Business Law, 8e (Cheeseman)
Chapter 27 Secured Transactions and E-Filing
1) The property in which a security interest is taken is called collateral.
2) A secured transaction is one in which the creditor and debtor carry out financial transaction in
a secure medium, such as a private communication channel.
3) Tangible personal property includes securities, patents, trademarks, and copyrights.
4) If a lender extends unsecured credit to a debtor, the creditor takes no interest in any collateral
to secure the loan.
5) The extension of credit in a secured credit requires the purchaser’s pledge to some personal
property as collateral for the loan.
6) In a secured credit, the creditor cannot recover the collateral despite the debtor’s defaults on
the loan.
7) Article 9 of the Uniform Commercial Code governs secured transactions in personal property.
8) Intangible personal properties cannot be used as collateral to a security agreement.
9) In a secured transaction, the debtor is the secured party.
10) Security interest is the rate of interest per annum which is entitled to the party that secures
payment or performance of an obligation
11) A two-party secured transaction occurs when a seller sells goods to a buyer on credit and
retains a security interest in the goods.
12) A three-party secured transaction occurs when a seller sells goods to a buyer who has
obtained financing from a third-party lender who takes a security interest in the goods sold.
13) In a three-party secured transaction, the party that purchases the good or service is known as
the buyer-secured creditor.
14) To be valid, a security agreement must set forth the creditor’s rights upon the debtor’s default.
15) Attachment is a situation in which the value of the creditor’s collateral is insufficient to
satisfy the debt it is collated for.
16) A chattel paper is a record that evidences both a monetary obligation and a security interest
in specific goods and software used in the goods.
17) Chattel paper is considered as tangible personal property.
18) Accessions are pieces of individual property or goods that are not united with any other
property.
19) A floating lien is a security interest in property that was not in the possession of the debtor
when the security agreement was executed.
20) After-acquired property is property obtained by the creditor after a security agreement has
been executed.
21) The term sales proceeds refers to the resulting assets from the sale, exchange, or disposal of
collateral subject to a security agreement.
22) Attachments are funds advanced to a debtor from a line of credit secured by collateral.
23) Perfection of a security interest establishes the right of a secured creditor against other
creditors who claim an interest in the collateral.
24) Perfection by investment of collateral is one of the methods of perfecting a security interest
under the UCC.
25) A financing statement refers to a document filed by a secured creditor with the appropriate
government office that constructively notifies the world of his or her security interest in personal
property.
26) A financing statement covering fixtures is called a continuation statement.
27) Financing statements are effective for five years from the date of filing.
28) Only one continuation statement can be filed for a financing statement.
29) Purchase money security interest is an interest a creditor automatically obtains when he or
she extends credit to a consumer to purchase consumer goods.
30) A termination statement is filed when the secured party wishes to claim the collateral
because the debt has not been paid.
31) A creditor who has the only secured interest in the debtor’s collateral has priority over
unsecured interests.
32) Inability of a debtor to pay a debt owing to bankruptcy does not constitute default.
33) Repossession refers to a right granted to a secured creditor to take possession of the collateral
upon default by the debtor.
34) Retention of collateral refers to a debtor’s repossession of the collateral after paying the debt.
35) An artisan’s lien is a statutory lien given to workers on personal property to which they
furnish services or materials in the ordinary course of business.
36) For an artisan’s lien to be effective, the artisan must be in possession of the property.
37) A property in which a security interest is taken is called ________.
A) collateral
B) escrow
C) attachment
D) leverage
38) Which of the following is considered tangible personal property?
A) car
B) mutual fund investment
C) trademark
D) patent
39) ________ is a situation in which a creditor agrees to extend credit only if the purchaser
pledges some personal property as collateral for the loan.
A) Floating lien
B) Attachment
C) Mortgage
D) Secured credit
40) Which article of the Uniform Commercial Code governs secured transactions in personal
property?
A) Article 8
B) Article 9
C) Article 18
D) Article 19
41) When a creditor extends credit to a debtor and takes a security interest in some personal
property of the debtor, it is called a ________.
A) super-priority lien
B) collateral claim
C) collateral disposition
D) secured transaction
42) A(n) ________ has an ownership or other interest in the collateral and owes payment of a
secured obligation.
