353
Chapter 29
Secured Transactions
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
A1. Any creditor who has a security interest in a debtor’s collateral is the secured party.
A2. Attachment gives the creditor an enforceable security interest in the collateral.
A3. To create an enforceable security interest, the secured party must give the debtor
something of value.
A4. A security interest is enforceable only if the collateral is in the secured party’s
possession.
354 TEST BANK A—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
A5. A security agreement must contain a description of the collateral that reasonably
identifies it.
A6. A financing statement cannot be filed electronically.
A7. A financing statement must be filed under the debtor’s trade name.
A8. The state office in which a financing statement should be filed depends on the
debtor’s location.
A9. Filing a financing statement with the appropriate public office is the only way to per–
fect a security interest.
A10. A purchase-money security interest in a business’s inventory is perfected
automatically at the time of a credit sale.
A11. A financing statement is effective for no more than six months from the date of filing.
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A12. A continuation statement will continue the effectiveness of a financing statement for
five years.
A13. Advances against lines of credit can be subject to a properly perfected security
interest in certain collateral.
A14. A security interest that provides for a security interest in after-acquired property is a
floating lien.
A15. When more than one security interest has been perfected in the same collateral, their
claims are satisfied proportionately to their value.
A16. A buyer in the ordinary course of business has priority unless a previously perfected
security interest exists as to the goods.
A17. A perfected purchase-money security interest in inventory can have priority over a
conflicting security interest in the same inventory.
A18. On the debtor’s default, a secured party can take possession of the collateral covered
by the security agreement only by court order.
356 TEST BANK A—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
A19. Once default has occurred and the secured party has obtained possession of the
collateral, the secured party has no more options.
A20. Whatever a secured party obtains on a sale of collateral is all that he or she can collect
on the debt.
MULTIPLE CHOICE QUESTIONS
A1. The payment of Dagmar’s debt to Evander is guaranteed by Dagmar’s personal
property. This is
a. a lien.
b. a secured transaction.
c. a real property mortgage.
d. a violation of most state laws.
A2. Bayside Credit Corporation lends funds to Claude, a consumer, to apply to the cost of
a boat, which is the collateral for the loan. An enforceable security interest requires
a. a written agreement and Bayside’s possession of the boat.
b. a written agreement or Bayside’s possession of the boat.
c. the boat seller’s acknowledgement of the loan in writing.
d. Claude’s possession of the boat.
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A3. The payment of Florida’s debt to Guillermo is guaranteed by Florida’s personal
property. Guillermo is
a. a lienor.
b. a secured party.
c. a mortgagee.
d. a usurer.
A4. The payment of Hu’s debt to Ian is guaranteed by Hu’s personal property. To give
public notice of his interest in Hu’s property, Ian is most likely to
a. attach a bright label to Hu’s property.
b. e-mail other potential creditors.
c. file a financing statement with the appropriate authority.
d. publish a collection notice in local newspapers.
A5. Super Chef Appliance Company allows Reba to take a set of kitchen appliances that
she bought from Super Chef even though she has not paid the full price. Super Chef’s
legally sufficient financing statement in the goods need not include
a. a description of the collateral.
b. a statement of the reason for allowing Reba to take the goods.
c. Super Chef’s name.
d. Reba’s name.
358 TEST BANK A—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
A6. The payment of Laine’s debt to Mingo is guaranteed by Laine’s personal property. The
process by which Mingo can protect himself against the claims of third parties to this
property is
a. attachment.
b. authentication.
c. perfection.
d. bankruptcy.
A7. Olive borrows from Polo and Quennell, using the same collateral for both loans. Only
Quennell has a perfected security interest. Olive defaults on both loans. The party
with first rights to the collateral is
a. Olive.
b. Polo and Quennell, in proportion to Olive’s debt to each.
c. Polo.
d. Quennell.
A8. The payment of Yves’s debt to Zane is guaranteed by Yves’s personal property. Their
agreement describes Yves’s subject property by serial number. To establish Zane’s
interest, this is
a. irrelevant.
b. not sufficient.
c. sufficient if it accurately describes the parties’ agreement.
d. sufficient unless it is too tedious to review.
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A9. Danica borrows $1,000 from Evermore Bank, using her motorcycle as collateral. To perfect
its security interest, the bank must file its financing statement with
a. the secretary of state.
b. the county clerk.
c. the city treasurer.
d. the ward alderman.
A10. Mona lives in New Jersey, but she works in New York. Mona borrows $1,000 from
National Bank, using her motorcycle as collateral. To perfect its security interest, the
bank must file its financing statement in at least
a. every state.
b. New Jersey.
c. New Jersey and New York.
d. New York.
