Question 1

Country Bank,located in Indiana,loaned Chmelik $5,000 and obtained a security interest in a copyright Chmelik owns.Chmelik lives in Illinois,but works in Indiana.In order to perfect its interest,Country Bank files a financing statement in Indiana.The financing statement provides Chmelik's correct name,his business address,and a reasonable description of the copyright used as collateral.Is the financing statement sufficient?

Accepted Answer

Under the Uniform Commercial Code (UCC), for the purpose of perfecting a security interest through a financing statement, when the debtor is an individual, the filing must occur in the state of the debtor's principal residence. In this scenario, since Chmelik lives in Illinois, the correct jurisdiction for filing the financing statement to perfect the security interest in the copyright would be Illinois, not Indiana where the loan was made or where Chmelik works.

Question 2

In terms of collateral,which of the following would be categorized as "equipment"?

Accepted Answer

A computer system used in a retail store is considered "equipment" as it is used in the business operations, unlike personal property, crops, or goods for sale.

Question 3

The initial term for which a financing statement will be effective is

Accepted Answer

The initial term for which a financing statement will be effective is five years. This is a standard duration under the Uniform Commercial Code (UCC) for financing statements, which are used to perfect a security interest in collateral.

Question 4

Wedney,Inc.sold a meat processing machine to Yoro Chickens,taking a security interest in the machine.Yoro Chickens defaulted on the loan.Wedney repossessed the machine.Wedney would like to retain the machine to use as a model.Which of the following statements is correct?

Accepted Answer

In cases of repossession, the creditor (Wedney, Inc.) must notify the debtor (Yoro Chickens) of its intention to retain the collateral (the machine) in satisfaction of the debt. The debtor has the right to object within a specified period, commonly 20 days. This process ensures that the debtor is aware of the creditor's intentions and has an opportunity to respond or satisfy the debt before the creditor finalizes the retention of the collateral.

Question 5

Morefield Custom Design sends 30 recliners by rail to Danville Furniture.To show where the goods will be shipped and who gets them when they arrive,Morefield will obtain ____,which can be used as collateral in a secured transaction.

Accepted Answer

A bill of lading is a legal document that serves as proof of shipment and delivery of goods. It includes details about the goods being shipped, the names and addresses of the parties involved (such as the buyer and seller), and the destination of the goods. By obtaining a bill of lading, Morefield Custom Design can show where the recliners are being shipped and who will receive them upon arrival. This document can also be used as collateral for a secured transaction.

Question 6

Wanderlust gave a security interest in his Conestoga wagon to Iowa Bank who perfected its security interest by filing a financing statement with the appropriate officials in Iowa.Five months later,Wanderlust hit the trail again,moving to Montana.If Iowa Bank wants to continue its perfected interest in the Conestoga wagon,it should

Accepted Answer

When a debtor moves to a new state, a creditor must re-perfect its security interest in the collateral by filing a new financing statement in the appropriate place under that state's laws within a certain period of time. In this case, Iowa Bank should re-perfect by filing a financing statement in Montana within four months of Wanderlust's arrival there. Filing a continuation statement in Iowa or repossession of the collateral are not the appropriate actions in this situation.

Question 7

Landscaper Lottie used her machinery,employee labor,and her expertise to landscape Opal's new guest home.Opal fails to pay for the landscaping because she has run out of money.Lottie files a lien against the real property.This lien is called a(n)

Accepted Answer

A mechanic's lien is a type of lien that is created by improving real property, such as through landscaping. This allows for the person who performed the work to have a security interest in the property until they are paid for their services. This is the most appropriate option given the scenario presented. The other options do not accurately reflect the situation.

Question 8

Hiram is a debtor to Central Credit Union,a secured party.If Hiram fails to maintain insurance on the collateral,he has likely

Accepted Answer

If Hiram fails to maintain insurance on the collateral, he has defaulted on the security agreement. A security agreement is a legal document that outlines the terms and conditions of a secured loan, including the obligations of the debtor to maintain the collateral. If Hiram fails to maintain insurance, he is not meeting his obligation under the security agreement, thus defaulting on the agreement.