A) creditor
B) debtor
C) seller
D) lender
43) William buys a $500,000 house from Keith Geller through a realtor. He makes a down
payment of $200,000. He borrows the rest from Smith and Sons, a lending firm, and places his
new house as collateral for the loan. Which of the following is the debtor in this case?
A) William
B) Keith Geller
C) Smith and Sons
D) the realtor
44) John buys a new car with the help of a loan. He permits the creditor to take possession of the
car if he cannot repay the loan in time. Here, the car is the ________.
A) after-acquired property
B) collateral
C) intangible personal property
D) floating lien
45) Which of the following transactions occurs when a seller sells goods to a buyer on credit and
retains a security interest in the goods?
A) two-party secured
B) three-party secured
C) perfected
D) attached
46) A business purchases an airplane from an airplane manufacturer. The business obtains a loan
to purchase the airplane from a bank, which obtains a security interest in the airplane. The
airplane manufacturer is paid for the airplane from of the proceeds of the loan. This is a
________ transaction.
A) two-party secured
B) three-party secured
C) perfected
D) attached
47) When a buyer obtains a loan from a bank to pay the seller, the transaction is known as a(n)
________.
A) attachment
B) floating-lien
C) two-party secured transaction
D) three-party secured transaction
48) A ________ is a written document signed by a debtor that creates a security interest in
personal property.
A) license
B) lease agreement
C) security agreement
D) chattel paper
49) A(n) ________ is a situation in which a creditor has an enforceable security interest against a
debtor and can satisfy the debt out of the designated collateral.
A) floating lien
B) secured transaction
C) attachment
D) redemption
50) Which of the following terms refers to goods that are physically united with other goods such
that the identity of the original goods is not lost?
A) inventories
B) general intangibles
C) accessions
D) stocks
51) Which of the following is considered intangible personal property?
A) vehicles
B) equipments
C) accessions
D) deposit accounts
52) A(n) ________ refers to a security interest in property that was not in the possession of the
debtor when the security agreement was executed.
A) floating lien
B) after-acquired property
C) attachment
D) future advance
53) A(n) ________ is property that a debtor acquires post the execution of a security agreement.
A) floating lien
B) after-acquired property
C) attachment
D) future advance
54) Kimberly borrows $50,000 from a bank. She gives the bank a security interest in her
________ inventory. This implies that if Kimberly does not repay the loan in the stipulated
period, the bank can claim any assets she purchased post the draft of the security agreement.
A) floating lien
B) future advance
C) attached
D) after-acquired
55) Which of the following refers to the resulting assets from the exchange or disposal of
collateral subject to a security agreement?
A) sale proceeds
B) future advances
C) floating lien
D) after-acquired property
56) A(n) ________ is a record that evidences both a monetary obligation and a security interest
in specific goods and software used in the goods.
A) chattel paper
B) citation
C) financing statement
D) document of possession
57) ________ is a process that establishes the right of a secured creditor against other creditors
who claim an interest in the collateral.
A) Disposition of collateral
B) Retention of collateral
C) Perfection of a security interest
D) Repossession of a security interest
58) A(n) ________ refers to a document filed by a secured creditor with the appropriate
government office that constructively notifies the world of his or her security interest in personal
property.
A) security disclosure
B) financing statement
C) possession statement
D) custodial statement
59) Which of the following is true of financing statements?
A) They cannot be electronically filed.
B) They are effective for one year from the date of filing.
C) Expired financing statements cannot be extended.
D) They are available for review by the public.
60) What of the following is true of the rule of perfection by possession of collateral?
A) A creditor cannot take possession of the collateral until a financing statement is filed.
B) No financing statement has to be filed if the creditor has physical possession of the collateral.
C) A debtor cannot acquire security against the collateral without filing a financing statement.
D) A financing statement can be filed only against intangible personal property placed as
collateral.
61) ________ is an interest a creditor automatically obtains when he or she extends credit to a
consumer to purchase consumer goods.
A) Purchase money security interest
B) Cumulative security interest
C) Future advance monetary interest
D) Default interest
62) ________ is a situation in which the creditor does not have to file a financing statement or
take possession of the goods to perfect his or her security interest.