Fact Pattern 29–1A (Questions A11–A13 apply)
Luxuro Vehicles, Inc., makes and sells automobiles to auto dealers, including MotorPros Auto
& Truck Sales. MotorPros sells the cars to consumers and businesses.
A11. Refer to Fact Pattern 29-1A. A car in MotorPros’s possession is most likely
a. a consumer good.
b. an instrument.
c. equipment.
d. inventory.
A12. Refer to Fact Pattern 29-1A. Nani, a professional driver, buys a customized Luxuro
from MotorPros to drive in a Grand Prix race. Nani’s Luxuro is
a. a consumer good.
b. an instrument.
c. equipment.
360 TEST BANK A—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
d. inventory.
A13. Refer to Fact Pattern 29-1A. Oakes, a police officer, buys a Luxuro from MotorPros to
drive in his off-duty hours. Oakes’s Luxuro is
a. a consumer good.
b. an instrument.
c. equipment.
d. inventory.
A14. Saf–T Lenders, Inc., takes possession of Tiara’s stock in Urgent Care Corporation to
perfect Saf-T’s security interest in the stock. This is
a. after-acquired property.
b. a pledge.
c. a purchase-money security interest.
d. a violation of most state laws.
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A15. OK Investments, Inc., files a financing statement to provide notice of its security
interest in the property of Pancake House Restaurant. The initial effective term of a
financing statement is a period of
a. five days.
b. five months.
c. five weeks.
d. five years.
A16. Clear Sky Credit Corporation asks Dimension Games Company to agree to a security
agreement that provides for coverage of the proceeds from the sale of after-acquired
property. This is
a. the first-in, first-out rule.
b. a floating lien.
c. a violation of most state laws.
d. a future advance.
A17. Experienced Capital Company and First Street Bank are secured parties with security
interests in property owned by Grande Oil Corporation. Between these security
interests, the first to be filed or perfected has priority over other filed or perfected
security interests in
a. most circumstances.
b. no circumstances.
c. states that have not adopted Article 9 of the UCC.
d. states that require a security agreement to be signed and dated by the
creditor.
362 TEST BANK A—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
A18. Elias repays his debt, incurred to buy consumer goods, to Finance Bank and
immediately files a written request for a termination statement. Finance
a. must comply within one month of receipt of the letter.
b. must comply within twenty days of receipt of the letter.
c. must refund $500 to Elias.
d. is not required not comply.
A19. Ron does not make a payment on his car loan for several months. The dealer, Star
Auto, repossesses the car by towing it from a public parking lot. Ron sues Star for
breach of the peace. Ron will probably
a. prevail, because Ron has not formally defaulted on the car loan.
b. prevail, because the car was in a public lot when it was towed.
c. not prevail, because the repossession was not a breach of the peace.
d. not prevail, because a creditor can repossess property in which it holds an
interest if no threats or force are used against a debtor.
A20. Hal’s Hardware store defaults on a debt to Intrastate Bank, which takes possession of
the collateral securing the debt. Intrastate sells the collateral. The proceeds from the
sale are applied first to
a. Hal’s debt to Intrastate.
b. Hal’s debts to other creditors.
c. Intrastate’s fees for the sale.
d. payments Hal’s made on the debt to Intrastate.
ESSAY QUESTIONS
A1. Efrem owns Fans & Players, a retail sporting goods shop. When Great Hill Lodge, a
new ski resort, is built in the area, Efrem decides to expand and borrows a large sum
from Hometown Bank. The bank takes a security interest in Efrem’s present inventory
and any after-acquired inventory as collateral for the loan. The bank properly perfects
CHAPTER 29: SECURED TRANSACTIONS 363
the security interest by filing a financing statement. Efrem’s business is profitable, and
he begins doubling his inventory. A year later, an avalanche destroys the ski slope and
lodge. Efrem’s business takes a turn for the worse, and he defaults on his debt to the
bank. The bank seeks possession of his entire inventory, even though the inventory is
twice as large as it was when the loan was made. Efrem claims that the bank has
rights to only half of his inventory. Is Efrem correct? Explain.
A2. Discount Stores, Inc., borrows $5,000 each from EZ Loan Corporation, First National
Bank, and Great Products Corporation. Discount uses its “present inventory and any
thereafter acquired” to secure the loans from EZ Loan and First National. EZ Loan
perfects its interest on April 1, followed by First National on April 5. Discount buys
new inventory on April 10 from Great Products and signs a security agreement, giving
Great Products a purchase-money security interest in the new inventory. On the same
day, Great Products perfects its interest and notifies EZ Loan and First National.
Discount takes possession of the new inventory on April 15. On April 20, Discount
defaults on all of the loans. Whose security interest has priority?