CHAPTER 30 (SECURED TRANSACTIONS)

TRUE or FALSE: to create an enforceable security interest, the secured party must give the debtor something of value.

true

TRUE or FALSE: when the debtor has fully paid the debt, if the secured party perfected the security interest by filing, the debtor is entitled to a termination statement.

true

TRUE or FALSE: where or how to perfect a security interest sometimes depends on the classification of collateral.

true

Luxuro Vehicles, Inc., makes and sells automobiles to auto dealers, including MotorPros Auto & Truck Sales. MotorPros sells the cars to consumers and businesses. Oakes, a police officer, buys a Luxuro from MotorPros to drive in his off-duty hours. Oakes's Luxuro is a. a consumer good. b. an instrument. c. equipment. d. inventory.

a. a consumer good

Call's Farm & Ranch Supply, Inc., uses its inventory as collateral for a loan from Deland County Bank. The bank files a financing statement with the secretary of state in the state in which Call's was chartered. One year later, Call's changes its name to Big C's, Inc. Deland County Bank's perfection will remain effective for a. four months after the date of the name change. b. five business days after the date of the name change. c. six years after the date of the original filing. d. no time.

a. four months after the date of the name change.

Darling is the secured party in a secured transaction with Elmo. In this transaction, Darling a. has a security interest. b. owes payment. c. owes performance. d. owns collateral.

a. has a security interest

Everyday Loans, Inc., issues a line of credit in Glade Electronics Corporation under a security agreement. Later, Glade buys new HD TVs to add to its inventory. Everyday has a security interest in the new inventory a. if the security agreement included an after-acquired property clause. b. if Everyday has not yet filed a financing statement. c. if Glade bought the inventory with Everyday funds. d. under no circumstances.

a. if the security agreement included an after-acquired property clause.

Reliable Bank's financing statement in collateral owned by Sunsource Energy Corporation will expire in less than a year. With the filing of subsequent continuation statements, the effectiveness of the bank's statement can be continued a. indefinitely. b. for no longer than five years. c. for no more than six months. d. up to five years and six months.

a. indefinitely

Experienced Capital Company and First Street Bank are secured parties with security interests in property owned by Grande Oil Corporation. Between these security interests, the first to be filed or perfected has priority over other filed or perfected security interests in a. most circumstances. b. no circumstances. c. states that have not adopted Article 9 of the UCC. d. states that require a security agreement to be signed and dated by the creditor.

a. most circumstances

The payment of Dylan's debt to Ezra is guaranteed by Dylan's personal property. This is governed by a. the Uniform Commercial Code. b. the Federal Trade Commission. c. the U.S. Constitution's commerce clause. d. the U.S. Chamber of Commerce.

a. the Uniform Commercial Code.

Danica borrows $1,000 from Evermore Bank, using her motorcycle as collateral. To perfect its security interest, the bank must file its financing statement with a. the secretary of state. b. the county clerk. c. the city treasurer. d. the ward alderman.

a. the secretary of state

Rollo's Super Store sells goods to consumers and businesses in a rural county in the Midwest. Most of the goods are sold on credit. Rollo's often takes a security interest with the goods as collateral. Classification of the collateral determines a. when or how to perfect a security interest. b. the terms of a sale. c. the effective time duration of credit. d. the general rules of priority.

a. when or how to perfect a security interest.

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 a. every state. b. New Jersey. c. New Jersey and New York. d. New York.

b. New Jersey

Quantum Financial Corporation is a secured party with a security interest in property owned by Revolving Sales Company. Perfection of this security interest may not protect Quantum 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.

b. a buyer in the ordinary course of business.

Clear Sky Credit Corporation asks Dimension Games Company to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired property. This is a. the first-in, first-out rule. b. a floating lien. c. a violation of most state laws. d. a future advance.

b. a floating lien

Saf-T Lenders, Inc., takes possession of Tiara's stock in Urgent Care Corporation to perfect Saf-T's security interest in the stock. This is a. after-acquired property. b. a pledge. c. a purchase-money security interest. d. a violation of most state laws.

b. a pledge

The payment of Florida's debt to Guillermo is guaranteed by Florida's personal property. Guillermo is a. a lienor. b. a secured party. c. a mortgagee. d. a usurer.

b. a secured party

The payment of Dagmar's debt to Evander is guaranteed by Dagmar's personal property. This is a. a lien. b. a secured transaction. c. a real property mortgage. d. a violation of most state laws.

b. a secured transaction.

