Question 1

Which of the following is false regarding a creditor's rights to collateral upon a debtor's default?

Accepted Answer

E is false because under the Uniform Commercial Code (UCC), a debtor does have rights even in default, including the right to be notified of the disposition of the collateral and, in some cases, the right to redeem the collateral before it is disposed of by the secured party.

Question 2

Thomas and Pauline are two secured parties. Neither party has perfected their interests. Assuming a purchase-money security interest is not involved, who would prevail in a dispute?

Accepted Answer

In the absence of perfection, priority between competing security interests generally goes to the party who attached its interest first. Attachment is the process by which a security interest becomes enforceable against the debtor with respect to the collateral.

Question 3

[Overextended Debtor] Michael bought a flat screen television for his living room from ABC Electronics, and financed the purchase through ABC Electronics. Later, Michael bought a boat, a new car, and an expensive engagement ring for his girlfriend, and found he was unable to continue making payments on the television. The manager of ABC Electronics called 60 days after the sale and asked Michael to return the television. Michael refused on the basis that ABC Electronics never perfected its interest in the television. He also explained that he had later granted a secured interest in the television along with his other goods to XYZ Credit in return for a loan. No financing statement was filed on behalf of ABC Electronics although XYZ Credit, with no knowledge of any interest of ABC Electronics, did file a financing statement.
-What is the term for the type of agreement Michael had with ABC Electronics?

Accepted Answer

The term for the type of agreement Michael had with ABC Electronics is a Purchase-Money Security Interest (PMSI), which is a special type of security interest that gives the creditor (in this case, ABC Electronics) a priority in the collateral (the television) that was purchased with the creditor's financing.

Question 4

________ is a writing that indicates both a monetary obligation and a security interest in specific goods.

Accepted Answer

Chattel paper is a term used in commercial law to refer to a document or documents that evidence both a monetary obligation and a security interest in specific goods. This can include a promissory note secured by a security agreement.

Question 5

[Dirty Laundry] Morgan planned to start her own laundry business. She borrowed $60,000 from ABC Bank. She used her car and home as collateral and also gave ABC Bank an interest in any property she acquired after the security interest was made. The bank perfected its interest. Morgan purchased a new computer from XYZ Electronics for use in her business. XYZ obtained a purchase money security interest on the computer. Morgan was having problems with cash flow and failed to make payments to XYZ Electronics on the new computer. After the sale and before Morgan stopped making payments, XYZ had filed a financing statement. The electronics store sought to repossess the computer, but the bank opposed that. Morgan's business picked up and she was able to completely repay her loan to the bank and to XYZ. She requested that the bank discontinue its security interest, but the bank did not do so as requested by Morgan, and still had not done so 45 days after Morgan had paid off the loan and requested that the bank terminate its interest.
-Which statement is correct regarding priority in rights to the computer?

Accepted Answer

The answer of [Dirty Laundry] Morgan planned to start her...

Question 6

Anna runs a business in Oklahoma and purchases goods to stalk her store every month from her supplier Glenn in Michigan. Anna would be considered a(n)

Accepted Answer

Anna is purchasing goods regularly from her supplier for her store, which is a routine part of running her business. This makes her a "buyer in the ordinary course of business," as it involves regular transactions that are typical for maintaining her business operations.

Question 7

An instrument is a writing that demonstrates ________.

Accepted Answer

An instrument, in a legal and financial context, typically refers to a formal document that represents a right to payment of money, such as a check, promissory note, or bond.

Question 8

[Dirty Laundry] Morgan planned to start her own laundry business. She borrowed $60,000 from ABC Bank. She used her car and home as collateral and also gave ABC Bank an interest in any property she acquired after the security interest was made. The bank perfected its interest. Morgan purchased a new computer from XYZ Electronics for use in her business. XYZ obtained a purchase money security interest on the computer. Morgan was having problems with cash flow and failed to make payments to XYZ Electronics on the new computer. After the sale and before Morgan stopped making payments, XYZ had filed a financing statement. The electronics store sought to repossess the computer, but the bank opposed that. Morgan's business picked up and she was able to completely repay her loan to the bank and to XYZ. She requested that the bank discontinue its security interest, but the bank did not do so as requested by Morgan, and still had not done so 45 days after Morgan had paid off the loan and requested that the bank terminate its interest.
-________ property is the proper designation for any equipment subject to the bank's security interest that Morgan obtains after the initial loan agreement.

Accepted Answer

The term "after-acquired" property refers to assets that a borrower acquires after the initial loan agreement but which are subject to the lender's security interest according to the terms of that agreement. In this scenario, the bank had an interest in any property Morgan acquired after the security interest was made, making it after-acquired property.

Question 9

Which of the following is true if a buyer of a consumer good subject to purchase-money security interest later sells the good?

Accepted Answer

The correct answer is D because it accurately describes a situation under Article 9 of the Uniform Commercial Code (UCC) where a buyer in the ordinary course of business or a consumer buyer can take goods free of a security interest if they buy without knowledge of the security interest, for personal use, and before the secured party files a financing statement.

