Practice Questions

What does it mean for a financing statement to be seriously misleading about the debtor's name under the Uniform Commercial Code (UCC)? A. A third party, searching by the debtor's correct legal name, cannot locate the financing statement. B. The debtor's name on the financing statement does not match the debtor's name on the most recently filed public organic record. C. The debtor's name on the financing statement is different from the debtor's trade name. D. A third party, searching by the debtor's trade name, cannot locate the financing statement.

A A financing statement that fails to sufficiently provide the debtor's name, as required in the rules set forth for natural persons, registered organizations, and unregistered organizations under section 9-503(a), is seriously misleading. U.C.C. § 9-506(b). However, even if the debtor's name on the financing statement does not exactly match its correct legal name under section 9-503(a), the financing statement is only seriously misleading if a search of the state filing office's records by the correct legal name would not disclose a financing statement using the incorrect name at issue. U.C.C. § 9-506(c). In other words, minor errors, omissions, or variances between the debtor's name listed on a financing statement and the debtor's correct legal name only render the financing statement seriously misleading if a third party, using the debtor's correct legal name, would not be able to locate the financing statement that uses an incorrect name. U.C.C. § 9-506(c), cmt. 2. Answer option B is necessarily incorrect for this same reason. (Quimbee - Changes in Debtor's Name and New Debtor)

In exchange for a loan, a coffee bean shop granted a bank a security interest in the shop's inventory, whether then owned or thereafter acquired. Two weeks after entering into the loan agreement, the shop sold half of its inventory to a local restaurant. The bank had no knowledge of the sale. Does the bank still have an enforceable security interest following the shop's sale? A. Yes, because the floating lien covers the inventory retained by the shop and inventory acquired in the future. B. Yes, because the sale occurred more than 10 days after the bank gave value to the shop. C. No, because the bank's failure to monitor the collateral renders the security interest invalid. D. No, because the shop's continued use of the collateral renders the security interest invalid.

A A floating lien enables a creditor to have a security interest not only in collateral the debtor owns at the time a security agreement is executed, but also collateral the debtor may acquire after the security agreement is executed. Usually accomplished with an after-acquired property clause, a floating lien enables a creditor to maintain an enforceable security interest in a changing set of collateral. U.C.C. § 9-204. Here, the loan agreement uses an after-acquired property clause to grant the bank a security interest not only in the inventory the shop owned when the loan agreement was executed, but also in inventory the shop acquires after the loan agreement was executed. Once the shop sells the inventory, the restaurant takes free and clear of the bank's security interest. The bank's security interest remains attached to the inventory the shop has not sold, as well as inventory the shop later acquires. In this way, the bank's security interest remains attached to whatever inventory in which the shop maintains an ownership interest, even if the particular coffee beans in the shop's possession change over time. (Quimbee - Ongoing Financial Relationships)

Which one of the following is most likely to constitute farm products? (a) The honey that a beekeeper extracts from the beekeeper's bee hive, puts in jars, and sells on the internet. (b) The butter that a dairy farmer has made from the milk produced by the dairy farmer's cows. (c) The wine that a vintner is making from the grapes grown on the vintner's land and which is still aging in kegs. (d) The grain harvested by a wheat farmer and sold to a silo operator.

A All of these items - the honey, the milk, the grapes, and the grain - began as farm products. See § 9-102(a)(34)(D). They lose that classification when they are either transferred to someone other than a person engaged in farming operations - which is what occurred in answer (d) - or are subjected to a manufacturing process. See § 9-102 comment 4a. Although neither the Code nor the comments define what qualifies as a manufacturing process, the illustrations in the comments suggest that turning the milk into butter and the grapes into wine are manufacturing processes. Perhaps more to the point, no manufacturing process is used when honey is jarred. In fact, the honey is not treated in any way; no preservatives are needed with honey. Although the comments indicate that canning is a manufacturing (Exam Pro - Classifying Collateral 3)

A car dealership borrowed from a bank to expand its sales floor. The loan agreement granted the bank a security interest in the fleet of cars the dealership held for sale, and in the portable hydraulic lift that the service department used to raise cars off the ground. How are the cars and the lift classified as collateral by the Uniform Commercial Code (UCC)? A. The cars are inventory and the lift is equipment. B. The cars are consumer goods and the lift is equipment. C. The cars are consumer goods and the lift is a fixture. D. The cars are inventory and the lift is a fixture.

A Article 9 classifies collateral according to how the debtor uses it. As defined by the UCC, goods include all tangible things that are movable when a security interest attaches. U.C.C. § 9-102(a)(44). Inventory is a type of good, other than farm products, which is: (1) leased by a person as a lessor; (2) held by a person for sale or lease or to be furnished under a contract of service; (3) furnished by a person under a contract of service; or (4) raw material, a work in process, or material used or consumed in business. Id. § 9-102(a)(48). Equipment is a catchall category for goods that includes movable items that are not consumer goods, farm products, or inventory. Id. § 9-102(a)(33). For example, equipment includes kitchen items like ovens and mixers used in a restaurant. Here, the debtor is the car dealership. The dealership holds its fleet of cars for sale or lease. Therefore, the cars are inventory. The cars would be consumer goods if their drivers, not the dealership, were debtors in the transaction. Answer options B and C are necessarily incorrect for these same reasons. The lift used in the service department is portable, so it is a movable item. (Quimbee - Intro Final)

A graduate student applied for a loan from a student-loan company. The loan agreements granted the student-loan company a security interest in the student's personal car, listing the car's vehicle identification number. The student signed the loan agreement using her middle initial in her signature; however, the student's driver's license omitted her middle initial. To perfect its security interest, the student-loan company filed a financing statement using the student's name without her middle initial. Over the next three years, the student continued to use the car during and after graduate school, driving across the country several times. The student-loan company never asked the student where the car was or placed any restrictions on the student's use of the car. Is the student-loan company's interest in the student's car perfected? A. Yes, because the student-loan company perfected its interest by filing a financing statement. B. Yes, because security interests in consumer goods perfect automatically upon attachment. C. No, because the student's name on the financing statement does not match the student's name on the loan agreement. D. No, because the student-loan company is not monitoring the car's location.

A Consumer goods are those used for personal, household, or family purposes. U.C.C. § 9-102(a)(23). A secured party may perfect a security interest in consumer goods by filing a financing statement. U.C.C. § 9-310(a). The loan agreement here created a security interest in the student's personal car. Because the student used the car for her own personal uses, the collateral is properly classified as consumer goods. Therefore, the student-loan company could perfect its interest by filing a financing statement. Among other pieces of information, a financing statement must correctly name the debtor in order to perfect a security interest. If the debtor is a natural person, the financing statement must generally use the debtor's full legal name as it appears on her driver's license or other state-issued identification. See, e.g., U.C.C. § 9-503(a)(4). Here, the student-loan company correctly listed the student by the full legal name as it appeared on her driver's license, omitting the student's middle initial. The financing statement therefore correctly names the debtor. The fact that the financing statement uses a different name for the debtor than the loan agreement does not render the financing statement invalid. (Quimbee - Attachment and Perfection Final)

A corporation registered in State A applied for a loan from a bank in State B. The loan agreement granted the bank a security interest in the corporation's equipment located at corporate headquarters in State C. A majority of the corporation's employees worked in its manufacturing plant in State D. The bank planned on perfecting its security interest in the corporation's equipment by filing a financing statement. Under the Uniform Commercial Code (UCC), where is the corporation debtor located for choice-of-law purposes? A. State A. B. State B. C. State C. D. State D.

A If a debtor is located in a particular jurisdiction, then in general that jurisdiction's laws govern perfection, the effect of perfection or nonperfection, and the priority of a particular security interest in collateral. U.C.C. § 9-301(1). If the debtor is a registered organization, then the debtor is located in the state of registration. U.C.C. § 9-307(e). Because the corporation debtor here is a registered organization, its state of registration, State A, is where the debtor is located. Therefore, the law of State A will govern perfection, the effect of perfection or nonperfection, and the priority of the bank's security interest in the corporation's equipment. See U.C.C. § 9-301(1). (Quimbee - Changes in Location)

A corporation granted a bank a security interest in all of its inventory. The corporation was registered in State A. However, all of the corporation's inventory was stored in warehouses in States B and C. The bank was registered in State D. The bank wanted to perfect its security interest in the inventory by filing a financing statement. Which state's laws govern the bank's efforts to perfect its security interest? A. State A's laws. B. State B's laws. C. State C's laws. D. State D's laws.

A In general, in a secured transaction spanning multiple states, a secured party should consult the state where the debtor is located to determine the applicable rules for perfection. See U.C.C. § 9-301(1). A registered corporation is located in its state of registration. Id. § 9-307. Therefore, the laws of State A, where the debtor-corporation here is registered, govern the bank's efforts to perfect its security interest by filing. Answer options B, C, and D are necessarily incorrect for this same reason. (Quimbee - Changes in Location)

*Debtor borrows $1,000 from Adams giving in exchange a negotiable promissory note and a security interest in Debtor's living room furniture. Before the note is due, Adams needs funds and borrows $1,000 from Bush, granting in exchange a security interest in all of Adams' rights against Debtor. Shortly thereafter, Bush incurs a cash-flow problem, and borrows $1,000 from Clinton, granting in exchange a security interest in all of Bush's rights against Adams. Which of the secured parties has a security interest in chattel paper? (a) Adams only. (b) Bush only. (c) Clinton only. (d) Adams and Bush. (e) Adams and Clinton. (f) Bush and Clinton. (g) Adams, Bush, and Clinton. (h) No one.

A The collateral for the first transaction, for which Debtor is the debtor, is home furniture. That would qualify as consumer goods. The collateral for the second transaction, for which Adams is the debtor, is a right to receive money supported by a security interest in specific goods (the furniture). That is chattel paper. § 9-102(a)(11). The collateral for the third transaction, for which Bush is the debtor, is a receivable supported by a security interest in chattel paper. That receivable is not chattel paper because chattel paper is a receivable supported by an interest in specific goods, not a receivable supported by an interest in another receivable. (Exam Pro - Classifying Collateral 11)

*Which one of the following transactions is most likely to create chattel paper? (a) A written, two-year lease of a mainframe computer. (b) A loan secured by an interest in all of the borrower's existing and after-acquired inventory. (c) A loan secured by an interest in all of the borrower's existing and after-acquired equipment. (d) A loan secured by an interest in one of the borrower's patents.

A The collateral in answers (b) and (c) is goods, but not specific goods because of the after-acquired property 137 clause. The collateral in answer (d) is not goods at all, it is a general intangible. The transaction in answer (a) may not create a security interest - it does not if the lease is a true lease, it does if the lease is a disguised financing arrangement - but regardless of whether the transaction is a true lease or a credit sale, it is a transaction that creates chattel paper. The lessor has a right to payment supported by either a security interest in or lease of specific goods. (Exam Pro - Classifying Collateral 12)

A woman took out a bank loan to finance coursework required for a professional certification. The loan agreement granted the bank a security interest in the woman's savings account, which was also maintained at the bank. To perfect its security interest in the savings account, the bank filed a financing statement, listing the collateral as all of the woman's bank accounts. The financing statement used the woman's nickname, which was also the name the woman had used to open the savings account. However, the nickname was different than the woman's full legal name on her driver's license. These events occurred in a jurisdiction that follows the Uniform Commercial Code (UCC). Has the bank perfected its security interest in the woman's account? A. Yes, because the bank controls the woman's savings account. B. Yes, because the woman opened the savings account using her nickname. C. No, because using the woman's nickname renders the financing statement seriously misleading. D. No, because the financing statement must use the account number to indicate the collateral.

A Under the UCC, security interests in deposit accounts, like a savings account, may be perfected only by controlling the deposit account. See U.C.C. § 9-312(b)(1). The UCC defines three ways that a secured party may control a deposit account: (1) be the bank where the deposit account is maintained, (2) become the bank's customer with respect to the deposit account, or (3) enter into an authenticated agreement with the debtor and the bank, specifying that the bank will follow the secured party's instructions regarding the account without further consent from the debtor. U.C.C. § 9-104(a). Here, the collateral is the woman's savings account, which is a deposit account. Accordingly, the bank must perfect its interest in the woman's savings account by controlling the account, as defined by the UCC. Because the bank that extended the loan is also the bank where the woman's savings account is maintained, the bank has control of the woman's savings account and has perfected its security interest. Filing a financing statement cannot perfect a security interest in a deposit account. Security interests in deposit accounts may be perfected only by control, which the bank here has. See U.C.C. § 9-312(b)(1). (Quimbee - Attachment and Perfection Final)

In a loan agreement, a car buyer granted a car dealership a security interest in her new car, as security for the buyer's obligation to repay the loan to the dealership. The buyer planned to use her car to commute to and from work and shuttle her children to school and activities. To perfect its security interest, the dealership filed a financing statement. The financing statement listed the buyer's name according to the information the buyer had provided on the loan application. However, the name the buyer had provided on the application did not match the buyer's full legal name on her driver's license. The two names were so different that a potential creditor, searching by the buyer's full legal name, would not be able to locate the dealership's financing statement. Does the dealership have a perfected security interest in the buyer's car? A. Yes, because the dealership's interest perfected automatically upon attachment. B. Yes, because the financing statement need only list the dealership's name correctly, not the buyer's. C. No, because the financing statement did not list the buyer's name correctly. D. No, because a financing statement may not be used to perfect an interest in inventory.