Question 9

Wedney,Inc.has a purchase money security interest in one of Yoro Chicken's meat processing machines.Wedney filed a financing statement on the day the machine was delivered,perfecting its interest.Great State Bank already had a security interest in the machine.Which party has superior priority rights in the meat processing machine?

Accepted Answer

Wedney, Inc. has a purchase money security interest (PMSI) in the meat processing machine, which takes priority over a conflicting security interest held by Great State Bank because Wedney perfected its interest on the day the machine was delivered. A PMSI in collateral other than inventory takes priority over a conflicting security interest if the PMSI is perfected at the time the debtor receives the collateral or within 20 days after he receives it. Therefore, Wedney has superior priority rights in the meat processing machine.

Question 10

Which of the following is correct concerning termination statements?

Accepted Answer

The answer of Which of the following is correct concerning...

Question 11

At her neighbor's garage sale,Constance buys a vanity dressing table from her neighbor,Carlos,for $160.Constance purchased the vanity table for her own personal use,without any knowledge that Carlos had signed a security agreement giving All Purpose Furniture,Inc.a security interest in the vanity table.All Purpose Furniture did not file a financing statement.Constance does not know that Carlos is still paying off the purchase money security interest and owes All Purpose Furniture,Inc.$400.Under these circumstances

Accepted Answer

According to the Uniform Commercial Code (UCC), a buyer of consumer goods (items bought for personal, family, or household use) takes the goods free of any security interest that the seller may have in them, as long as the buyer does not have knowledge of the security interest. In this scenario, Constance purchased the vanity table for her personal use and was not aware of the security interest held by All Purpose Furniture. Therefore, she takes the table free of the security interest and is not responsible for paying off Carlos's debt to All Purpose Furniture.

Question 12

Gateway sold a big-screen TV and entertainment center to Iris for $2,000 on credit.Iris signed a promissory note and gave Gateway a security interest in the TV and entertainment center.Gateway filed a financing statement in the appropriate public office.When Iris defaulted on her monthly payments owing a balance of $1,780,Gateway's attorney made arrangements to have the TV and entertainment center repossessed.The attorney then placed classified ads in the local newspaper to sell the goods.The attorney's fees are $300,the repo company charged $150,and the advertising costs are $50.
(A)
If Iris chooses to redeem the property,how much must she pay to Gateway to recover the property?
(B)
If Iris does not redeem and the TV and entertainment center are sold for $1,750,how will the money be disbursed?

Accepted Answer

The answer of Gateway sold a big-screen TV and entertainment...

Question 13

If repossessed collateral is sold or otherwise disposed of by the creditor,then the time,place,manner,and method of disposal must be

Accepted Answer

The Uniform Commercial Code requires that the disposition of repossessed collateral must be done in a commercially reasonable manner. This means that the time, place, manner, and method of disposal must be reasonable and that the creditor must obtain the highest possible price for the collateral. A court order is not required unless there is a dispute over the disposition of the collateral. The debtor does not need to be notified or attend the disposal process, although they should be notified of the sale and given the opportunity to make up any outstanding debt. Perfection refers to the process of creating a legally binding security interest, which is not relevant to this question.

Question 14

Byron bought a 50' yacht from Myrtle's Marina by entering into a note and security agreement promising the yacht as collateral for the purchase money security interest.When Byron faced some tough financial times,he failed to make three monthly payments.Myrtle's Marina repossessed the yacht by removing the yacht engine and advertised a public auction of the yacht.Byron appealed to his good friend Charles and managed to pay off the debt balance and the Marina's expenses of repossessing and advertising the sale.Byron's actions represent

Accepted Answer

Byron exercised his right of redemption, which allowed him to reclaim the yacht by paying off the debt balance and the Marina's expenses of repossessing and advertising the sale. This is a common remedy available to borrowers in default on secured loans. Strict foreclosure involves the lender obtaining the collateral without the necessity of a sale, silent bidding refers to a specific type of auction process, and an artisan's lien is a type of nonpossessory lien that a mechanic or repair person can assert against personal property on which they performed services.