Rich Financial, Inc., files a financing statement regarding a transaction with Supreme Business Company. To be valid, the financing statement must contain all of the following except a. a description of the collateral. b. a statement of the purpose for the transaction. c. Rich's name. d. Standard's name

b. a statement of the purpose for the transaction.

Super Chef Appliance Company allows Reba to take a set of kitchen appliances that she bought from Super Chef even though she has not paid the full price. Super Chef's legally sufficient financing statement in the goods need not include a. a description of the collateral. b. a statement of the reason for allowing Reba to take the goods. c. Super Chef's name. d. Reba's name.

b. a statement of the reason for allowing Reba to take the goods.

Bayside Credit Corporation lends funds to Claude, a consumer, to apply to the cost of a boat, which is the collateral for the loan. An enforceable security interest requires a. a written agreement and Bayside's possession of the boat. b. a written agreement or Bayside's possession of the boat. c. the boat seller's acknowledgement of the loan in writing. d. Claude's possession of the boat.

b. a written agreement or Bayside's possession of the boat.

Call's Farm & Ranch Supply, Inc., uses its inventory as collateral for a loan from Deland County Bank. The bank files a financing statement with the secretary of state in the state in which Call's was chartered. One year later, Call's changes its name to Big C's, Inc. To continue the effectiveness of its perfected interest, Deland County Bank must file a. a continuation statement after the original filing expires. b. an amendment to the financing statement before the period expires. c. a new financing statement immediately. d. a notice of repossession with all interested creditors.

b. an amendment to the financing statement before the period expires.

Olaf is the creditor in a transaction with Phil. Once certain requirements are met, Olaf's rights will attach, which means that Olaf will have a. an indivisible ownership right to Phil's property. b. an enforceable security interest in Phil's property. c. a notice affixed to Phil's property. d. the permission of a court to seize Phil's property.

b. an enforceable security interest in Phil's property.

Elias repays his debt, incurred to buy consumer goods, to Finance Bank and immediately files a written request for a termination statement. Finance 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. is not required not comply.

b. must comply within twenty days of receipt of the letter.

Gravel & Sand, Inc., buys a backhoe on credit from Heavy Equipment Corporation, but does not make a payment on the loan for several months. Heavy repossesses the backhoe by towing it from a public street. Green sues Heavy for breach of the peace. Gravel & Sand will probably a. not prevail, because Heavy did not use judicial process. b. not prevail, because the repossession was not a breach of the peace. c. prevail, because Gravel & Sand did not default on the loan. d. prevail, because the repossession was a breach of the peace.

b. not prevail, because the repossession was not a breach of the peace.

Roni, a debtor, wants to confirm the amount of her outstanding secured debt with Swifty Loan Corporation. Roni can ask Swifty to confirm her view of the debt, without charge, every a. month. b. six months. c. year. d. five years

b. six months.

Sterling Bank wants to perfect its security interest in timber owned by Ridgeline Lumber, Inc. Most likely, a financing statement should be filed with a. the local chamber of commerce. b. the county clerk. c. a federal loan officer. d. the secretary of state's office.

b. the county clerk

General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation for a security interest in the equipment. The next day, GLC borrows $500,000 from Interstate Bank, also for a security interest in the equipment. GLC defaults on both loans. 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.

c. Helpful only

Hal's Hardware store defaults on a debt to Intrastate Bank, which takes possession of the collateral securing the debt. Intrastate sells the collateral. 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.

c. Intrastate's fees for the sale.

