good in this case. Option D is incorrect because perfection being automatic does not affect the lender's right to repossess the collateral.

Quiz 24: Secured Transactions