A An interest in consumer goods perfects automatically if it is a purchase-money security interest (PMSI). U.C.C. § 9-309(1). A PMSI is created when the debtor uses the credit advanced by the secured party to acquire ownership rights in the collateral. Id. § 9-103(a). Here, the car, which is being used as collateral, is a consumer good because the buyer, the debtor, plans to use it primarily for personal, family, or household purposes: commuting to work and taking the children to school and activities. The dealership's interest is a PMSI, because the buyer is using the loan from the dealership to purchase the car. Therefore, the dealership's interest perfects automatically upon attachment, and any defects in the financing statement do not impact the interest's perfection. Answer options C and D are necessarily incorrect for this same reason. (Quimbee - Attachment and Perfection Final)

A high-school student received monthly payments from homeowners in exchange for mowing their lawns. After graduating, the student planned to attend college out of state. The student sold his business to a friend. Is the sale of the student's lawn-care business governed by Article 9 of the Uniform Commercial Code (UCC)? A. Yes, because Article 9 governs the sale of accounts. B. Yes, because Article 9 governs the sale of general intangibles. C. No, because the sale did not involve any security interest. D. No, because the student sells services, and not goods

A Article 9 governs the sale of accounts, chattel paper, payment intangibles, or promissory notes. U.C.C. § 9-109(a)(3). An account is a right to payment of a monetary obligation for any of a variety of activities, including services rendered. Id. § 9-102(a)(2). Here, the student is selling his right to receive payment from homeowners. In selling his business, the student is therefore selling accounts. Article 9 governs the sale of accounts, so the sale is within the scope of Article 9. Answer options C and D are necessarily incorrect for this same reason. Note that Article 9 is not limited to transactions granting a security interest. Rather, Article 9 includes agricultural liens, sales of certain intangible and quasi-tangible property, and consignments. Id. § 9-109(a). (Quimbee - Intro Final)

A customer brought his car into a mechanic for repairs. The customer had used the car as collateral in taking out a personal loan from the bank. This meant that the customer had agreed that the bank could repossess the car if he failed to repay the bank loan. Due to the extensive cost of the repairs, the mechanic asked the customer to sign a payment agreement. The agreement stated that the customer could pay the mechanic in equal monthly installments. If the customer fell behind more than three months on payments, or was otherwise unable to pay the mechanic's bill completely, the mechanic would take possession of the car. Does the mechanic have a security interest in the car that is governed by Article 9 of the Uniform Commercial Code (UCC)? A Yes, because the customer signed an agreement pledging the car in the event that he did not pay for repairs. B Yes, because the customer is paying in installments. C No, because mechanic's liens are outside the scope of Article 9. D No, because the bank already has a security interest in the car.

A Article 9 of the UCC includes any transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract. U.C.C. § 9-109(a)(1). In general, Article 9 governs all consensual security interests in personal property, i.e., security interests in personal property created by mutual agreement between the parties. Here, the consensual agreement between the mechanic and the customer gave the mechanic a security interest in the customer's car. This consensual security interest is governed by Article 9 because the car, an item of personal property, secured the customer's payment of the amount he owed to the mechanic for repairs. See U.C.C. § 9-109(a)(1). (Quimbee - Scope of Article 9)

A godfather loaned his godson $10,000 to purchase a car. The godfather did not insist on any repayment terms; rather, the godfather told his young godson that he considered the loan a wise investment in a promising young man's future. The godson, thankful for the generosity, wrote the godfather a note, promising to repay the $10,000 within 10 years. If the godfather attempts to use the note as security for a loan, how will the note be classified as collateral under Article 9 of the Uniform Commercial Code (UCC)? A. As an instrument. B. As chattel paper. C. As investment property. D. As a general intangible.

A As defined by the UCC, an instrument is a writing evidencing a right to payment of a monetary obligation. U.C.C. § 9-102(a)(47). The godson's note to his godfather evidences the godfather's right to payment of the loan, a monetary obligation. Therefore, the note is an instrument. (Quimbee - Intro Final)

A student-loan company made loans to undergraduate students to finance their education. As security for their repayment of the loans, the students and their parent cosigners agreed in their loan documents to grant the loan company a security interest in various items of personal property. The student-loan company sold 50 of the student loans to a loan-servicing company. Is the sale of the student loans a transaction within the scope of Article 9 of the Uniform Commercial Code (UCC)? A. Yes, because the sale of chattel paper is governed by the UCC. B. Yes, because the sale of instruments is governed by the UCC. C. No, because the students and their parents did not mutually agree to anything with the loan-servicing company. D. No, because the loan-servicing company has not given anything of value directly to the students and their parents and, therefore, is not a creditor.

A Chattel paper is a record evidencing both a monetary obligation and a security interest in specific goods. U.C.C. § 9-102(a)(11). Article 9 of the UCC includes the sale of accounts, chattel paper, payment intangibles, or promissory notes. Id. at § 9-109(a)(3). Here, the student loans are records that evidence the students' and parents' obligation to repay the loans, as well as the student-loan company's security interest in the students' and parents' personal property. Thus, the loans are chattel paper. The loan company's sale of the loans to a loan-servicing company is governed by Article 9. (Quimbee - Intro Final)

Under the Uniform Commercial Code (UCC), which of the following is NOT one of the five main ways to perfect a security interest in collateral? A. Providing value to the debtor. B. Taking control of the collateral. C. Using the state's certificate-of-title system. D. Filing a financing statement.

A Providing value to the debtor is one required step for a security interest to attach to the debtor's personal property serving as collateral. Providing value to the debtor is not one of the UCC's five main ways to perfect a security interest in collateral. (Quimbee - Perfection)

A homeowner borrowed from a bank to finance a kitchen remodel. As security for her obligation to repay the loan, the homeowner granted the bank a security interest in some stocks and bonds she owned. What additional steps, if any, must the bank take to perfect its security interest? A. The bank must file a financing statement or control the stocks and bonds. B. The bank must note its interest using the state's certificate-of-title system. C. The bank must file a financing statement, control the stocks and bonds, or use the state's certificate-of-title system. D. The bank need not take any additional steps because its security interest perfects automatically.

A security interest in investment property, like stocks and bonds, may be perfected by filing a financing statement or by controlling the stocks and bonds. See U.C.C. §§ 9-312(a) (filing), 9-314(a) (control). Here, the bank may therefore perfect its interest in the homeowner's stocks and bonds by either filing a financing statement or controlling the stocks and bonds. The bank may not perfect its interest by using the state's certificate-of-title systems. Certificate-of-title systems are ordinarily reserved for cars, boats, trucks, and other vehicles. (Quimbee - Attachment and Perfection Final)

A farmer took out a loan from a car dealership to purchase a minivan. The farmer and his wife planned to use the minivan to take their children to and from school and for other family errands. As security for the loan, the farmer agreed to give the dealership a security interest in the minivan. How is the minivan classified as collateral by the Uniform Commercial Code (UCC)? A. As inventory. B. As a farm product. C. As equipment. D. As a consumer good.

Article 9 classifies collateral according to how the debtor uses it. As defined by the UCC, goods include all tangible things that are movable when a security interest attaches. U.C.C. § 9-102(a)(44). A consumer good is one used or bought by the debtor primarily for personal, family, or household purposes. Id. § 9-102(a)(23). The debtors here, the farmer and his wife, have bought the minivan and plan on using it primarily for family or household purposes: taking the children to and from school and running other family errands. Therefore, the UCC would classify the minivan as a consumer good. (Quimbee - Intro Final)

A bank had perfected an interest in a dance studio's now-owned and after-acquired equipment by filing a financing statement, listing the debtor as "Dance Studio." Three years later, a music school acquired the dance studio. The combined organization's new name was "Academy of Dance and Music." The combined organization agreed to be bound to the dance studio's former obligations, including its loan agreement with the bank. The arts academy planned to acquire additional dance equipment in order to increase its number of class offerings. The bank wanted to make sure its interest would be perfected in this new equipment as well. How long after the music school's acquisition of the dance studio does the bank have to amend its financing statement to indicate the new debtor's name? A. One month. B. Four months. C. Six months. D. One year.

B A debtor might change its name to reflect that a merger or acquisition has taken place. These transactions often produce a new debtor that acquires rights in the original debtor. This new debtor will be bound to the original security agreement, thereby taking on the former debtor's obligations. When this transaction occurs, if the difference between the name of the original debtor and the name of the new debtor causes an already-filed financing statement to be seriously misleading, then the secured party has four months to recognize this discrepancy and amend the original financing statement. See U.C.C. § 9-508(b). A financing statement is seriously misleading for misnaming the debtor when a potential creditor, searching the state filing office by the debtor's correct legal name, cannot locate a financing statement using the debtor's old incorrect name. U.C.C. § 9-506(c). Here, the original debtor, the dance studio, was acquired by a music school that agreed to assume responsibility for the dance studio's obligations. The new debtor's legal name, "Academy of Dance and Music," is different from the original name on the financing statement, "Dance Studio." A potential creditor searching by the new correct legal name would not find a financing statement using the old debtor's name. The bank's original financing statement is therefore seriously misleading. To ensure that the bank's interest is perfected in any newly acquired equipment, the bank should amend its financing statement within four months to reflect the new debtor's name (Quimbee - Changes in Debtor's Name and New Debtor)

A new restaurant business borrowed from an investor. The repayment term of the loan was eight years, and the restaurant had made clear that it would need the entire term to fully repay the investor. As security for its obligation to repay the loan, the restaurant granted the investor a security interest in all of its assets. The investor wanted to perfect its interest by filing a financing statement. What should the investor do to ensure that its interest remains perfected for the entire eight-year repayment period? A. The investor should file a single financing statement. B. The investor should file an initial financing statement and then file a continuation statement four-and-a-half years later. C. The investor should file two financing statements together on the same day. D. The investor should file an initial financing statement and a continuation statement on the same day.

B A financing statement is effective to perfect a security interest for five years. U.C.C. § 9-515(a). If a secured creditor wants to maintain a perfected interest for longer than five years, the creditor must file a continuation statement. Id. § 9-515(c). However, the creditor must file any continuation statement within six months of when the preceding financing statement is set to expire at the end of its five-year term. Id. § 9-515(d). A properly filed continuation statement continues perfection for another five years from the date on which the preceding financing statement was set to expire. Id. § 9-515(e). (Quimbee - Attachment and Perfection Final)

A draft financing statement named the debtor, a natural person, using the full legal name as it appeared on the debtor's driver's license. The draft statement also indicated that the security interest was in all of the debtor's assets. What additional information, if any, must the draft financing statement contain? A. The amount of credit or value the secured party has extended to the debtor. B. The secured party's name. C. The length of time the debtor has to satisfy its obligation to the secured party. D. The draft financing statement need not contain any additional information.

B A financing statement must contain three pieces of information: (1) the debtor's name, (2) the secured party's name (or the name of the secured party's representative), and (3) an indication of the collateral. U.C.C. § 9-502. Here, the draft statement contains the debtor's name and indicates the collateral covered by the security interest. The only piece of information that must be added is the secured party's name. Answer options A, C, and D are necessarily incorrect for this same reason. (Quimbee - Financing Statements)

What is a floating lien? A. A security interest that attaches only to collateral acquired by the debtor on or before the security agreement becomes effective. B. A security interest that attaches to collateral acquired by the debtor after the security agreement becomes effective. C. A security interest that becomes effective only upon the debtor's future acquisition of unnamed collateral. D. A security interest that becomes effective only upon the debtor's future acquisition of identified collateral.

B A floating lien is one way that parties with ongoing financial relationships enter into secured transactions. A floating lien is a security interest that remains consistent despite an ever-changing class of collateral (e.g., a retailer-debtor's inventory that is being sold and replaced in the normal course of business). Floating liens include not only collateral that the debtor has an interest in on the date the security agreement goes into effect, but also collateral acquired by the debtor after the security agreement becomes effective. Parties with ongoing financial relationships can create a floating lien by using an after-acquired property clause in the security agreement. U.C.C. § 9-204(a). For example, a security agreement might specify that a debtor grants to the secured party a security interest "in all of its equipment, whether now owned or hereafter acquired." (Quimbee - Ongoing Financial Relationships)

*Although goods can have only one classification at a time, many goods can be classified in several different ways, depending on how the debtor uses them. Which of the following is most susceptible to classification as each of the four mutually exclusive classifications of goods (consumer goods, farm products, equipment, and inventory)? (a) A tractor (b) A horse (c) Milk (d) A tree

B A horse can be farm products in the hands of a farmer, equipment in the hands of a horse racer, circus, or carriage ride giver, inventory in the hands of a seller of horses, and consumer goods in the hands of a consumer. Milk is very difficult to classify as equipment; it will almost always be inventory when used for business purposes by someone other than a farmer because it is likely to be used up. See § 9-102(a)(48)(D). For the 136 reasons discussed in the analysis of the previous question, a tractor probably cannot be farm products; it is not a supply. Standing timber is excluded from the definition of farm products, so answer (d) is incorrect (Exam Pro - Classifying Collateral 7)

A bank issued a document to a homeowner, stating that the homeowner had the right to draw on an account at the bank up to $40,000. The homeowner provided the document to a second bank in support of a loan she was taking to purchase a new car. The second bank took a security interest in the document, in the event that the homeowner defaulted on the car loan. How is the document classified by the Uniform Commercial Code (UCC) when the homeowner uses it as collateral for the car loan? A. As an account. B. As a letter-of-credit right. C. As a document. D. As a deposit account.