A) Perfection by possession of collateral
B) Perfection by attachment
C) Perfection by claim
D) Perfection without statement
63) Marcia buys a $3,000 high-definition plasma television for her home on credit extended by
the seller, Circuit City. Circuit City requires Marcia to sign a security agreement. Circuit City has
a ________ interest in the television that is automatically perfected at the time of the credit sale.
A) cumulative security
B) future advance monetary
C) default
D) purchase money security
64) Kelly borrows $12,000 from Terry Oswald to pay for her mother’s surgery. The debt-
repayment period is 15 months but Kelly manages to repay it in 11 months. Which of the
following must be filed by Oswald after receiving the final installment of his money?
A) financing statement
B) statement of collateral claim
C) termination statement
D) continuation statement
65) Which of the following is true of priority of claims?
A) If two or more secured parties claim an interest in the same collateral but only one has
perfected his or her security interest, the perfected security interest has priority.
B) Although one of the parties to claim an interest in the collateral has perfected his or her
security interest, all the parties are given fair and equal priority.
C) If two or more secured parties claim an interest in the same collateral but neither has a
perfected claim, they are given equal priority irrespective of attachments.
D) If two or more secured parties claim an interest in the same collateral but neither has a
perfected claim, the first to claim has priority.
66) Darrel, Smith, Keith and Aaron are claimants to a collateral interest. Smith and Darrel secure
their interest. Aaron takes physical possession of the collateral. Keith files a financing statement
some time later. Who among the four would have highest priority of claim to the collateral?
A) Darrel
B) Smith
C) Keith
D) Aaron
67) Which of the following constitutes default?
A) repaying a debt before it is due
B) bankruptcy of the debtor
C) increase of rate of interest by the creditor midway through debt repayment
D) theft of the collateral
68) What is repossession?
A) a right granted to the debtor to take possession of the collateral after repayment of the debt
B) a right granted to the debtor to take possession of the collateral before repayment of the debt
C) a right granted to a secured creditor to take possession of the collateral upon default by the
debtor
D) the act of possession of the collateral by the court owing to default by both debtor and
creditor
69) The term ________ refers to a secured creditor’s possession of collateral upon a debtor’s
default and proposal to retain the collateral in satisfaction of the debtor’s obligation.
A) repossession
B) disposal of the goods
C) disposition of collateral
D) retention of collateral
70) The term ________ refers to a secured creditor’s repossession of collateral upon a debtor’s
default and selling, leasing, or otherwise disposing of it in a commercially reasonable manner.
A) repossession
B) disposal of the goods
C) disposition of collateral
D) retention of collateral
71) A secured creditor must ________ the collateral if he or she receives a written objection to
the proposal from a person entitled to receive notice within 20 days after the notice was sent.
A) dispose of
B) repossess
C) retain
D) claim
72) Which of the following is true of disposition of collateral?
A) Disposition of collateral must be a public proceeding.
B) The debtor is entitled to receive any surplus collateral that remains after disposition.
C) The debtor need not be notified of the disposition as the creditor has complete claim on the
collateral.
D) Disposition of collateral occurs when the default is by the creditor.
73) ________ permits a secured lender to recover other property or income from a defaulting
debtor if the collateral is insufficient to repay the unpaid loan.
A) Redemption right
B) Deficiency judgment
C) Disposition of collateral
D) Retention of collateral
74) Gregory borrows $200,000 from Mountain Bank to purchase a plot of land, and Mountain
Bank perfects its security interest in the house for this amount. Gregory defaults on the loan
when he owes $80,000 to the bank. His house has gone down in value to $160,000 at the time of
default, but he has other personal assets to satisfy the debt. Which of the following is a course of
action for Mountain Bank to recover the debt?
A) proceed to judgment against Gregory
B) file a financing statement
C) release a termination statement
D) proceed to repossess the collateral
75) A(n) ________ is a statutory lien given to workers on personal property to which they
furnish services or materials in the ordinary course of business.
A) super-priority lien
B) floating lien
C) artisan’s lien
D) judgment lien
76) What is a secured transaction?
77) Distinguish between two-party and three-party secured transactions with examples.
78) What is a financing statement? What is its significance in perfecting a security interest?
79) Outline the priority of claims.
80) Explain in brief the concept of deficiency judgment with an example.