Question 10

Which of the following terms is not defined in the UCC

Accepted Answer

The Uniform Commercial Code (UCC) defines terms related to commercial transactions, but "default" is not explicitly defined within the UCC. Terms like "purchase money security interest," "collateral," "attachment," and "perfection" are specifically defined within the UCC, relating to secured transactions and other commercial finance areas.

Question 11

If Michael, ABC Electronics, and XYZ Credit have a dispute regarding entitlement to the television, who is likely to win and why?

Accepted Answer

The answer of If Michael, ABC Electronics, and XYZ Credit...

Question 12

[Dirty Laundry] Morgan planned to start her own laundry business. She borrowed $60,000 from ABC Bank. She used her car and home as collateral and also gave ABC Bank an interest in any property she acquired after the security interest was made. The bank perfected its interest. Morgan purchased a new computer from XYZ Electronics for use in her business. XYZ obtained a purchase money security interest on the computer. Morgan was having problems with cash flow and failed to make payments to XYZ Electronics on the new computer. After the sale and before Morgan stopped making payments, XYZ had filed a financing statement. The electronics store sought to repossess the computer, but the bank opposed that. Morgan's business picked up and she was able to completely repay her loan to the bank and to XYZ. She requested that the bank discontinue its security interest, but the bank did not do so as requested by Morgan, and still had not done so 45 days after Morgan had paid off the loan and requested that the bank terminate its interest.
-Which statement is correct regarding the effect of XYZ Electronics filing a financing statement?

Accepted Answer

Filing a financing statement is a step in the process of perfecting a security interest, which gives the creditor priority over other creditors who claim an interest in the same collateral.

Question 13

What is the time period in which a debtor has the right to object to retention of collateral to satisfy a debt?

Accepted Answer

The debtor has the right to object to the retention of collateral to satisfy a debt within 20 days. This period allows the debtor to either negotiate with the creditor or take legal action to protect their interest in the collateral.

Question 14

[Overextended Debtor] Michael bought a flat screen television for his living room from ABC Electronics, and financed the purchase through ABC Electronics. Later, Michael bought a boat, a new car, and an expensive engagement ring for his girlfriend, and found he was unable to continue making payments on the television. The manager of ABC Electronics called 60 days after the sale and asked Michael to return the television. Michael refused on the basis that ABC Electronics never perfected its interest in the television. He also explained that he had later granted a secured interest in the television along with his other goods to XYZ Credit in return for a loan. No financing statement was filed on behalf of ABC Electronics although XYZ Credit, with no knowledge of any interest of ABC Electronics, did file a financing statement.
-Which statement is true regarding Michael's statement that the security interest of ABC was not perfected?

Accepted Answer

The answer of [Overextended Debtor] Michael bought a flat screen...

Question 15

Which of the following is an amendment to a financing statement that states that the debtor has no obligation to the secured party?

Accepted Answer

A termination statement is an amendment to a financing statement that indicates the debtor has been released from the obligation, effectively ending the secured party's interest in the collateral.

Question 16

[Overextended Debtor] Michael bought a flat screen television for his living room from ABC Electronics, and financed the purchase through ABC Electronics. Later, Michael bought a boat, a new car, and an expensive engagement ring for his girlfriend, and found he was unable to continue making payments on the television. The manager of ABC Electronics called 60 days after the sale and asked Michael to return the television. Michael refused on the basis that ABC Electronics never perfected its interest in the television. He also explained that he had later granted a secured interest in the television along with his other goods to XYZ Credit in return for a loan. No financing statement was filed on behalf of ABC Electronics although XYZ Credit, with no knowledge of any interest of ABC Electronics, did file a financing statement.
-What is the proper designation for the television, under the UCC?

Accepted Answer

The television is properly designated as a consumer good under the Uniform Commercial Code (UCC) because it was bought for personal, family, or household use.

Question 17

What did the court conclude in the Case Opener, the case in which the plaintiff claimed that her repossessed vehicle was not sold in a commercially reasonably manner and that she was wrongly left with a deficiency?

Accepted Answer

The answer of What did the court conclude in the...

Question 18

Which of the following is true regarding the court's opinion in Price Auto Sales, Inc. v. Sanders, the case in the text in which a debtor sued an auto company for injuries sustained during an attempt to repossess his automobile?

Accepted Answer

The court ruled that repossession was not completed and that a breach of the peace occurred in the process of the repossession. This indicates that the court found the manner in which the repossession was conducted to be problematic, focusing on the legality and conduct of the repossession process rather than the completion of the repossession itself.

Question 19

Which of the following is true regarding priority in a dispute involving a purchase-money security interest in business goods other than inventory?

Accepted Answer

Under the Uniform Commercial Code (UCC), a purchase-money security interest in non-inventory goods has priority over other security interests if it is perfected within 20 days of the debtor receiving possession of the collateral.

Question 20

Which of the following is true regarding the manner in which a secured party may sell collateral?

Accepted Answer

A secured party has the option to sell the collateral in either a private sale or a public sale, depending on what is deemed appropriate for the situation. This flexibility allows the secured party to choose the method that is most likely to maximize the return from the sale of the collateral.

Quiz 30: Secured Transactions