B A letter-of-credit right is a right to payment or performance manifested in a written or electronic record. U.C.C. § 9-102(a)(51). In practice, the letter of credit is recognizable by its letter format, most often on a bank's letterhead. The letter will generally inform the potential beneficiary that the debtor has a particular amount of money available for its use, whether or not the beneficiary has yet demanded payment or performance from the debtor. Here, the document that the homeowner is using as collateral evidences the homeowner's right to payment from the first bank, up to $40,000. The document is therefore a letter of credit, and the collateral the homeowner is using is a letter of credit right. (Quimbee - Intro Final)

What does it mean for a secured creditor to perfect a security interest in collateral? A. The secured creditor has taken the required steps to create an enforceable security agreement as against the debtor with respect to at least some of the debtor's personal property. B. The secured creditor has taken the required steps to give third parties notice that the secured creditor's security interest has attached to at least some of the debtor's personal property. C. The secured creditor has taken the required steps to ensure that the debtor has notice of the secured creditor's interest in the debtor's personal property. D. The secured creditor has taken the required steps to ensure that the debtor has rights in the collateral being offered as security for repayment or performance of the debtor's obligation.

B A secured creditor who perfects its security interest in collateral has taken the required steps to give third parties notice that the secured creditor's security interest has attached to at least some of the debtor's personal property (the collateral). Which steps are required for a secured creditor to perfect its interest depends on how the collateral is classified. See, e.g., U.C.C. § 9-301 et seq. (defining methods of perfecting interests in various types of collateral). (Quimbee - Perfection)

A nephew borrowed from his uncle to start a new business. As security for the nephew's obligation to repay the loan, the nephew granted the uncle a security interest in a small sum of cash savings. The nephew kept the cash in a safe at the nephew's house. How may the uncle perfect his security interest in the nephew's cash savings? A. The security interest perfects automatically upon attachment. B. By possession. C. By control. D. By filing a financing statement.

B A security interest in money may only be perfected by possession. U.C.C. § 9-312(b)(3). Therefore, the uncle here must possess the money in order to perfect a security interest in it. (Quimbee - Attachment and Perfection Final)

A car salesman drafted a loan agreement, stating that the car dealership would extend a loan to a buyer to purchase a car. The draft agreement identified the car by make, model, and serial number. In exchange for the loan, the agreement bound the buyer to make monthly payments to the dealership at an agreed-upon interest rate. The loan agreement also granted the dealership a security interest in the car, in the event that the buyer failed to make the required monthly payments. Which of the following additional steps regarding the draft loan agreement, if any, must the car salesman take in order for the dealership's security interest to be enforceable against the buyer? A. The salesman must record the loan agreement with the secretary of state. B. The salesman must have the buyer sign the loan agreement. C. The salesman must collect a deposit from the buyer. D. The salesman need not take any additional steps.

B A security interest is enforceable against a debtor once it attaches to collateral. In order for a security interest to attach to collateral, (1) the creditor must provide some value to the debtor, (2) the debtor must have rights in the collateral, (3) the debtor must authenticate a written agreement that grants the creditor rights in specific collateral, and (4) the written agreement must reasonably describe the collateral. U.C.C. § 9-203(b). Here, the draft loan agreement binds the dealership to providing a loan, which is value, to the buyer. See id. § 1-204. In exchange, the loan agreement provides the buyer ownership rights in the car, which is serving as collateral. The loan agreement already reasonably describes the collateral by identifying the car that the buyer is purchasing by make, model, and serial number. Therefore, the only other additional step the car salesman must take with respect to the loan agreement is to have the buyer sign it, in order to authenticate a written agreement that provides the dealership with specific rights in the car. (Quimbee - General Requirements for Attachment)

An airport installed a moving walkway system during construction of a new terminal. The walkway could not be removed without also demolishing the terminal. The airport granted the walkway's installer a security interest in the walkway, in the event that the airport failed to fully pay the installer for his work. Is the transaction between the airport and the installer within the scope of Article 9? A. Yes, because the moving walkway is equipment. B. Yes, because the moving walkway is a fixture. C. No, because the moving walkway is real property. D. No, because the moving walkway cannot be removed from the airport.

B Article 9 governs security interests in fixtures, which are goods that are so related to real property that it makes sense for an interest in them to arise under real property law. U.C.C. §§ 9-102(a)(41); 9-109(a)(1). Examples of fixtures include newly installed furnaces, central air conditioning systems, elevators, or escalators. Here, the moving walkway is a fixture. The walkway cannot easily be removed from the airport itself, without also demolishing the terminal. Therefore, Article 9 governs the security interest the airport granted to the installer. Answer option D is necessarily incorrect for this same reason. (Quimbee - Intro Final)

Which of the following is NOT a category of goods which may be classified as collateral under Article 9 of the Uniform Commercial Code (UCC)? A Consumer goods. B Business supplies. C Farm products. D Equipment.

B Business supplies is not a category of goods recognized by Article 9 of the UCC as potential collateral. Under Article 9, goods are tangible items that are movable at the time any security interest attaches and they become collateral. See U.C.C. § 9-102(a)(44). Article 9 defines four mutually exclusive categories of goods: (1) consumer goods, (2) farm products, (3) inventory, and (4) equipment. U.C.C. § 9-102(a)(23), (33), (34), (48). Depending on the exact nature of a business supply, it may be properly categorized under the UCC as inventory (e.g., toner for the copier and other supplies consumed by the business), or equipment (e.g., computers and photocopiers). See U.C.C. § 9-102 cmt. 4.a. However, under Article 9, business supplies is not a separately defined category of goods. Answer options A, C, and D are each incorrect, because each lists a category of goods recognized by Article 9. See U.C.C. § 9-102(a)(23), (33), (34). (Quimbee - Classifying Collateral)

In general, what does it mean for a debtor to authenticate a written agreement in order to create an enforceable security interest under the Uniform Commercial Code (UCC)? A. The debtor has filed a written agreement with the appropriate state filing office. B. The debtor has signed or otherwise indicated his assent to a written agreement. C. The debtor has filed a written agreement with the appropriate office in his state's certificate-of-title system. D. The debtor has confirmed the authenticity of the creditor's financing statement with the appropriate state filing office.

B For a creditor to be secured and have rights in the debtor's property—that is, for the security interest to attach—there are three main statutory requirements. See U.C.C. § 9-203(b). First, the creditor must provide some value to the debtor. Second, the debtor must have rights in the collateral. Third, the debtor must authenticate a written agreement that grants the creditor rights in specific collateral that the written agreement reasonably describes. Only when all these requirements are met does the security interest attach to the specific collateral and become enforceable against the debtor. See U.C.C. § 9-203(a). While authenticating a written security agreement can be achieved in a variety of ways, the most common method is for a debtor to sign or otherwise indicate his assent to the agreement (for example, by electronically signing or electronically checking boxes). See U.C.C. § 9-203(b)(3)(A). (Quimbee - Attachment and Perfection Final)

For which of the following types of collateral is filing a financing statement the only way to perfect a security interest? A. Instruments and chattel paper. B. Accounts and general intangibles. C. Goods and equipment. D. Deposit accounts and letter-of-credit rights.

B For certain types of collateral, such as accounts and general intangibles, filing a financing statement is the only way for a secured party to perfect its interest. For other types of collateral, filing is just one of a few ways to perfect a security interest. (Quimbee - Attachment and Perfection Final)

A law firm was organized as an unregistered general partnership in State A, where all of the firm's general partners and the firm's managing committee were located. The firm also had a satellite office in nearby State B, where several associates practiced. The law firm applied for a loan from a bank in State A to renovate the office space in State B. As security for the loan, the firm offered its equipment located in State B. The bank wanted to perfect its security interest by filing a financing statement. Under the Uniform Commercial Code (UCC), which state's law controls whether the bank has perfected its security interest in the law firm's equipment? A. State A's law controls because that is where the law firm executed the loan agreement. B. State A's law controls because that is where the firm's chief executives are located. C. State B's law controls because that is where the collateral is located. D. State B's law controls because that is where the law firm plans to use the value the bank has provided in exchange for the security interest

B If a debtor is located in a particular jurisdiction, then in general that jurisdiction's laws govern perfection, the effect of perfection or nonperfection, and the priority of a particular security interest in collateral. U.C.C. § 9-301(1). If the debtor is an unregistered organization, then the debtor is located where its place of business is located. U.C.C. § 9-307(b)(2). If the debtor has multiple places of business, then the debtor's location is the state in which its chief-executive offices are located. U.C.C. § 9-307(b)(3). Here, the law firm debtor has multiple places of business where it conducts its affairs, in both State A and State B. Therefore, the law firm is located where its chief-executive offices are located—here, where all of the firm's general partners and its managing committee are located. Therefore, the law in State A controls whether the bank has perfected its security interest in the law firm's equipment because that is where the firm's chief executives are located. Answer options A, C, and D are necessarily incorrect for these same reasons. (Quimbee - Changes in Location)

A driver in State A borrowed from a dealership to partially finance the purchase of a new car. As security for the loan, the driver gave the dealership a security interest in the driver's collection of antiques. The dealership properly perfected its security interest in the collection by filing a financing statement in State A. Three years later, the driver moved from State A to State B. How long will the dealership's security interest in the collection remain perfected after the driver moves to State B? A. One month. B. Four months. C. Six months. D. One year.

B If the debtor is an individual or unregistered organization, and the debtor changes location from one state to another, then a security interest perfected by filing remains perfected for four months after the change. See § U.C.C. 9-316(a)(2). To remain perfected after this four-month grace period, the secured creditor must properly perfect its security interest in the debtor's new jurisdiction. Otherwise, perfection will lapse once the grace period ends. This four-month period assumes that the underlying financing statement will remain effective for at least four months after the change in location. Therefore, the dealership has four months after the driver moves to perfect its security interest in State B, the debtor's new jurisdiction. The dealership has the full four-month grace period available to do this, because the original financing statement filed in State A is valid for two more years and will not expire within the four-month grace period. See § U.C.C. 9-515(a) (establishing that properly filed financing statements are effective for five years). (Quimbee - Changes in Location)

A homeowner purchased a new television on credit from an electronics store. The homeowner agreed to repay the electronics store in monthly installments. As security for the homeowner's obligation to fully pay for the television, the electronics store took a security interest in the television. Six months after the purchase, the homeowner stopped paying all of his bills. The homeowner was employed and had sufficient funds to continue making payments to the electronics store and other creditors to whom he owed money. In the case of the electronics store, the homeowner refused to continue making payments when he learned that the store had no recycling program. Is the homeowner insolvent, as that term is defined by the Uniform Commercial Code (UCC)? A Yes, because the homeowner is a natural person and not a corporation. B Yes, because the homeowner is unwilling to continue making payments. C No, because the homeowner is able to pay his bills but refuses to do so. D No, because the homeowner has a bona fide dispute with the electronics store.

B Most of the remedies Article 9 of the UCC provides to secured creditors are against debtors who are insolvent. A debtor is insolvent if he is unwilling or unable, in the ordinary course of business, to meet his financial obligations as they become due. U.C.C. § 1-201(b)(23). Here, the homeowner is unwilling to pay the monthly bills for the television, as well as meet his other financial obligations, as they become due in the ordinary course of business. The homeowner is therefore insolvent, as defined by the UCC. (Quimbee - General Terminology)

An investment company perfected an interest in a small business's equipment by filing a financing statement. Two years after the investment company filed the financing statement, the small business satisfied the obligation to the investment company, which had been secured by the interest. The small business sent the investment company a letter, demanding that the investment company terminate the financing statement. How long does the investment company have to comply with the small business's demand? A. 10 days. B. 20 days. C. 30 days. D. 60 days.

B Once a debtor fulfills its obligations, it may send the secured party an authenticated demand to either file a termination statement, or send the debtor a termination statement that the debtor can then file. If the secured party receives this type of demand, it has 20 days to comply. See U.C.C. 9-513(c). Therefore, the investment company here has 20 days to file a termination statement, or send the small business a termination statement. The termination statement effectively ends the financing statement. In this way, future potential creditors searching financing statements will not be concerned about any outstanding security interest in the small business's equipment. (Quimbee - Attachment and Perfection Final)

A small-business owner granted a bank a security interest in the owner's stocks and bonds. The bank wanted to perfect its interest by control. How may the bank control the small-business owner's stocks and bonds? A. By using a system to record its interest in the stocks and bonds. B. By showing that it houses the stocks and bonds or has the right to dispose of them. C. By maintaining records on how the stocks and bonds are stored. D. By noting its interest in the state's certificate-of-title system.

B One of the ways a secured party may perfect an interest in investment property, such as stocks and bonds, is by control. See U.C.C. § 9-314(a). A secured party controls investment property if it either houses the investment property itself or has the right to dispose of or otherwise move the investment property. Id. § 9-106. (Quimbee - Attachment and Perfection Final)

Which of the following is an example of quasi-tangible property? A. An account. B. Letter-of-credit rights. C. A deposit account. D. Inventory.

B Quasi-tangible property tends to consist of important pieces of paper recording obligations or value. There are five main categories of quasi-tangible property: (1) instruments, (2) chattel paper, (3) documents, (4) investment property, and (5) letter-of-credit rights. A letter-of-credit right is a right to payment or performance manifested in a written or electronic record. U.C.C. § 9-102(a)(51). (Quimbee - Intro Final)

As part of an employee purchase plan, an employee purchased stock from his employer. The employee kept the stock certificates in a safety deposit box at his local bank. The employee applied for a loan to purchase a new car. As security for the loan, the employee offered the stock he had purchased from his employer. Under Article 9 of the Uniform Commercial Code (UCC), how is the employee's stock classified as collateral in the car-loan transaction? A. As a deposit account. B. As investment property. C. As chattel paper. D. As an instrument.