Luxuro Vehicles, Inc., makes and sells automobiles to auto dealers, including MotorPros Auto & Truck Sales. MotorPros sells the cars to consumers and businesses. Nani, a professional driver, buys a customized Luxuro from MotorPros to drive in a Grand Prix race. Nani's Luxuro is a. a consumer good. b. an instrument. c. equipment. d. inventory.

c. equipment

Comfort Furniture Store sells household consumer goods. To create a purchase-money security interest, Comfort Furniture must a. assign, to a collecting agent, a portion of its accounts payable. b. assign, to a collecting agent, a portion of its accounts receivable. c. extend credit for part or all of the purchase price of the goods. d. refer purchasers to a third-party lender.

c. extend credit for part or all of the purchase price of the goods.

The payment of Hu's debt to Ian is guaranteed by Hu's personal property. To give public notice of his interest in Hu's property, Ian is most likely to a. attach a bright label to Hu's property. b. e-mail other potential creditors. c. file a financing statement with the appropriate authority. d. publish a collection notice in local newspapers.

c. file a financing statement with the appropriate authority.

Ron does not make a payment on his car loan for several months. The dealer, Star Auto, repossesses the car by towing it from a public parking lot. Ron sues Star for breach of the peace. Ron will probably a. prevail, because Ron has not formally defaulted on the car loan. b. prevail, because the car was in a public lot when it was towed. c. not prevail, because the repossession was not a breach of the peace. d. not prevail, because a creditor can repossess property in which it holds an interest if no threats or force are used against a debtor.

c. not prevail, because the repossession was not a breach of the peace.

The payment of Laine's debt to Mingo is guaranteed by Laine's personal property. The process by which Mingo can protect himself against the claims of third parties to this property is a. attachment. b. authentication. c. perfection. d. bankruptcy.

c. perfection

The payment of Yves's debt to Zane is guaranteed by Yves's personal property. Their agreement describes Yves's subject property by serial number. To establish Zane's interest, this is a. irrelevant. b. not sufficient. c. sufficient if it accurately describes the parties' agreement. d. sufficient unless it is too tedious to review.

c. sufficient if it accurately describes the parties' agreement.

Kettlecorn Investments, Inc., and Lone Tree Bank are secured parties with security interests in property owned by Metal Fabrication 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 or attachment. d. the "float" of the liens.

c. the time of perfection or attachment.

General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation for a security interest in the equipment. The next day, GLC borrows $500,000 from Interstate Bank, also for a security interest in the equipment. GLC defaults on both loans. Suppose that two weeks after GLC takes possession of the equipment, Helpful and Interstate file financing statements, with Interstate filing first. In that circumstance, the party with priority to the equipment is a. GLC. b. Helpful and Interstate proportionately. c. Helpful only. d. Interstate only.

d. Interstate only

Olive borrows from Polo and Quennell, using the same collateral for both loans. Only Quennell has a perfected security interest. Olive defaults on both loans. The party with first rights to the collateral is a. Olive. b. Polo and Quennell, in proportion to Olive's debt to each. c. Polo. d. Quennell.

d. Quennell.

The payment of Eden's debt to Flem is guaranteed by Eden's personal property. This property is a. a secured party. b. a secured transaction. c. a security interest. d. collateral.

d. collateral

The payment of Lewellyn's debt to Miklos is guaranteed by Lewellyn's personal property. Miklos is most likely to perfect his interest by a. insuring Lewellyn's property for the full amount of its value. b. calculating the precise amount of Lewellyn's debt. c. correcting grammatical errors in the parties' written agreement. d. filing a financing statement with the appropriate authority.

d. filing a financing statement with the appropriate authority.

OK Investments, Inc., files a financing statement to provide notice of its security interest in the property of Pancake House Restaurant. The initial effective term of a financing statement is a period of a. five days. b. five months. c. five weeks. d. five years.

d. five years

TRUE or FALSE: the state office in which a financing statement should be filed depends on the debtor's location.

true

Khalil holds a security interest in inventory owned by Luc. Khalil assigns his interest in the inventory to Mal. Mal becomes the secured party of record a. automatically. b. if Khalil advises Luc of the assignment. c. if Mal advises Luc of the assignment. d. if Mal files a uniform amendment form.

d. if Mal files a uniform amendment form.

