SU 19.6 & 19.7

automatic perfection a PMSI results when

1) a person obtains credit, 2)the credit is used to acquire property, and 3)that property is collateral for the debt

A security interest is perfected when

1) by filing a financing statement, or 2)by possession or control of the collateral, or 3) automatically (in certain cases for a brief period only)

***Shemwell Co. purchased a printing press from Jones Equipment, Inc. Shemwell signed a promissory note for the purchase price and signed a security agreement stating, "The buyer waives as against any assignee of the security interest any claim or defense that the buyer may have against the seller." Jones assigned the promissory note and security agreement to 1st Bank. The waiver-of-defenses clause is not enforceable against Shemwell if

1st Bank did not give value for the assignment from Jones.

Which of the following transactions illustrates a secured party's perfection of its security interest by taking possession of the collateral?

A pawnbroker's lending money.

Under the Secured Transactions Article of the UCC, which of the following security agreements does not need to be in writing to be enforceable?

A security agreement if the collateral is in the possession of the secured party.

Which of the following is most likely covered by Article 9 (Secured Transactions) of the UCC?

A transaction intended to create a security interest in personal property.

A secured creditor wants to file a financing statement to perfect its security interest. Under the UCC Secured Transactions Article, which of the following must be included in the financing statement?

An indication of the collateral.

For purposes of the Secured Transactions Article of the Uniform Commercial Code, a security interest includes

An interest in personal property or fixtures that secures payment or performance of an obligation.

Retailer Corp. was in need of financing. To secure a loan, it made an oral assignment of its accounts receivable to J. Roe, a local investor, under which Roe lent Retailer, on a continuing basis, 90% of the face value of the assigned accounts receivable. Retailer collected from the account debtors and remitted to Roe at intervals. Before the debt was paid, Retailer filed a petition in bankruptcy. Which of the following is true?

As between the account debtors and Roe, the assignment is not an enforceable security interest.

***Winslow Co., which is in the business of selling furniture, borrowed $60,000 from Pine Bank. Winslow executed a promissory note for that amount and used all of its accounts receivable as collateral for the loan. Winslow executed a security agreement that described the collateral. Pine Bank did not file a financing statement. Which of the following statements best describes this transaction?

Attachment of the security interest occurred when the loan was made and Winslow executed the security agreement.

Burn Manufacturing borrowed $500,000 from Howard Finance Co., secured by Burn's current and future inventory, accounts receivable, and its proceeds. Burn's representative authenticated a sufficient security agreement that described the collateral. The security agreement was filed in the appropriate state office. Burn subsequently defaulted on the repayment of the loan, and Howard attempted to enforce its security interest. Burn contended that Howard's security interest was unenforceable. In addition, Green, who subsequently gave credit to Burn without knowledge of Howard's security interest and filed a financing statement but did not have a purchase money security interest (PMSI) in inventory, is also attempting to defeat Howard's alleged security interest. The security interest in question is valid with respect to

Both Burn and Green.

Which is the true classification of goods under UCC Article 9?

Consumer goods, equipment, farm products, inventory.

Wurke, Inc., manufactures and sells household appliances on credit directly to wholesalers, retailers, and consumers. Wurke can perfect its security interest in the appliances without having to file a financing statement or take possession of the appliances if the sale is made by Wurke to

Consumers.

Under the UCC Secured Transactions Article, for a security interest to attach, the

Debtor must agree to the creation of the security interest.

Lombard, Inc., manufactures exclusive designer apparel. It sells through franchised clothing stores on consignment, retaining a security interest in the goods. Gifford is one of Lombard's franchisees pursuant to a detailed contract signed by both Lombard and Gifford. For the security interest to be valid against Gifford with respect to the designer apparel in Gifford's possession, Lombard

Does not have to do anything further.

Perfection of a security interest permits the secured party to protect its rights by

Establishing priority over the claims of most subsequent secured creditors.

Under the UCC Secured Transactions Article, which of the following events will always prevent a security interest from attaching?

Failure of the debtor to have rights in the collateral.

Motor Sales, Inc., sells motor vehicles at retail. It borrowed money from Finance Company and gave a properly executed security agreement in its present and future inventory and in the proceeds therefrom to secure the loan. The security interest was duly perfected under the laws of the state where Motor does business and maintains its entire inventory. Thereafter, Motor sold a new pickup truck from its inventory to a consumer and received a certified check in payment of the full price. Which of the following is true?

Finance's security interest in the certified check Motor received is perfected against Motor's other creditors.

awney Manufacturing approached Worldwide Lenders for a loan of $50,000 to purchase vital components it used in its manufacturing process. Worldwide decided to grant the loan but only if Tawney would agree to a field warehousing arrangement. Pursuant to their understanding, Worldwide paid for the purchase of the components, took a negotiable bill of lading for them, and surrendered the bill of lading in exchange for negotiable warehouse receipts issued by the bonded warehouse company that had established a field warehouse in Tawney's storage facility. Worldwide did not file a financing statement. Under the circumstances, Worldwide

Has a security interest in the goods that has attached and is perfected.