B The UCC defines investment property as a security (whether certificated or uncertificated), a security entitlement, a securities account, a commodity contract, or a commodity account. U.C.C. § 9-102(a)(49). Investment property includes stocks and bonds, as those terms are commonly understood. Here, the employee's stock is a certificated security. The employee is using the stock for investment purposes. Therefore, the stock is classified as investment property in the car-loan transaction. (Quimbee - Intro Final)

A bookstore owner, who was a sole proprietor, needed a loan to expand his warehouse. The bookstore's current supply of books was not enough collateral to satisfy the bank's requirements for the loan. However, the bookstore owner had two pending claims from which he expected to receive damages or settlement funds. The bookstore owner had filed these claims as an individual, and not in the bookstore's name. The first claim was a claim against the city for injuries that the bookstore owner sustained when he tripped and fell on broken sidewalk concrete outside his shop. The owner's injuries were caused by the city's failure to maintain the public sidewalk in a safe condition. The second claim was against a supplier for the supplier's failure to timely deliver a shipment of books. In this claim, the bookstore owner sought the liquidated damages specified in the bookstore's contract with the supplier. The bank insisted that any claim offered as collateral for the loan be a commercial tort claim as defined by Article 9 of the Uniform Commercial Code (UCC). Which of the bookstore owner's claims, if either, are commercial tort claims, as that term is defined in Article 9 of the UCC? A. Only the claim against the city. B. Only the claim against the supplier. C. Both the claims against the city and the supplier. D. Neither claim against the city nor the claim against the supplier.

B The UCC permits commercial tort claims to serve as a type of intangible collateral. See U.C.C. § 9-102(a)(13). Commercial tort claims are tort claims in which either: (1) the claimant is an organization, or (2) the claimant is an individual, the claim arose in the course of the claimant's business or profession, and the claim does not include damages for personal injury or death. Id. Here, the business owner has filed both claims as an individual. Thus, the claims will qualify as commercial tort claims only if they fall within the second category (the claim arose in the course of the claimant's business or profession and does not include damages for personal injury or death). The claim against the city is for the owner's personal injuries. Therefore, the claim against the city is not a commercial tort claim eligible to serve as collateral under the UCC. However, the claim against the supplier does meet the criteria here. One, the supplier claim did arise in the bookstore owner's business. Two, the supplier claim does not include damages for personal injury or death. Therefore, the claim against the supplier is a commercial tort claim as defined in the UCC and may serve as collateral. (Quimbee - Intro Final)

What Article 9 classification of collateral can a car sometimes have that gasoline can never be? (a) Consumer good. (b) Equipment. (c) Farm product. (d) Inventory.

B The car can be equipment, but gasoline probably cannot be, because if used for a business purpose, it would be a material consumed in a business, and thus be inventory. See § 9-102(a)(48)(D) & comment 4a. (Exam Pro - Classifying Collateral 5)

Which two of the following are most likely to have the same classification (select among (a) through (f))? (W) A large supply of motor oil owned and stored by Car Rental Company for later use in its fleet of cars. (X) Fresh eggs owned by Dairy Farmer and produced by Dairy Farmer's chickens. (Y) Fresh eggs owned by Restaurant and used to make food. (Z) Pots owned by Restaurant and used to make food. (a) W and X. (b) W and Y. (c) W and Z. (d) X and Y. (e) X and Z. (f) Y and Z.

B The motor oil in (W) is inventory, even though not held for sale, because it is goods used up in a business. See § 9-102(a)(48)(D) & comment 4a. The same is true of the fresh eggs of the restaurant in (Y). In contrast, the fresh eggs of the dairy farmer are farm products, see § 9-102(a)(34)(D), and the pots of the restaurant are equipment. (Exam Pro - Classifying Collateral 4)

*Discount Clothiers Corp. ("DC") is a nationwide retailer of discount clothing, with its main corporate offices in Delaware. At the beginning of this fiscal year, DC leased a mainframe computer from Business Machines, Inc. ("BMI") to assist it in managing its business operations. The lease, which requires DC to make monthly payments of $2,500 to BMI for five years, is a true lease. Six months later, DC needed money because of cash-flow problems. DC borrowed $100,000 from Bank, granting it a security interest in DC's rights in the mainframe pursuant to the lease. The proper classification of the collateral is: (a) An account. (b) Equipment. (c) Chattel paper. (d) A general intangible

B The question essentially asks how to classify a lessee's interest in a lease of goods used for business purposes. Because the lessee has an obligation to pay money, not a right to receive money, that interest cannot be an account or chattel paper. Accounts and chattel paper are types of receivables, not payables. Thus, answers (a) and (c) are wrong. While it may be tempting to select answer (d) because DC does not have all the ownership rights in the computer, such analysis would imply that all goods are general intangibles because the rights associated with ownership are inherently intangible. Although DC has a limited ownership interest, it is best to classify that interest as a good. Because DC is using the goods for a business purpose but not holding them for sale, the goods are equipment. (Exam Pro - Classifying Collateral 9)

Under the Uniform Commercial Code (UCC), which of the following most accurately states how collateral should be described in a financing statement and how collateral should be described in a security agreement? A. Both a financing statement and a security agreement may use supergeneric descriptions of collateral. B. A financing statement may use a supergeneric description of collateral, but a security agreement may not. C. A security agreement may use a supergeneric description of collateral, but a financing statement may not. D. Neither a financing statement nor a security agreement may use a supergeneric description of collateral.

B To perfect a security interest by filing under the UCC, a financing statement must indicate the collateral. See U.C.C. § 9-504. This indication must contain enough information to convey what the collateral is; however, the indication of the collateral listed in a financing statement does not need to be as specific as the description of the collateral required in a security agreement. In a security agreement, a supergeneric description like "all assets" belonging to the debtor is insufficiently specific because it does not permit the collateral to be reasonably identified. U.C.C. § 9-108(a), (c); § 9-504, cmt. 2. In contrast, in a financing statement, supergeneric language is sufficient to indicate the collateral. Answer options A, C, and D are necessarily incorrect for these same reasons. (Quimbee - Financing Statements)

Under the Uniform Commercial Code (UCC), what is the effect of a security interest attaching to collateral? A. The creditor is secured and has no rights in the debtor's personal property offered as collateral. B. The creditor is secured and has rights in the debtor's personal property offered as collateral. C. The creditor is secured and, as against other secured creditors, has an inferior claim to the debtor's personal property offered as collateral. D. The creditor is secured and, as against other secured creditors, has a superior claim to the debtor's personal property offered as collateral.

B Under the UCC, if a security interest attaches, that means that the creditor holding the interest is secured and has rights in the debtor's personal property offered as collateral. In general, a security interest attaches to collateral when the security interest becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment. U.C.C. § 9-203(a). (Quimbee - General Requirements for Attachment)

A farmer borrowed money from his brother, a venture capitalist, to purchase new threshing equipment to use on his farm. The brothers signed a written agreement stating that the farmer would repay his brother in equal monthly installments. The agreement was silent about what would happen if the farmer failed to repay his brother. However, the governing statutes in that jurisdiction automatically created a statutory lien for a creditor on any farm products that were grown from farming equipment that the creditor helped the farmer purchase. Does the farmer's brother have an interest governed by Article 9 of the Uniform Commercial Code (UCC)? A Yes, because Article 9 covers any interest in property used to secure payment or performance of an obligation. B Yes, because agricultural liens are within the scope of Article 9. C No, because statutory, nonconsensual liens are outside the scope of Article 9. D No, because Article 9 governs interests in personal property or fixtures, but not interests in farm products.

B An agricultural lien is a statutory interest in farm products that secures the payment or performance of an obligation relating to goods or services provided in connection with a debtor's farming operation by giving the creditor a secured interest in certain farm products. See U.C.C. § 9-102(a)(5). Many nonconsensual, statutory liens are outside the scope of Article 9 of the UCC. However, although statutory agricultural liens are not consensual, they are specifically included within the scope of Article 9. U.C.C. § 9-109(a)(2). Here, the governing statute gives the farmer's brother an interest in at least some of the farmer's farm products to secure the payment of the farm-equipment loan. Thus, the farmer's brother has an agricultural lien, and agricultural liens are specifically included within the scope of Article 9. See id. Answer options C and D are necessary incorrect for this same reason. (Quimbee - Scope of Article 9)

Which of the following is NOT an interest governed by Article 9 of the Uniform Commercial Code (UCC)? A An agricultural lien. B A landlord's lien. C A security interest in fixtures. DA security interest in personal property.

B Article 9 of the UCC does not govern a landlord's lien. U.C.C. § 9-109(d)(1). A landlord's lien is a landlord' right, usually created by statute or common law, to seize and sell a tenant's assets if the tenant fails to pay rent. Article 9, section 109 specifically states that Article 9 does not apply to a landlord's lien. Rather, Article 9 generally applies to consensual security interests, i.e., security interests created by mutual agreement between a creditor and a debtor or obligor. A landlord's lien falls outside this category of interests because it is not a consensual interest that comes from the agreement of the parties. Rather, a landlord's lien arises by operation of law (Quimbee - Scope of Article 9)

A mid-sized hotel contracted with a company to install a new heating, ventilation, and air conditioning (HVAC) system. The company and the hotel agreed to a five-year payment plan in the sales contract. In the event that the hotel fell more than six months behind on its payments, the sales contract specified that the company could repossess the HVAC system. Because many of the components of the HVAC system were installed permanently and could not be removed from the hotel in any functional form, the sales contract specified that the company could repossess the heat exchanger inside the furnace and the condenser unit installed just outside the hotel building. Is the installation company's interest in the HVAC system governed by Article 9 of the Uniform Commercial Code (UCC)? A. Yes, because all interests in real property are within the scope of Article 9. B. Yes, because Article 9 governs interests in fixtures. C. No, because most of the HVAC system is a permanent part of the hotel building, and Article 9 does not govern interests in real property. D. No, because most of the HVAC system cannot be moved.

B As defined in the UCC, fixtures are goods that have become so related to particular real property that an interest in them arises under real property law. U.C.C. § 9-102(a)(41). Examples of fixtures include newly installed furnaces or HVAC systems, elevators, and escalators. Article 9 governs any transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract. Id. at § 9-109(a)(1). Here, the HVAC system, once installed, is so part of the hotel that only small portions of it may be physically separated. Therefore, the HVAC system is a fixture. Because this transaction uses a contract (the sales contract) to give the installation company a security interest in a fixture (the HVAC system) to secure the hotel's payment, this transaction is governed by Article 9. (Quimbee - Intro Final)

A handyman offered a subscription service in which homeowners paid a monthly fee in exchange for unlimited basic repair services. The handyman wanted to sell his book of subscribers and retire. How are the handyman's subscriptions classified by the Uniform Commercial Code (UCC)? A As deposit accounts. B As accounts. C As inventory. D As investment property.

B The UCC defines an account as a right to payment for a monetary obligation. U.C.C. § 9-102(a)(2). The monetary obligation can be incurred for a variety of defined activities, which include services rendered. Id. § 9-102(a)(2)(ii). Here, the handyman's subscriptions are his right to collect a monthly fee from homeowners, in exchange for his repair services. The subscriptions are therefore accounts. The UCC governs sales of quasi-tangible and intangible property such as accounts. (Quimbee - Classifying Collateral)

Because her daughter did not have any assets, a mother co-signed the daughter's student loans. The mother and daughter were both responsible for repaying the loans. In the event that they could not repay the loans, the mother offered her retirement savings account as security for the student loans. Of the daughter and her mother, who is the debtor and who is the obligor, as those terms are defined in Article 9 of the Uniform Commercial Code (UCC)? AThe daughter and mother are both debtors and obligors. BThe daughter and mother are both obligors, but only the mother is a debtor. CThe daughter and mother are both debtors, but only the mother is an obligor. DThe daughter is a debtor, and the mother is an obligor.

B The UCC defines an obligor as anyone that "owes payment or other performance of an obligation." U.C.C. § 9-102(a)(59). In contrast, a debtor is anyone that has an interest in collateral (i.e., the property subject to a security interest). U.C.C. § 9-102(a)(12) & (28). In other words, an obligor is anyone responsible for paying back a debt, but a debtor is anyone who has an interest in property that is securing the repayment of a debt. Here, both the mother and daughter are responsible for repaying the student loans, the debt. Therefore, they are both obligors. However, the only collateral that was used to secure repayment of the student loans was the retirement savings account. Anyone with an interest in that retirement savings account has an interest in the property that is securing the repayment of the student loans and, therefore, is a debtor. Only the mother has an interest in this collateral, the retirement savings account. Thus, only the mother is a debtor, not the daughter. (Quimbee - General Terminology)

Which one of the following is not a general intangible? (a) A copyright. (b) A right to royalties from the license of a copyright. (c) An ownership interest in a limited liability company. (d) A buyer's claim for breach of warranty against a seller of goods. (e) A liquor license.

B* because it is an account. See § 9-102(a)(2)(i) (referring to a right to payment for property that has been licensed). A copyright, like all intellectual property, is a general intangible. The ownership interest in a limited liability company could be investment property if it were a security, but that is unlikely. The warranty claim is not a commercial tort claim because it is not a tort claim at all; it is a contract claim. (Exam Pro - Classifying Collateral 14)

What is a purchase-money security interest (PMSI), as that term is defined by Article 9 of the Uniform Commercial Code (UCC)? A. A security interest that arises in any transaction involving consumer goods. B. A security interest that arises if the debtor grants a creditor a security interest in goods the debtor has purchased. C. A security interest that arises if a debtor grants a creditor a security interest in property to secure the loan of the money needed to buy the property being offered as collateral. D. A security interest that arises if the debtor grants a creditor a security interest in already-owned property to secure the obligation to repay the creditor money or credit extended to purchase new property.