Luxuro Vehicles, Inc., makes and sells automobiles to auto dealers, including MotorPros Auto & Truck Sales. MotorPros sells the cars to consumers and businesses. A car in MotorPros's possession is most likely a. a consumer good. b. an instrument. c. equipment. d. inventory.

d. inventory

TRUE or FALSE: a buyer in the ordinary course of business has priority unless a previously perfected security interest exists as to the goods.

false

TRUE or FALSE: a buyer in the ordinary course of business takes the goods free from any security interest created by the seller unless the buyer knows of its existence.

false

TRUE or FALSE: a financing statement cannot be filed electronically.

false

TRUE or FALSE: a financing statement is effective for no more than six months from the date of filing.

false

TRUE or FALSE: a financing statement must be filed under the debtor's trade name.

false

TRUE or FALSE: a floating lien "floats" with an item of property, such as a specific piece of inventory, as its ownership transfers from seller to buyer.

false

TRUE or FALSE: a purchase-money security interest in a business's inventory is perfected automatically at the time of a credit sale.

false

TRUE or FALSE: a security interest in collateral does not give the secured party a security interest in the proceeds acquired from the sale of that collateral.

false

TRUE or FALSE: a security interest is enforceable only if the collateral is in the secured party's possession.

false

TRUE or FALSE: a security interest is enforceable only if the collateral is not in the debtor's possession.

false

TRUE or FALSE: a security interest is not enforceable after the creditor's rights have attached to the collateral.

false

TRUE or FALSE: any creditor who has a security interest in a debtor's collateral is the secured party.

false

TRUE or FALSE: filing a financing statement with the appropriate public office is the only way to perfect a security interest.

false

TRUE or FALSE: for a creditor to have an enforceable security interest, the debtor must have title to the collateral.

false

TRUE or FALSE: if two conflicting security interests are unperfected, neither interest has priority

false

TRUE or FALSE: on the debtor's default, a secured party can take possession of the collateral covered by the security agreement only by court order.

false

TRUE or FALSE: once default has occurred and the secured party has obtained possession of the collateral, the secured party has no more options.

false

TRUE or FALSE: proceeds from the disposition of collateral after default on the underlying debt are distributed equally among lienholders who have made demands.

false

TRUE or FALSE: the perfection of a security interest will always protect a secured party against other third parties having claims to the collateral.

false

TRUE or FALSE: the rights and remedies of secured parties are not cumulative—if a creditor is unsuccessful in enforcing rights by one method, he or she cannot pursue another method.

false

TRUE or FALSE: whatever a secured party obtains on a sale of collateral is all that he or she can collect on the debt.

false

TRUE or FALSE: when more than one security interest has been perfected in the same collateral, their claims are satisfied proportionately to their value.

false

TRUE or FALSE: a continuation statement will continue the effectiveness of a financing statement for five years.

true

TRUE or FALSE: a debtor's signature or authentication is required to create a security interest.

true

TRUE or FALSE: a perfected purchase-money security interest in inventory can have priority over a conflicting security interest in the same inventory.

true

TRUE or FALSE: a secured party can release any collateral described in the financing statement, thereby terminating its security interest in that collateral.

true

TRUE or FALSE: a security agreement can be filed to perfect a security interest.

true

TRUE or FALSE: a security agreement is an agreement that creates or provides for a security interest.

true

TRUE or FALSE: a security agreement must contain a description of the collateral that reasonably identifies it.

true

TRUE or FALSE: a security interest that provides for a security interest in after-acquired property is a floating lien.

true

TRUE or FALSE: advances against lines of credit can be subject to a properly perfected security interest in certain collateral.

true

TRUE or FALSE: attachment gives the creditor an enforceable security interest in the collateral.

true

TRUE or FALSE: certificate-of-title statutes establish perfection requirements for security interest in certain types of goods.

true

TRUE or FALSE: in most states, a financing statement must be filed centrally in the appropriate state office.

true

TRUE or FALSE: on default, a secured party who chooses not to retain the collateral must dispose of it in a commercially reasonable manner.

true

TRUE or FALSE: perfection is usually accomplished by filing a financing statement.

true