Under the Secured Transactions Article of the UCC, which of the following statements is(are) correct regarding the filing of a financing statement? I. A financing statement must be filed before attachment of the security interest can occur. II. Once filed, a financing statement is effective for an indefinite period of time provided continuation statements are timely filed.

II only

Maxim Corporation, a wholesaler, was indebted to the Wilson Manufacturing Corporation in the amount of $50,000 arising out of the sale of goods delivered to Maxim on credit. Maxim authenticated a security agreement creating a security interest in certain collateral of Maxim. The collateral was described in the security agreement as "the inventory of Maxim Corporation, presently existing and thereafter acquired." In general, this description of the collateral

Is sufficient to cover all inventory.

Under the Secured Transactions Article of the UCC, which of the following statements is correct regarding a security interest that has not attached?

It is not effective against either the debtor or third parties.

Mansfield Financial lends money on the strength of negotiable warehouse receipts. Its policy is always to obtain a perfected security interest in the receipts against the creditors of the borrowers and to maintain it until the loan has been satisfied. Insofar as this policy is concerned, which of the following is true?

Mansfield has a perfected security interest in goods represented by the receipts.

On March 1, Green went to Easy Car Sales to buy a car. Green spoke to a salesperson and agreed to buy a car that Easy had in its showroom. On March 5, Green made a $500 down payment and signed a security agreement to secure the payment of the balance of the purchase price. On March 10, Green picked up the car. On March 15, Easy filed the security agreement. On what date did Easy's security interest attach?

March 5.

Milo Manufacturing Corp. sells baseball equipment to distributors, who in turn sell it to various retailers throughout the United States. The retailers then sell the equipment to consumers who use it for their own personal use. In all cases, the equipment is sold on credit with a security interest taken in the equipment by each of the respective sellers. Which of the following is true?

Milo and the distributors must file a financing statement or take possession of the baseball equipment to perfect their security interests.

On January 1, Shemwell Co. signed a security agreement giving Jones a security interest in a crane Shemwell was planning to buy for its business. In exchange for the security agreement, Jones signed a contract to lend Shemwell $10,000 on request. On January 9, Shemwell purchased the crane. On January 15, Jones delivered $10,000 to Shemwell. On January 20, Jones filed the security agreement with the appropriate public officials. Under the UCC, when did Jones's security interest in the crane attach?

On January 9, when Shemwell purchased the crane for its business.

ABC Co. loaned XYZ Co. $5,000. Under the Secured Transactions Article of the UCC, which of the following items would give ABC the best position in the event of default on the loan by XYZ?

Possession of XYZ's service truck as collateral.

The scope of secured transactions under Article 9 of the Uniform Commercial Code does not include

Sale of corporate debentures

Under the UCC Secured Transactions Article, which of the following actions will best perfect a security interest in a negotiable instrument against any other party?

Taking possession of the instrument.

Case Corporation manufactures electric drills and sells them to retail hardware stores. Under the Uniform Commercial Code, it is likely that

The drills are inventory in Case's hands.

A filing requirement for perfection applies to which of the following transactions under Article 9 (Secured Transactions) of the Uniform Commercial Code?

The factoring of a significant amount of the assignor's accounts receivable.

Under the UCC Secured Transactions Article, what is the effect of perfecting a security interest by filing a financing statement?

The secured party has priority in the collateral over most creditors who acquire a security interest in the same collateral after the filing.

Under the Secured Transactions article of the UCC, a security interest becomes enforceable when

The value has been given, the secured party receives a security agreement describing the collateral authenticated by the debtor, and the debtor has rights in the collateral.

The Town Bank makes collateralized loans to its customers at 1% above prime on securities owned by the customer, subject to existing margin requirements. In doing so, which of the following is true?

Town Bank can obtain a perfected security interest in the securities by control.

Taso Corp. sells laptop computers to the public. Taso sold and delivered a laptop to Cara on credit. Cara gave Taso a purchase money security interest in the laptop by executing and delivering to Taso a promissory note for the purchase price and a security agreement covering the laptop. Cara purchased the laptop for personal use. Taso did not file a financing statement. Under the Secured Transactions Article of the UCC, is Taso's security interest perfected?

Yes, because it was perfected at the time of attachment. A PMSI in consumer goods ordinarily is automatically perfected without filing or possession. Thus, it becomes effective at the time of attachment.

On October 1, Winslow Corporation obtained a loan commitment of $250,000 from Liberty National Bank. Liberty filed a financing statement on October 2. On October 5, the $250,000 loan was consummated, and Winslow signed a security agreement granting the bank a security interest in inventory, accounts receivable, and proceeds from the sale of the inventory and collection of the accounts receivable. Liberty's security interest was perfected

on October 5

Secured party

the lender

Under the Secured Transactions Article of the UCC, a financing statement generally must contain

the name of the debtor

The UCC requires the financing statement to contain

the name of the debtor the name of the secured party, and an indication of the covered collateral

Under the Secured Transactions Article of the UCC, which of the following requirements is necessary to have a security interest attach? debtor has rights in the collateral proper filing of a security agreement value given by the creditor

yes no yes

Under the UCC Secured Transactions Article, which of the following after-acquired property may be covered by a debtor's security agreement with a secured lender? Inventory - equipment

yes - yes