C A PMSI is created if a debtor grants a creditor a security interest in property to secure the loan of the money needed to buy the property. See, e.g., U.C.C. § 9-103(b). In other words, in secured transactions creating PMSIs, the debtor is using credit or money extended by the creditor to purchase the same property that the debtor is then using as the collateral to secure that same credit. Answer options A, B, and D are necessarily incorrect for this same reason. (Quimbee - Attachment and Perfection Final)

A used car salesman borrowed money from a bank to purchase additional lot space. The salesman granted the bank a security interest in all the salesman's inventory, whether now owned or hereafter acquired. The loan agreement specified a five-year repayment term for the salesman. Near the end of the repayment term, the salesman acquired a significant number of classic cars that he planned to sell. The salesman was not sure whether the bank's security agreement would attach to them or not. What, if anything, does the Uniform Commercial Code (UCC) permit the salesman do next to resolve his uncertainty? A. The salesman may file a letter with the appropriate state agency classifying the cars as equipment and not inventory. B. The salesman may send a letter to the bank classifying the cars as equipment and not inventory. C. The salesman may create a list of the cars that he thinks are currently securing his obligation to the bank and request that the bank confirm or correct the list. D. The salesman may request a letter from the bank disclaiming all interest in the classic cars.

C A debtor who is uncertain about what specific collateral is covered by a security agreement may generate a list of the collateral he believes is attached. The debtor may then send the list to the secured party, and ask the secured party to confirm or correct the list. U.C.C. § 9-210(a)(2). Therefore, here, the car salesman can draft a list of cars he believes are securing his obligation to the bank and then ask the bank to confirm or correct the list. The bank's response will resolve the salesman's confusion about whether or not the classic cars are securing the loan. (Quimbee - Ongoing Financial Relationships)

A restaurant owner applied for a loan from a bank to invest in a new commercial oven. The restaurant owner's uncle cosigned the loan and agreed to be responsible if the owner did not make timely payments. As security for the loan, the restaurant owner offered the new commercial oven, and the uncle offered his personal savings account. Under Article 9 of the Uniform Commercial Code (UCC), the uncle's personal savings account is most properly classified as which category of collateral? A An account. B An investment account. C A deposit account. DA general intangible.

C A deposit account is a savings account, a demand account, certificate-of-deposit account, or other account at a bank. U.C.C. § 9-102(a)(29). Here, as a savings account at a bank, the uncle's personal savings account is a deposit account. (Quimbee - Classifying Collateral)

Which of the following is intangible property? A. Inventory. B. A letter-of-credit-right. C. A deposit account. D. An instrument.

C A deposit account is a type of intangible property. A deposit account is a bank account, including a checking account, savings account, demand account, certificate-of-deposit account, or another sort of account. U.C.C. § 9-102(a)(29). As defined by the UCC, a deposit account does not include investment property (like stocks and bonds) or accounts evidenced by an instrument. Id. (Quimbee - Intro Final)

A bank perfected a security interest in a retailer's inventory by filing a financing statement. The interest secured the retailer's obligation to repay a loan over a loan term of 10 years. How long is the financing statement effective to perfect the bank's security interest? A. One year. B. Two years. C. Five years. D. Ten years.

C A financing statement is effective for five years to perfect a security interest. U.C.C. § 9-515(a). After five years, the financing statement will lapse unless the secured party files a continuation statement within six months of the financing statement's expiration. Id. § 9-515(c), (d). Here, the bank's financing statement will be effective for five years. Answer options A, B, and D are necessarily incorrect for this same reason. To maintain perfection of its interest for the entire loan term, the bank should file a continuation statement within six months of the first financing statement's expiration. (Quimbee - Attachment and Perfection Final)

Although goods can have only one classification at a time, many goods can be classified in several different ways, depending on how the debtor uses them. Which of the following is most susceptible to classification as each of the four mutually exclusive classifications of goods (consumer goods, farm products, equipment, and inventory)? (a) Milk. (b) A milking machine. (c) A glass milk bottle.

C A milking machine cannot be farm products; it is equipment even when used by a person engaged in farming operations. Milk cannot be equipment because the definition of equipment excludes things qualifying as inventory, see § 9-102(a)(33), and milk would get used up in a business. § 9-102(a)(48)(D). (Exam Pro - Classifying Collateral 8)

A small-business owner applied for a loan with the bank. In exchange for the loan, the draft loan agreement granted the bank a security interest in all of the small business's equipment. When does the bank's security interest become enforceable against the small-business owner? A. Only when the bank has advanced the loan funds to the small-business owner. B. Only when the small-business owner has deposited the loan funds. C. Only when the bank's representative and the small-business owner have signed the loan agreement. D. Only when the bank specifically identifies which pieces of equipment in which it is claiming a security interest.

C A security interest is enforceable against a debtor once it attaches to collateral. In order for a security interest to attach to collateral, (1) the creditor must provide some value to the debtor, (2) the debtor must have rights in the collateral, (3) the debtor must authenticate a written agreement that grants the creditor rights in specific collateral, and (4) the written agreement must reasonably describe the collateral. U.C.C. § 9-203(b). Here, once both parties sign the loan agreement, the bank will have an enforceable security interest against the small-business owner. Once the bank has signed the agreement, it has made a binding commitment to extend credit to the small-business owner. This commitment provides value to the debtor. The Uniform Commercial Code defines value as the extension of immediately available credit or a binding commitment to extend credit. Id. § 1-204. Therefore, the bank has provided value once it has signed; it is not necessary for the bank to actually provide the loan funds, or for the small-business owner to deposit them, in order to provide value to the debtor. (Quimbee - General Requirements for Attachment)

A restaurant took a loan from a bank to fund its renovation. In the loan agreement, the restaurant granted the bank a security interest in its commercial oven and in the booths in its dining room. The restaurant planned to move the commercial oven to a different location as part of the renovation. However, the booths had been permanently installed when the restaurant was first constructed and would remain after the renovation was complete. How are the oven and booths classified as collateral by the Uniform Commercial Code (UCC)? A. The oven is equipment and the booths are consumer goods. B. The oven is consumer goods and the booths are equipment. C. The oven is equipment and the booths are fixtures. D. The oven and the booths are equipment.

C Article 9 classifies collateral according to how the debtor uses it. As defined by the UCC, goods include all tangible things that are movable when a security interest attaches. U.C.C. § 9-102(a)(44). Equipment is a catchall category for goods that includes movable items that are not consumer goods, farm products, or inventory. Id. § 9-102(a)(33). For example, equipment includes kitchen items like ovens and mixers used in a restaurant. In contrast, a fixture is a type of good that has become so related to particular property that an interest arises in them under real property law. Id. § 9-102(a)(41). In general, fixtures cannot be removed from the real property to which they are related and are intended to be permanent. Here, both the commercial oven and the booths are tangible items. As used by the restaurant, the commercial oven is not a consumer good, because it is not being used primarily for personal, family, or household purposes. See § 9-102(a)(23). The commercial oven is not a farm product for a variety of reasons, namely, because the restaurant is not engaged in farming operations. See § 9-102(a)(34). Finally, the oven is not inventory, because the restaurant is not holding the oven for sale or lease, nor is it a raw material used or consumed by the restaurant. See § 9-102(a)(48). Because the commercial oven is not a consumer good, a farm product, or inventory, it is therefore equipment. Answer option B is necessarily incorrect for this reason. Unlike the commercial oven, the booths are permanently installed at the restaurant and cannot be moved. The booths are therefore fixtures, because they are a physical good that has become so related to the restaurant's location that an interest arises in them under real property. (Quimbee - Intro Final)

A brother borrowed money from his sister to help start a new business. The brother signed a letter stating that he was borrowing $25,000, which he would repay within 10 years. The letter also stated that as security for the loan, the brother granted the sister a security interest in the brother's new car. Several years later, the sister experienced some financial difficulties and wanted to sell her rights under the letter to a bank. How does the Uniform Commercial Code (UCC) classify the letter in the sister's sale to the bank? A. As a letter-of-credit right. B. As an instrument. C. As chattel paper. D. As a document.

C Chattel paper is a record that evidences both a monetary obligation and a security interest in specific goods. U.C.C. § 9-102(a)(11). Here, the letter evidences the brother's monetary obligation to repay the loan the sister made, as well as the sister's security interest in specific goods, namely, the brother's new car. The letter is therefore chattel paper under the UCC. (Quimbee - Intro Final)

If a debtor is a natural person, where is the debtor located for choice-of-law purposes under the Uniform Commercial Code (UCC)? A. In the state of the debtor's business or workplace. B. In the state of birth noted on the debtor's birth certificate. C. In the state of the debtor's principal residence. D. In the state where the debtor authenticated the security agreement.

C If the debtor is an individual or natural person, then the debtor's location is the state where the debtor's principal residence is located. See U.C.C. § 9-307(b)(1). Absent an exception to the UCC's general choice-of-law rule, the law in the state of the individual debtor's principal residence governs perfection, the effect of perfection or nonperfection, and the priority of a particular security interest in collateral. U.C.C. § 9-301(1). Answer options A, B, and D are necessarily incorrect for this same reason. (Quimbee - Changes in Location)

How long does a financing statement remain effective to perfect a security interest by filing if no continuation statement is filed? A. One year. B. Two years. C. Five years. D. 10 years.

C Once a financing statement is properly completed with all the required information and filed in the correct manner with the proper office, and once any filing fee is paid and accepted, the financing statement is effective to perfect the security interest for five years. See U.C.C. § 9-515(a). Once the five years pass, the financing statement will lapse, and perfection will cease, unless the secured party files a continuation statement within the correct time frame. See U.C.C. § 9-515(c). Answer options A, B, and D are necessarily incorrect for this same reason. (Quimbee - Attachment and Perfection Final)

How long does a secured party that has perfected its interest by filing a financing statement have to comply with a debtor's demand for a termination statement under the Uniform Commercial Code (UCC)? A. 10 days. B. 14 days. C. 20 days. D. 30 days.

C Once the debtor fulfills its obligations, it may send the secured party an authenticated demand to either file a termination statement or send the debtor a termination statement that the debtor can then file. If the secured party receives this type of demand, it has only 20 days to comply. See U.C.C. § 9-513(c). Answer options A, B, and D are necessarily incorrect for this same reason. (Quimbee - Attachment and Perfection Final)

As security for her obligation to repay her grandmother for a loan, a student granted her grandmother a security interest in the student's personal savings account. How may the grandmother perfect her security interest? A. By filing a financing statement. B. By possession. C. By control. D. The security interest will perfect automatically upon attachment

C The only way to perfect a security interest in a deposit account, such as a personal savings account, is by control. U.C.C. § 9-312(b)(1). Therefore, the grandmother may perfect her security interest in the student's personal savings account only by controlling the account. Answer options A, B, and D are necessarily incorrect for this same reason. (Quimbee - Attachment and Perfection Final)

Which one of the following is most likely to constitute equipment? (a) Spark plugs owned by an auto parts store. (b) Spare spark plugs owned by a taxi company. (c) An extra, uninstalled windshield owned by a taxi company. (d) New, recently installed tires owned by a taxi company.

C The spark plugs are clearly inventory when held for sale, and thus answer (a) is incorrect. The remaining choices all look like equipment. However, the definition of equipment excludes goods qualifying as inventory, see § 9-102(a)(33), and inventory includes goods "used or consumed in a business," see § 9-102(a)(48)(D). This language is intended to distinguish business property with a short useful life - which qualifies as inventory - from property with a relatively long period of use, which will be equipment. See § 9-102 comment 4a. In other words, when the definition of "inventory" refers to property "used in a business," it is referring to property "used up in a business." Id. In selecting among the spark plugs, the tires, and the windshield, the windshield is likely to have the longest useful life. Thus, among the three, it is the most likely to qualify as equipment. While an argument could be made that the windshield qualifies as inventory because it is "raw materials," see § 9-102(a)(48)(D), that term most probably relates to materials used to manufacture inventory, not spare parts to be installed on equipment. (Exam Pro - Classifying Collateral 2)

A local pizza place applied at the bank for a loan to renovate its kitchen. As security for the loan, the pizza place wanted to offer its fleet of six delivery vehicles. However, the pizza place did not want to offer as collateral any of the other items it used in its business, like the promotional car it used in parades and other community events. Under the Uniform Commercial Code (UCC), which of the following descriptions of collateral would be sufficient to provide the bank with an enforceable security interest in the delivery vehicles? A. All of the equipment the pizza place owns. B. All of the inventory the pizza place owns. C. The pizza place's fleet of six delivery vehicles. D. All of the pizza place's vehicles.

C To create an enforceable security interest, a security agreement must provide a description of the collateral that is sufficiently specific to make it possible to reasonably identify the collateral. U.C.C. § 9-108(a) cmt. 2. A sufficient description may identify the collateral by type, for example, by stating that the collateral for the agreement is all of the debtor's inventory or equipment. However, if a debtor wishes to offer only some, but not all, of a particular type of collateral, then a more specific description is necessary. Here, the pizza-place debtor wants to offer as collateral only its six delivery vehicles. The description in answer option C is adequate to create a security interest in just those six vehicles because it references the delivery vehicles in a sufficiently specific way to reasonably identify the collateral. (Quimbee - General Requirements for Attachment)

How does Article 1 of the Uniform Commercial Code (UCC) define a security interest? A An interest in personal property. B An interest in personal property securing the payment or performance of an obligation. C An interest in personal property or fixtures securing the payment or performance of an obligation. D An interest in personal property, real property, or fixtures securing the payment or performance of an obligation.

C Article 1 of the UCC defines a security interest as an "interest in personal property or fixtures[,] which secures payment or performance of an obligation." U.C.C. § 1-201(b)(35). (Quimbee - General Terminology)

A collector of vintage cars failed to pay his federal taxes for five years. The Internal Revenue Service (IRS) took legal steps to acquire an interest in the collector's cars. The IRS explained that it would release its interest once the collector paid the back taxes in full. Is the IRS's interest in the cars governed by Article 9 of the Uniform Commercial Code (UCC)? A Yes, because the cars are securing the collector's obligation to pay the IRS. B Yes, because the cars are personal property. C No, because the collector did not agree to give the IRS the interest in the cars. D No, because the cars are not personal property.