Question 15

A security interest in money may be perfected by

Accepted Answer

A security interest in money can be perfected by possession only. Unlike other types of collateral, money does not have a title or registration that can be filed or recorded. Therefore, the best way to perfect a security interest in money is to physically possess it or have control over it (such as through a bank account). Filing a financing statement or creating a purchase money security interest (PMSI) is not applicable to money, and redemption refers to paying off a debt or reclaiming property, not perfecting a security interest.

Question 16

Which of the following parties can defeat a perfected security interest?

Accepted Answer

All of the choices listed can defeat a perfected security interest under certain conditions. A buyer in the ordinary course of business can defeat a perfected security interest if the buyer purchases goods from a seller who normally sells such goods, without knowledge of the security interest, and pays for the goods in the ordinary course of business. A buyer of consumer goods can also defeat a security interest if the buyer is not aware of the security interest, gives value for the goods, will continue to use the goods as consumer goods, and the secured party has not filed a financing statement. Lastly, a buyer who purchases chattel paper or an instrument in the ordinary course of business, and then takes possession can defeat a perfected security interest.

Question 17

Florence borrows $1,500 from Fremont,leaving her gold necklace with Fremont as collateral.Two weeks earlier,Florence had borrowed $1,000 from Corner Bank.Florence signed a security agreement and a financing statement giving Corner Bank a security interest in the same gold necklace.The financing statement is filed in the appropriate location.If Florence defaults on both loans,which creditor has the superior rights to the necklace?

Accepted Answer

The answer of Florence borrows $1,500 from Fremont,leaving her gold...

Question 18

What occurs when a secured party takes back collateral because the debtor has failed to make payments when due?

Accepted Answer

Repossession occurs when the secured party takes back the collateral because the debtor has failed to make payments when due. This is a common remedy for default under a security agreement. B) Default is also related to the situation but it does not directly answer what occurs when the secured party takes back the collateral. C) Authentication refers to the process of verifying the identity of a user or device, and D) Perfection is the process of establishing the priority of the security interest against other creditors.

Question 19

On April 10,Amy agreed to buy a riding lawn mower from Mowers Plus,signing a promissory note and security agreement giving Mowers Plus a security interest in the mower.On April 15,Amy took delivery of the mower.On May 1,Mowers Plus filed a financing statement.Which of the following is correct?

Accepted Answer

According to the facts presented, Amy agreed to buy a riding lawn mower from Mowers Plus on April 10 and signed a promissory note and security agreement, which gave Mowers Plus a security interest in the mower. This means that Mowers Plus has attachment of a security interest in Amy's mower because there was a written agreement and Amy took delivery of the mower on April 15. Filing the financing statement on May 1 perfected the security interest, making it enforceable against other parties. Therefore, option B is the correct answer. Option A is incorrect because a security interest can be created in a consumer good as long as the necessary conditions are met. Option C is partially correct, as filing a financing statement does perfect the security interest but does not complete attachment. Option D is also incorrect because attachment is essential for the enforceability of a security interest.

Question 20

Eduardo is starting a floral shop and owns a 10-year-old delivery van.He borrows $50,000 from First National Bank,which takes a security interest in the van.When Eduardo purchases a greenhouse in which to grow plants and a large cooler to keep them fresh,the bank's security interest attaches to these items,which are referred to as

Accepted Answer

The bank's security interest attaching to the greenhouse and the large cooler, which Eduardo purchases after the initial loan, is referred to as "after-acquired property." This term is used to describe property acquired by the debtor after the security agreement is made, which the secured party's interest automatically attaches to, assuming the security agreement includes a clause to this effect.

Quiz 24: Secured Transactions