C Article 9 does not include statutory liens, such as tax liens. U.C.C. § 9-109(d)(2). Here, the IRS's interest in the collector's cars is a tax lien. The IRS took legal steps to create the interest. In contrast, Article 9 generally governs security interests that arise in a mutually consensual transaction. The main exceptions are agricultural liens, which arise by law (not by consensual agreement), but are nevertheless within the scope of Article 9. See id. § 9-109(d)(1). Therefore, the IRS's interest in the cars is not governed by Article 9. Answer options A and B are necessarily incorrect for this same reason. (Quimbee - Scope of Article 9)

A restaurant owner took out a loan to finance the remodel of the restaurant's main dining room. The restaurant owner offered his kitchen appliances as collateral for the loan. The appliances included a commercial oven weighing over 400 pounds. The restaurant's chefs used the oven daily to cook meals for patrons. Under Article 9 of the Uniform Commercial Code (UCC), what type of good would the commercial oven be classified as, if any? A. The commercial oven is a consumer good, because it makes food for restaurant patrons. B. The commercial oven is inventory, because it is used in a business. C. The commercial oven is equipment, because it is used in a business. D. The commercial oven is not a good at all, because it is too heavy to be moved.

C Article 9 of the UCC defines goods as equipment if the goods are not otherwise classifiable as consumer goods, farm products, or inventory. U.C.C. § 9-102(a)(33). Here, the oven is not a farm product because it is not used or produced by a farmer-debtor. Id. at § 9-102(a)(34). Next, the oven is also not a consumer good because it is not used primarily for personal, family, or household purposes. Id. at § 9-102(a)(23). Rather, the oven is used for business purposes in a restaurant. If the oven had been located in the restaurant owner's family home and used to cook family meals by the restaurant owner, then it would be a consumer good. Finally, the oven is not inventory because it is not held for lease or sale by the restaurant, and it is not raw materials or other materials used or consumed quickly by a business. Id. at § 9-102(a)(48). Although both inventory and equipment may include items used in a business, one primary distinction between the two categories is how quickly the business uses or consumes the goods. Inventory can include goods that are raw materials or materials quickly used or consumed in a business. In contrast, a business does not use up or consume equipment quickly. Because the commercial oven is not otherwise classifiable as a consumer good, inventory, or farm product, it is equipment under the UCC. Answer options A and B are incorrect for these same reasons. (Quimbee - Intro Final)

A bakery provided bread rolls to a large, national restaurant chain under a service contract. The bakery's owner took out a loan from a bank to renovate the bakery's kitchen. In the loan agreement with the bank, the bakery granted the bank a security interest in the bakery's right to receive payment under the service contract with the restaurant chain. Six months after taking out the loan, the bakery suffered a number of business setbacks. Although the bakery was still able to pay its bills and make the loan payments to the bank, the owner estimated that the bakery would start to fall behind on its obligations within the next year. At that time, the bakery had four years of payments remaining on its loan with the bank. Does Article 9 of the Uniform Commercial Code (UCC) provide any remedy to the bank? A. Yes, because the bakery's right to receive payment is being used as security for the tenant's obligation to pay rent. B. Yes, because the bakery's right to receive payment from the restaurant chain is an account. C. No, because the bakery is not yet insolvent. D. No, because a security interest in a right to receive payment is not within the scope of Article 9.

C Much of a secured creditor's recourse under Article 9 lies against debtors who are insolvent. Thus, if a debtor were not yet insolvent, then that would likely prevent a creditor from being able to use Article 9 remedies unless and until the debtor actually becomes insolvent. The UCC explains that a debtor is insolvent if the debtor is unwilling or unable, in the ordinary course of business, to meet the debtor's financial obligations as they become due. U.C.C. § 9-201(b)(23). Here, the bakery is still able to pay its bills as they become due. Although the current business forecast indicates that the bakery may become insolvent in a year, while the bakery will still owe loan payments to the bank, the bakery is not insolvent yet. Article 9 does not provide the bank with a remedy unless and until the bakery is actually insolvent. Answer options A and B are necessarily incorrect for these same reasons. (Quimbee - Intro Final)

Which one of the following is not a general intangible? (a) Frequent flyer miles. (b) Tickets to an upcoming performance of the opera. (c) Ticket stubs to game six of the 1986 World Series. (d) A season ticket to a baseball team's home games next year. (e) A parking permit.

C The frequent flyer miles are purely intangible, and thus would be the most clear example of a general intangible. All the remaining responses involve writings of some sort, and thus seem to be goods. However, a parking permit is not really treated as a good. Its value lies not in its status as a piece of paper, but in the right to park in a designated place or area. That right is incorporeal. In connection with this, note that the definition of general intangibles excludes goods but the definition of goods excludes general intangibles. See § 9-102(a)(42), (44). These are the only two classifications that expressly exclude each other, and thus there is no statutory hierarchy to apply. Moreover, the fact that the drafters believed it necessary to exclude goods from the scope of general intangibles implies that some general intangibles can have mass or be represented by something that has mass (i.e., be moveable); otherwise there would be no need for the exclusion. Thus, the parking permit - which is really the incorporeal right to park - is best viewed as a general intangible. The same is true of the ticket to a future opera performance and to future baseball games. In contrast, the ticket stub to the 1986 World Series is not a right to enter the park. To the extent the stub has value - it was, after all, the infamous game when the Mets came back with two outs in the bottom of the tenth inning and stopped the Red Sox from winning the World Series - it is as an historical or cultural artifact. That makes it a good. (Exam Pro - Classifying Collateral 15)

A debtor operating as a registered organization changed its name from "Catering Business" to "Catering Business LLC" to reflect a corporate reorganization. The debtor also used its new name as its trade name. A bank had previously perfected a security interest in the debtor's equipment by filing a financing statement. The financing statement listed "Catering Business" as the debtor. Does the bank need to amend its financing statement to reflect the debtor's new name? A. Yes, because the debtor's name on the financing statement no longer matches the name on the most recently filed public organic record. B. Yes, because a financing statement must always be amended any time a debtor changes its trade name. C. No, because the debtor has not moved from one state to another. D. No, because a potential creditor searching under the debtor's new legal name would find the financing statement listing the debtor's old legal name.

D A financing statement that fails to sufficiently provide the debtor's name, as required in the rules set forth for natural persons, registered organizations, and unregistered organizations under section 9-503(a), is seriously misleading. U.C.C. § 9-506(b). If a debtor is a registered organization, then the financing statement must list the debtor's name as it appears on the most recently filed public organic record. U.C.C. § 9-503(1). However, even if the debtor's name on the financing statement does not exactly match its correct legal name under section 9-503(a), the financing statement is only seriously misleading if a search of the state filing office's records by the correct legal name would not disclose a financing statement using the incorrect name at issue. U.C.C. § 9-506(c). In other words, minor errors, omissions, or variances between the debtor's name listed on a financing statement and the debtor's correct legal name only render the financing statement seriously misleading if a third party, using the debtor's correct legal name, would not be able to locate the financing statement that uses an incorrect name. U.C.C. § 9-506(c), cmt. 2. (Quimbee - Changes in Debtor's Name and New Debtor)

A tenant rented an apartment from a landlord. After the tenant fell behind on his rent, the landlord filed for a landlord's lien on the tenant's car. Pursuant to state law, the landlord gave the tenant notice that failure to bring the tenant's rent payments current would permit the landlord to repossess the tenant's car. The tenant failed to catch up on the rental payments within the time permitted by state law. Does Article 9 of the Uniform Commercial Code (UCC) provide any remedy to the landlord? A. Yes, because the car is being used as security for the tenant's obligation to pay rent. B. Yes, because the car is a consumer good. C. No, because the tenant is not yet insolvent. D. No, because a landlord's lien is not within the scope of Article 9.

D A landlord's lien is an interest held by a landlord in a tenant's property to secure the tenant's payment of rent. Landlord's liens are usually defined and created by state law. See, e.g., Cleveland v. McNabb, 312 F. Supp. 155 (W.D. Tenn. 1970) (discussing a landlord's lien in a tenant's crops arising under Tennessee law). Article 9 of the UCC does not apply to transactions involving a landlord's lien. U.C.C. § 9-109(d)(1). Therefore, Article 9 provides no remedy to the landlord here. Any remedy the landlord has would typically be defined in the state laws governing landlord's liens. (Quimbee - Intro Final)

A business-school graduate borrowed money from a classmate to start a new company. The graduate granted the classmate a security interest in all of the graduate's cars, whether then owned or thereafter acquired. The classmate perfected the security interest by filing a financing statement. Two years after the classmate filed the financing statement, the graduate married and decided to change her legal name. Which of the following most accurately sets forth the standard the classmate should apply to determine whether her financing statement must be amended to reflect the graduate's name change? A. Whether the graduate's married name differs in any way from the name provided on the financing statement. B. Whether a potential creditor could reasonably be expected to know of the graduate's name change. C. Whether the graduate's married name is substantially different from her maiden name. D. Whether a potential creditor searching financing statements using the graduate's married name would be able to locate a financing statement using her maiden name.

D A secured creditor must amend a financing statement to reflect a debtor's new legal name if a debtor's name change renders a financing statement using the debtor's old legal name seriously misleading. U.C.C. § 9-507(c). A financing statement is seriously misleading as to the debtor's name if a potential creditor, searching by the debtor's new name, would be unable to find a financing statement using the debtor's old name. See id. § 9-506(b). (Quimbee - Changes in Debtor's Name and New Debtor)

A homeowner granted a general contractor a security interest in the homeowner's minivan. The homeowner used the credit the general contractor provided to finance a home renovation. The loan agreement described the minivan with a serial number and was signed by the homeowner. How may the general contractor perfect its security interest? A. The general contractor's security interest in the minivan perfects automatically. B. The general contractor may perfect only by filing a financing statement or controlling the minivan. C. The general contractor may perfect only by filing a financing statement or possessing the minivan. D. The general contractor may perfect only by filing a financing statement, possessing the minivan, or using the state's certificate-of-title system.

D A secured party may perfect an interest in consumer goods in one of several ways, including: by filing a financing statement, by possessing the consumer good, or, in the case of cars, boats, and other vehicles, by using the state's certificate-of-title system. See U.C.C. § 9-310 (filing); § 9-311(a)(2) (certificate-of-title system); § 9-313 (possession). Here, as used by the homeowner, the minivan is a consumer good. The general contractor may therefore perfect a security interest in the minivan by filing a financing statement, possessing the minivan, or using the state's certificate-of-title system to record a lien. Because the homeowner likely wishes to continue driving the minivan while repaying the general contractor, in all likelihood the contractor will perfect by filing or using the certificate-of-title system. (Quimbee - Perfection)

A housepainter borrowed from a small-business development company to purchase a new van. As security for her obligation to repay the loan, the housepainter granted the development company a security interest in her rights to receive payment from her three largest customers. How may the development company perfect its security interest? A. The security interest will perfect automatically upon attachment. B. By possession. C. By control. D. By filing a financing statement.

D A security interest in an account may be perfected only by filing a financing statement. U.C.C. § 9-310. Here, the housepainter's rights to receive payment from her three largest customers are accounts. Therefore, the only way the development company may perfect its interest is by filing a financing statement. Answer options A, B, and C are necessarily incorrect for this same reason. (Quimbee - Attachment and Perfection Final)

Under the Uniform Commercial Code (UCC), in what circumstances, if any, may a floating lien attach to an after-acquired commercial tort claim? A. Only if the after-acquired commercial tort claim is described by type of collateral. B. Only if the debtor acquires rights in the commercial tort claim within 10 days after the secured party gives value. C. Only if the after-acquired commercial tort claim arises in the same business operation that received value in the secured transaction. D. Floating liens may never attach to after-acquired commercial tort claims.

D An after-acquired property clause in a security agreement, which creates a floating lien, can never reach future commercial tort claims. U.C.C. § 9-204(b)(2) cmt. 4. For a security interest to attach to a commercial tort claim, the claim must already exist when the security agreement is authenticated. Id. Answer options A, B, and C are necessarily incorrect for these same reasons. (Quimbee - Ongoing Financial Relationships)

A young couple purchased a new car from a dealership. The wife planned to use the car for driving to and from her part-time job at the family farm three days per week and for personal family uses the rest of the time. Because they could not pay for the car outright on the date of purchase, the couple took a loan from the dealership. The couple used the new car as security (i.e., collateral) for the loan, agreeing that the dealership could repossess the car if they failed to make the agreed loan payments. Because the couple's income fell beneath the dealership's threshold, the dealership required another party to cosign the car loan. The family farm business cosigned, agreeing to be responsible for the loan if the couple could not make the payments. Under Article 9 of the Uniform Commercial Code (UCC), the collateral (the car) is most properly classified as which category of goods? A As equipment, because the wife will use the car to commute to her job. B As a farm product, because the wife will use the car to commute to her job on the family farm. C As inventory, because the car is a good sold by the dealership. D As a consumer good, because the car will be used by the couple primarily for personal, family, or household purposes.

D Article 9 always looks to the debtor's use of the collateral, not the creditor's or a third party's use, to classify collateral as belonging to a particular category of goods. The debtors are the people with an interest in the personal property being used as collateral. U.C.C. § 9-102(28). Here, the collateral is the car, and the people with an interest in the car are the couple. As the debtors, the couple's use of the car controls how the car is classified. A consumer good is one used primarily for personal, family, or household purposes. U.C.C. § 9-102(a)(23). The couple plan to use the car for personal, family, or household purposes, like commuting to work and running family errands. Therefore, the car is a consumer good. (Quimbee - Classifying Collateral)

*Computer Leasing contracts in writing to lease a new $2,000 personal computer to User for four years. Pursuant to the contract, User agrees to pay Computer Leasing $50 per month. Which of the parties' rights in connection with this transaction qualifies as chattel paper? (a) Both. (b) Computer Leasing. (c) User. (d) Neither.

D Chattel paper is a right to receive money supported by an interest in specific goods. That interest could be a creditor's security interest or a lessor's remainder interest. § 9-102(a)(11). Accordingly, a lessor's interest in a written lease of specific goods is chattel paper. The lessee has no right to receive money under the lease; the lessee has an obligation to pay money. Because chattel paper is at heart a receivable, the lessee's interest in a lease of goods cannot be chattel paper. (Exam Pro - Classifying Collateral 10)

A farmer obtained a loan from the bank to construct a new grain silo on her farm. As security for the loan (i.e., collateral), the farmer offered her antique tractor that had belonged to her grandfather. The farmer had restored and repainted the tractor and used it for decorative purposes in front of the farmer's house, which was located on the same plot of land as the farm. Under Article 9 of the Uniform Commercial Code (UCC), the collateral (the antique tractor) is most properly classified as which category of goods? A As equipment, because tractors are used on farms. B As a farm product, because the tractor is security for a loan being used to improve the farm. C As a farm product, because the farmer's house is on the same land as the farm. D As a consumer good, because the tractor is being used for personal, decorative purposes.

D Consumer goods are goods that are used primarily for personal, family, or household purposes. U.C.C. § 9-102(a)(23). Here, the antique tractor is not being used as a tractor, but as decoration for the farmer's personal residence. The use of the tractor for these personal, household purposes makes it a consumer good. (Quimbee - Classifying Collateral)

Under the Uniform Commercial Code (UCC), which two types of collateral must a secured party control in order to perfect its security interest? A. Accounts and general intangibles. B. Investment property and electronic chattel paper. C. Letters of credit and accounts. D. Deposit accounts and letter-of-credit rights.

D Control is the only legitimate method to perfect security interests in deposit accounts and letter-of-credit rights. U.C.C. § 9-312(b)(1), (2). (Quimbee - Attachment and Perfection Final)

A catering business applied for a loan from a bank to finance the purchase of a new food truck. As security for the loan, the business granted the bank a security interest in all of its equipment. The business provided the bank with documentation listing the "Catering Business" as owner of the equipment serving as collateral. The catering business's website listed the business as "Catering Business Co." The bank officer preparing the loan document and financing statement was not sure how to list the catering business on the financing statement. The catering business and bank were located in a jurisdiction applying the Uniform Commercial Code (UCC). Where should the bank officer look first to determine how to list the catering business on the financing statement? A. On the driver's license of the catering business's owner. B. On the catering business's website. C. On the documentation the catering business submitted to show the bank it owned the equipment. D. On the website of the state office where business records are maintained.

D For a financing statement to perfect a security interest, it must be properly completed and filed in the appropriate state office. It is the secured creditor's responsibility to meet these two requirements. To be properly completed, a financing statement must set forth three vital pieces of information. First, the financing statement must correctly list the debtor's name. Second, it must correctly list the secured party's name, or that of a representative of the secured party. Third, it must give an indication of the collateral covered by the financing statement. See U.C.C. § 9-502. The applicable rules for correctly listing a debtor's name depend on whether the debtor is an organization registered with the state, an unregistered organization, or a natural person. See U.C.C. § 9-503. Registered organizations must be named on a financing statement in the exact same way as their name appears on the most recently filed public organic record. U.C.C. § 9-503(a). Unregistered organizations, like general partnerships or sole proprietorships, must be listed with the names of the person or persons who make up the organization, including any and all partners, members, associates, or others who make up the debtor's equity stakeholders. See U.C.C. § 9-503, Alternative A, (6)(B), Alternative B (5)(B). Therefore, the first thing the bank officer should do is to consult the website of the state office where business records are maintained in order to determine whether the catering business is a registered organization or an unregistered organization. This information will lead the bank officer to the applicable rule about how to correctly name the catering business as the debtor on the financing statement. (Quimbee - Attachment and Perfection Final)

A grandmother purchased a large appliance on credit from a secondhand store. Among other collateral, the purchase agreement granted the secondhand store a security interest in the grandmother's cash savings, which was stored at the grandmother's home. Under the Uniform Commercial Code (UCC), how may the secondhand store perfect its interest in the grandmother's cash savings? A. By filing a financing statement. B. By taking control of the money. C. By recording the money using the state's certificate-of-title system. D. By possessing the money.

D For a security interest in money (i.e., cash), taking possession is the only method that a secured party may use to perfect its interest in the cash collateral. See U.C.C. § 9-312(b)(3). Therefore, here, to perfect its security interest in the grandmother's cash savings, the appliance store must take possession of that cash. Answer options A, B, and C are necessarily incorrect for this same reason. (Quimbee - Perfection)

*What Article 9 classification of collateral can gasoline sometimes have that a car can never be? (a) Consumer good. (b) Equipment. (c) Farm product. (d) Inventory

D Gasoline can be a supply used in a farming operation, and thus qualify as a farm product under § 9-102(a)(34)(D), but a car probably cannot be a supply. Although "supply" is not a defined term, it apparently means something with a relatively short useful life. Thus, gasoline can be a farm product when a car cannot be. Even if used in a farming operation, a car would be equipment. See § 9-102 comment 4a (suggesting that a farmer's truck might be either consumer goods or equipment, but giving no indication that it could qualify as a farm product). (Exam Pro - Classifying Collateral 6)

A bank had perfected a security interest in a hair salon's pedicure chairs by filing a financing statement. The financing statement correctly named the debtor as "Beauty Salon." One year after the bank filed its financing statement, the hair salon changed its name from "Beauty Salon" to "Day Spa." Does the bank need to amend its financing statement to maintain a perfected interest in the pedicure chairs? A. Yes, because the hair salon's name changed. B. Yes, because a potential creditor searching for financing statements listing the debtor as Day Spa would not locate the bank's statement naming Beauty Salon. C. No, because the hair salon's name change was not accompanied by any change in corporate structure. D. No, because the bank's security interest attached to the pedicure chairs before the hair salon changed its name.

D If a debtor's post-filing name change renders a financing statement listing the debtor's old name seriously misleading, a secured creditor must amend the financing statement within four months of the change. An amendment using the debtor's correct new name will continue the secured creditor's perfection in any collateral acquired before or after the name change. However, if the secured creditor does not amend its financing statement, the original statement is only effective to perfect an interest in collateral that attached before or within four months of the debtor's name change. U.C.C. § 9-507(c). Here, the bank's security interest had attached to the pedicure chairs before the hair salon changed its name. Therefore, the interest will remain perfected, regardless of whether the bank amends its financing statement to name the debtor as Day Spa instead of Beauty Salon. The bank does not need to amend its financing statement to maintain a perfected interest in the pedicure chairs. The bank would only need to amend its financing statement if, for example, it wanted to perfect an interest in collateral the Day Spa acquired more than four months after the name change. A secured creditor need only amend if the financing statement using the debtor's old name is seriously misleading. (Quimbee - Changes in Debtor's Name and New Debtor)

Which one of the following is least likely to be consumer goods? (a) A home owner's water heater. (b) A college student's laptop computer. (c) A farmer's pet cat. (d) A physician's cell phone.

D The water heater may well be a fixture, but that does not prevent it from being a good. See § 9-102(a)(41) (" 'Fixtures' means goods ..."). In other words, fixtures straddle the line between real property and personal property. They are personal property but an interest in them can be created or transferred through a transfer of the real estate to which they are affixed. As personal property, fixtures are properly classifiable as consumer goods if they are not used for a business purpose. Thus, answer (a) is wrong. 134 The farmer's pet cat is not farm products even though the cat might be livestock because the cat is not used in the farming operation. See § 9-102(a)(34) ("goods ... with respect to which the debtor is engaged on a farming operation"). Thus, answer (c) is wrong. Therefore, the choice comes down to answers (b) and (d). Both the student's computer and the physician's cell phone could be consumer goods or equipment. The issue for each will be whether it is used or was bought for use primarily for personal, family, or household purposes. If so, it will qualify as consumer goods. See § 9-102(a)(23). If not, it will be equipment. Given the limited facts, the odds are that the physician's cell phone is more likely to be used for business purposes, such as to reach the physician when the physician is on call. Put another way, the physician has a business, the student may or may not (but does not have one merely by virtue of being a student). Answer (d) is therefore the better choice. (Exam Pro - Classifying Collateral 1)

A farmer applied for a loan from the bank to purchase materials for a new barn. As security for the loan, the farmer wanted to offer his newest tractor. The farmer owned three different tractors, but the newest one was worth the most and would meet the bank's requirements for the value of the collateral needed to secure the loan. Under the Uniform Commercial Code (UCC), how should the security agreement describe the collateral to create an enforceable security interest in the newest tractor? A. As all of the farmer's personal property. B. As all of the farmer's farm products. C. As the farmer's tractor. D. As the farmer's newest tractor, identified by serial number.

D To create an enforceable security interest, a security agreement must provide a description of the collateral that is sufficiently specific to make it possible to reasonably identify the collateral. U.C.C. § 9-108(a) cmt. 2. A sufficient description may identify the collateral by type, for example, by stating that the collateral for the agreement is all of the debtor's inventory or equipment. However, if a debtor wishes to offer only some, but not all, of a particular type of collateral, then a more specific description is necessary. Here, the farmer wants to offer as collateral his newest tractor, one of three that he owns. Identifying the single tractor by serial number will make it possible to reasonably identify which of the three tractors the farmer is offering as collateral and, therefore, create an enforceable security interest in just that one tractor. (Quimbee - General Requirements for Attachment)

Under the Uniform Commercial Code (UCC), which of the following is NOT one of the three pieces of information required to be set forth on a financing statement to perfect a security interest? A. The debtor's name. B. An indication of the collateral covered by the financing statement. C. The secured party's name. D. The amount of payment or performance owed to the secured party.

D Under the UCC, a financing statement need not list the amount of payment or performance owed to the secured party to be valid. Instead, to be properly completed, a financing statement must set forth three vital pieces of information. First, the financing statement must correctly list the debtor's name. Second, the financing statement must correctly list the secured party's name, or that of a representative of the secured party. Third, the financing statement must give an indication of the collateral covered by the financing statement. See U.C.C. § 9-502(a). Answer options A, B, and C are incorrect because each lists one of the items of information that must be included in a valid financing statement. (Quimbee - Financing Statements)

A businesswoman took a personal loan from a bank to expand her business. The businesswoman conducted all of her business under a nickname, including listing her nickname on her business cards. The loan agreement granted the bank a security interest in the businesswoman's personal car. The bank wanted to perfect its security interest in the car by filing a financing statement. These events occurred in a jurisdiction that follows the Uniform Commercial Code (UCC). How should the bank list the businesswoman on the financing statement? A. By the nickname on the businesswoman's business card. B. By the name on the businesswoman's most recent tax return. C. By the name the businesswoman used to sign the loan agreement. D. By the full legal name on the businesswoman's driver's license.

D Under the UCC, if the debtor is a natural person, Article 9 generally requires that the financing statement indicate the debtor's full legal name exactly as it appears on the debtor's driver's license or other state-issued identification. U.C.C. § 9-503, Alternative A (4), Alternative B 4(C). Here, even though the businesswoman is borrowing money for her business, she is a natural person (rather than any type of organization). Therefore, the bank should follow the rules for natural people when it files its financing statement and list the businesswoman's full legal name as it appears on her driver's license. (Quimbee - Financing Statements)

An architectural firm was organized as a general partnership and not registered with the state. The firm had one founding partner. Two years after the firm's founding, a second partner joined the firm. A third partner and a fourth partner both joined the firm 10 years after that. The firm did business as "Group Architectural Design," which appeared on all its official stationery and advertising. The firm borrowed money from an investment group to build a new headquarters. The loan agreement granted the investment group a security interest in the architectural firm's equipment. The investment group wanted to perfect its security interest in the firm's equipment by filing a financing statement. These events occurred in a jurisdiction that follows the Uniform Commercial Code (UCC). How should the investment group list the architectural firm on the financing statement? A. As Group Architectural Design. B. Using the full legal name of the founding partner only. C. Using the full legal name of the first and second partners only. D. Using the full legal names of all four general partners.

D Under the UCC, if the debtor is an organization that is not registered with the state, like a general partnership, then the financing statement must include the names of all partners, members, associates, or others that make up the debtor's equity stakeholders. See U.C.C. § 9-503, Alternative A, (6)(B), Alternative B (5)(B). Here, the firm is an unregistered general partnership, with all four partners holding an equity stake in the partnership. Therefore, to be valid, the financing statement should list the full legal names of all four general partners. (Quimbee - Financing Statements)

An art collector purchased a painting to display in his home. The collector purchased the painting on credit from an artist. Because the sale was on credit, the parties' purchase agreement granted the artist a security interest in the painting as part of the sale. In the event that the collector did not pay the artist the purchase price within 12 months as agreed, the purchase agreement gave the artist the right to repossess the painting. What additional steps, if any, must the artist take to perfect his security interest in the painting? A. The artist must use the state's certificate-of-title system to place a lien on the painting. B. The artist must file a financing statement listing the painting as collateral. C. The artist must control the painting by having veto power over any changes in the painting's location during the 12-month payment period. D. The artist need not take any additional steps to perfect his interest in the painting.

D With certain types of collateral, a security interest is perfected automatically upon attachment. This means that the secured party does not need to take any further steps to perfect its security interest. For example, certain types of purchase-money security interests (PMSIs) perfect automatically upon attachment. See U.C.C. § 9-309(1). A purchase-money security interest is created if the underlying obligation is incurred (1) as some or all of the purchase price of collateral constituting goods or software, or (2) to supply value to enable the debtor to acquire rights in the collateral (usually, to purchase the collateral), if the debtor in fact uses the value for that purpose. U.C.C. § 9-103(b). In other words, a PMSI is created if a debtor is purchasing property from the creditor on credit, and in exchange for the creditor's extension of credit (which provides value), the debtor grants the creditor a security interest in the property being purchased. If a PMSI transaction involves collateral classified as consumer goods, perfection is automatic upon attachment of the security interest, and the creditor need take no further steps to perfect the creditor's security interest in the consumer goods. U.C.C. § 9-309(1). (Quimbee - Perfection)

A loan agreement granted a bank a security interest in all of the borrower's claims arising out of the borrower's relationship with a vendor, including claims currently pending or filed after the effective date of the loan agreement. Three weeks after the bank and the borrower signed the loan agreement, the vendor breached a purchase agreement with the borrower. The borrower and the vendor had signed the purchase agreement one month before the borrower signed the loan agreement with the bank. However, all of the remaining events giving rise to the borrower's claim against the vendor occurred more than 10 days after the borrower and the bank signed the loan agreement. Does the bank have an enforceable security interest in the borrower's claim against the vendor? A. Yes, because the loan agreement contains an after-acquired property clause. B. Yes, because the borrower signed the purchase agreement with the vendor before entering the loan agreement with the bank. C. No, because the claim against the vendor arose more than 10 days after the bank gave value to the borrower. D. No, because floating liens may not attach to commercial tort claims

D floating lien enables a creditor to have a security interest not only in collateral the debtor owns at the time a security agreement is executed, but also collateral the debtor may acquire after the security agreement is executed. Usually accomplished with an after-acquired property clause, a floating lien enables a creditor to maintain an enforceable security interest in a changing set of collateral. However, there are limits on floating liens. For example, floating liens are not permitted for commercial tort claims. U.C.C. § 9-204(b)(2). Here, the borrower's claim against the vendor is a commercial tort claim. Therefore, the floating lien is not permitted, and the bank does not have an enforceable security interest in the borrower's claim against the vendor. Answer options A and B are necessarily incorrect for this same reason. (Quimbee - Ongoing Financial Relationships)

Which of the following most accurately describes an agricultural lien, as that term is defined by Article 9 of the Uniform Commercial Code (UCC)? A. A statutory lien in a farmer-debtor's personal property that secures payment or performance of an obligation relating to goods or services provided in connection with a debtor's farming operation. B. A statutory lien in a farmer-debtor's quasi-tangible property that secures payment or performance of an obligation relating to goods or services provided in connection with a debtor's farming operation. C. A statutory lien in farm products that secures payment or performance of any obligation incurred by the farmer-debtor. D. A statutory lien in farm products that secures payment or performance of an obligation relating to goods or services provided in connection with a debtor's farming operation.

D An agricultural lien is a statutory interest in farm products that secures payment or performance of an obligation relating to goods or services provided in connection with a debtor's farming operation. U.C.C. § 9-102(a)(5). Even though an agricultural lien is imposed by a statute and is not a consensual security interest, it is still within the scope of Article 9. Id. at § 9-109(a)(2) (Quimbee - Intro Final)

To purchase a plot of land, a farmer took out a loan from a bank. However, to allow the farmer to make immediate improvements to the land, the loan amount was for more than just the purchase price of the land. The farmer agreed to repay the bank in monthly installments. As security for the loan, the farmer offered the land. Under the Uniform Commercial Code (UCC), does the bank have a security interest in the land? A Yes, because the land secures the farmer's obligation to repay the loan. B Yes, because the farmer took out the loan to purchase the land. C No, because the loan exceeded the purchase price of the land. D No, because the land is real property.

D Article 1 of the UCC defines a security interest as "an interest in personal property or fixtures[,] which secures payment or performance of an obligation." U.C.C. § 1-201(b)(35). Land is not personal property or fixtures; it is real property. Therefore, the bank's interest in the land is not a security interest as defined by the UCC. Rather, the bank's interest in the land is most likely a mortgage interest. See, e.g., Bank of Hawaii v. Davis Radio Sales & Serv., Inc., 727 P.2d 469, 478-49 (Haw. Ct. App. 1986) (noting that Hawaii's version of the UCC does not apply to security interests in real property, only to security interests in personal property). Mortgage interests and UCC security interests operate similarly (each is a way of securing repayment of a debt using collateral), but they are each are governed by different sources of law. Answer option A is necessarily incorrect for this same reason. (Quimbee - General Terminology)

A shop specialized in reselling high-end collectibles on behalf of other collectors. The shop's policies required that the shop would sell only items appraised at $1,000 or more. The shop did not auction off the collectibles. Instead, the shop used its website, social media, and an extensive network of personal connections between the shop's owner and collectors worldwide to yield the best sales price for a particular item. A collector approached the shop about reselling a set of four collectibles. Each item in the set was worth approximately $500, for an estimated total of $2,000 in value for the entire set. In exchange for the marketing efforts expended by the shop in selling the collectible set, the collector agreed that the shop would keep a 15-percent commission on a successful sale. Is the shop engaged in a consignment transaction, as defined in Article 9 of the Uniform Commercial Code (UCC)? A Yes, because the aggregate value of the collectible set is $1,000 or more. B Yes, because the aggregate value of the collectible set is $1,000 or more, and the shop does not auction the collectibles. C No, because the shop gets a commission for the sale. D No, because the shop is generally known as being substantially engaged in selling the collectibles of others.

D Article 9 defines a consignment transaction in a very precise, limited way that is different from how the term is used in everyday language. Under Article 9, a consignment transaction has three basic categories of requirements governing: (1) the parties, (2) the goods, and (3) the existence of a security interest. First, for the parties, there must be a person who delivers goods to a merchant for sale. That merchant must be one that: (1) deals in goods of that kind under a name other than the name of the person making the delivery, (2) is not an auctioneer, and (3) is not generally known by its creditors to be substantially engaged in selling the goods of others. See U.C.C. § 9-102(a)(20)(A). Second, to be a qualifying consignment, each delivery of goods both must be worth $1,000 or more at the time of delivery (in the aggregate) and must not be consumer goods immediately before delivery. See U.C.C. § 9-102(a)(20)(B) & (C). Third, the transaction must not create a security interest that secures an obligation. See U.C.C. § 9-102(a)(20)(D). All these requirements must be met for a transaction to be a consignment under Article 9. Here, the shop specializes in selling the collectibles of others. Thus, this shop is generally known by its creditors to be substantially engaged in selling the goods of others. This means that the shop does not meet the requirements in Article 9 of the UCC to be a merchant in a consignment transaction. See U.C.C. § 9-102(a)(20)(A)(iii). Answer options A and B are necessarily incorrect for this same reason. (Quimbee - Scope of Article 9)

An accountant inherited an antique violin and cello from her grandmother. Although the accountant enjoyed playing both instruments for many years, she encountered financial difficulties and decided to sell them. An appraiser had valued the violin at $200 and the cello at $800. The accountant had a client who owned a shop in which the client sold string instruments that the client had made himself. The accountant asked the client to sell the antique violin and cello in his shop. The client agreed, and the accountant delivered both to the client. The client eventually sold both instruments for a total of $1,200. Is the transaction between the accountant and the client a consignment, as that term is defined in Article 9 of the Uniform Commercial Code (UCC)? A. Yes, because the violin and cello sold for more than $1,000 in the aggregate. B. Yes, because the client does not specialize in selling the instruments of others. C. No, because the violin and cello were not each worth $1,000 at the time of delivery. D. No, because the violin and cello were consumer goods immediately before delivery to the client.

D Article 9 of the UCC includes consignment transactions. See U.C.C. § 9-109(a)(4). However, the UCC's definition of consignment differs substantially from how the term is used in everyday speech. See id. at § 9-102(a)(20). Under Article 9, a consignment transaction has three basic categories of requirements governing: (1) the parties, (2) the goods, and (3) the existence of a security interest. First, for the parties, there must be a person who delivers goods to a merchant for sale. That merchant must be one that (1) deals in goods of that kind under a name other than the name of the person making the delivery, (2) is not an auctioneer, and (3) is not generally known by its creditors to be substantially engaged in selling the goods of others. See id. at § 9-102(a)(20)(A). Second, to be a qualifying consignment, each delivery of goods both (1) must be worth $1,000 or more at the time of delivery (in the aggregate) and (2) must not be consumer goods immediately before delivery. See id. at § 9-102(a)(20)(B) & (C). Third, the transaction must not create a security interest that secures an obligation. See id. at § 9-102(a)(20)(D). All these requirements must be met for a transaction to be a consignment under Article 9. (Quimbee - Intro Final)

Which of the following most accurately describes a general intangible, as that term is defined in Article 9 of the Uniform Commercial Code (UCC)? A. Any intangible or quasi-tangible personal property, including chattel paper and instruments but not accounts or deposit accounts. B. Any intangible or quasi-tangible personal property, including accounts or deposit accounts, but not chattel paper or instruments. C. Any intangible or quasi-tangible personal property. D. Any intangible or quasi-tangible personal property that is not properly classified in another existing category of quasi-tangible or intangible property.

D General intangible is a catch-all category for quasi-tangible and intangible personal property, in the same way that equipment serves as a catch-all category for goods. General intangibles are any intangible or quasi-tangible personal property that are not properly classified in another category of intangible or quasi-tangible property. U.C.C. § 9-102(a)(42). Accordingly, the term excludes property correctly classified in other categories, including (1) accounts, (2) chattel paper, (3) commercial tort claims, (4) deposit accounts, (5) documents, (6) goods, (7) instruments, (8) investment property, (9) letter-of-credit rights, (10) letters of credit, (11) money, and (12) oil, gas, or other minerals before extraction. Id. Answer options A, B, and C are necessarily incorrect for this same reason. (Quimbee - Intro Final)

A social media platform announced that it would begin making and trading its own currency. Platform users who purchased the currency would be able to use the currency for platform transactions, such as purchases of items listed for sale on the platform and contributions to fundraisers advertised on the platform. The social medial platform would redeem the currency for U.S. dollars at a user's request, at an exchange rate set by the platform. The platform had no plans to convince regulators in the United States or other countries to adopt its currency. Is the social media platform's currency considered money, as that term is defined by the Uniform Commercial Code (UCC)? A Yes, because platform users can use the currency for purchases and donations. B Yes, because platform users can exchange the currency for dollars. C No, because the currency has not been adopted by the United States. D No, because the currency has not been adopted by any government.

D The UCC defines money as the actual currency adopted by a domestic or foreign government. U.C.C. § 1-201(b)(4). Here, neither the United States nor any other government has adopted the social media platform's currency. Therefore, the currency is not money, as that term is defined by the UCC. Answer options A and B are necessarily incorrect for this same reason. (Quimbee - General Terminology)

Which one of the following is not a general intangible? (a) A right to receive alimony. (b) A bequest due from an estate under administration. (c) A right to an income tax refund. (d) A tenant's right in a security deposit provided to the landlord. (e) A right to receive vacation pay from an employer.

E* it is a right to payment arising from the provision of services, and is therefore an account. If the employee's right were to vacation leave rather than vacation pay, the right would not be an account because it would not be a right to payment. However, some employers allow their employees to earn vacation pay, and to take that payment even if they do not take a vacation. Such rights are accounts. The property in all other answers qualifies as a general intangible.Secured Transactions Exam Pro, ObjectiveKnox, Heather©2012 West Academic Publishing (Exam Pro - Classifying Collateral 13)

Which of the following types of collateral must a secured party possess in order to perfect a security interest in the collateral? A. Consumer goods. B. Instruments. C. Money. D. Tangible chattel paper.

In order to perfect a security interest in money, a secured party must possess the money. U.C.C. § 9-312(b)(3). Answer options A, B, and D are incorrect because each lists a type of collateral for which possession is one acceptable method of perfecting a security interest, but not the only acceptable method. See U.C.C. § 9-313(a). (Quimbee - Attachment and Perfection Final)

A bank loaned a homeowner funds to build a garage. The loan agreement granted the bank a security interest in the homeowner's vehicles. The loan agreement permitted the homeowner to make monthly payments over a 10-year term. The bank perfected its interest in the homeowner's vehicles by filing a properly completed financing statement. These events occurred in a jurisdiction that follows the Uniform Commercial Code (UCC). When, if at all, must the bank file a continuation statement? A. Once the original financing statement has been on file for six months. B. Within six months before the expiration of the original financing statement. C. Once the original financing statement has been on file for two years. D. The bank need not file a continuation statement because the original financing statement is effective to perfect its security interest for the 10-year term of the loan.

Under the UCC, a properly filed financing statement is effective to perfect a security interest for five years. Once the five years pass, the financing statement will lapse, and perfection will cease, unless the secured party files a continuation statement within the correct time frame. See U.C.C. § 9-515(a). A continuation statement may be filed only within the six months before the expiration of the five-year period—no sooner and no later. See U.C.C. § 9-515(d). This prevents a secured party from filing a financing statement and, at substantially the same time, filing a continuation statement to extend the five-year period to 10 years. Therefore, here, the bank must file a continuation statement within six months before the expiration of the original financing statement's five-year term. (Quimbee - Attachment and Perfection Final)