Ch. 30

Question 1

A security interest cannot become perfected without the filing of a security agreement.

Answer 1

False

Question 2

A security interest in proceeds is not perfected unless it is specifically provided in the security agreement.

Answer 2

False

Question 3

Providing only a debtor’s trade name in a financing statement is sufficient for perfection even if the trade name is not the legal name of the business.

Answer 3

False

Question 4

When two conflicting security interests are unperfected, the last to attach has priority.

Answer 4

False

Question 5

A secured party perfects a claim by filing a financing statement with the debtor.

Answer 5

False

Question 6

A party who owes payment or performance of a secured obligation is a secured party.

Answer 6

False

Question 7

Loan Office Inc. has a security interest against Manufacturing Company that is enforceable. In other words, with respect to the collateral, the creditor’s rights are said to

Answer 7

attach.

Question 8

Rico borrows funds from Suburban Bank secured by Rico’s house. Rico defaults on the debt. The bank’s options include

Answer 8

disposing of the collateral in any commercially reasonable manner.

Question 9

Mobile Talk LLC sells phones. The phones are the collateral for a loan from Noble Bank to the seller. The parties agree to extend the UCC’s automatic-perfection period for proceeds. In regard to the bank’s interest in the proceeds, this agreement

Answer 9

permits the interest to remain perfected.

Question 10

Any transaction in which the payment of a debt is guaranteed by personal property owned or held by the debtor is a secured transaction.

Answer 10

True

Question 11

Retail Store Inc. can give Secure Loan Company a security interest in future inventory to be acquired by the debtor.

Answer 11

True

Question 12

A buyer in the ordinary course of business takes goods subject to any security interest created by the seller because otherwise the free flow of credit would be hindered.

Answer 12

False

Question 13

Ezra owns Fans & Players, a retail sporting goods shop. When Great Lodge, a new ski resort, is built in the area, Ezra decides to expand and obtains a loan from Home Bank. The bank takes a security interest in Ezra’s present inventory and after-acquired inventory as collateral for the loan. The bank properly perfects the security interest by filing a financing statement. Ezra’s business is profitable, and he begins doubling his inventory. A year later, an avalanche destroys the ski resort. Ezra’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 it is twice as large as it was when the loan was made. Ezra claims that the bank has rights to only half of his inventory. Is Ezra correct? Explain.

Answer 13

Erza is not correct. Home Bank has rights to all of Erza’s property present and and after acquired inventory. The Bank has this right because the security interest was properly perfected by filing a finance statement.

Question 14

A security interest can cover only property in which the debtor has present rights.

Answer 14

False

Question 15

To create an enforceable security interest for a loan, in terms of the collateral, the debtor must have

Answer 15

rights in it.

Question 16

In a security agreement with AAA Machine Parts Inc., Business Loan Company wants to include a description of the collateral. A sufficient description would be

Answer 16

“all the debtor’s present and future inventory.”

Question 17

Attachment ensures that a security interest between a debtor and a secured party is effective.

Answer 17

True

Question 18

A security agreement must describe the collateral because no security interest can exist unless the parties agree on the property subject to it.

Answer 18

True

Question 19

The legal process by which a secured party protects against the claims of third parties who wish to have their debts satisfied out of the same property of the debtor is perfection.

Answer 19

True

Question 20

To create an enforceable security interest, the collateral must be in the possession of neither the debtor nor the secured party, but in escrow.

Answer 20

False

Question 21

Because of depreciation, an amount received on a sale of collateral may be less than the amount owed on the debt, but a debtor who has defaulted is not likely to have the funds to pay the deficiency.

Answer 21

True

Question 22

To create an enforceable security interest between Mortgage Bank and National Property Company in a written security agreement, the agreement must be signed by

Answer 22

the debtor.

Question 23

For most collateral, possession by a secured party is impractical because it denies the debtor the right to use or derive income from the property to pay the debt.

Answer 23

True

Question 24

The last security interest to be perfected is the first in priority over any other perfected security interests.

Answer 24

False

Question 25

Maritime Bank holds a security interest in Ned’s fishing trawler. Ned defaults on the debt. Maritime takes possession of the boat and notifies Ned that it will be sold to recover some of the unpaid debt. Before the sale, Ned can regain possession by

Answer 25

exercising the right of redemption.

Question 26

The last security interest to be perfected is the first in priority over any other perfected security interests.

Answer 26

False

Question 27

With a binding agreement to extend credit, a secured party can obtain a security interest.

Answer 27

True

Question 28

Several documents may be considered together to comprise a security agreement.

Answer 28

True

Question 29

The UCC’s classification or definition of collateral does not affect where or how to perfect a security interest.

Answer 29

False

Question 30

To buy a delivery truck, Food-To-Go LLC borrows funds from Grow-Your-Business Inc. secured by the borrower’s interest in the truck. The lender files a financing statement but not a continuation statement. Food-To-Go sells the truck to Haul-Away Corporation, a purchaser for value, and later defaults on the debt to Grow-Your-Business. Entitled to the truck is

Answer 30

Haul-Away Corporation.

Question 31

Rico borrows funds from Suburban Bank secured by Rico’s house. Rico defaults on the debt. The bank’s options include

Answer 31

disposing of the collateral in any commercially reasonable manner.

Question 32

Maritime Bank holds a security interest in Ned’s fishing trawler. Ned defaults on the debt. Maritime takes possession of the boat and notifies Ned that it will be sold to recover some of the unpaid debt. Before the sale, Ned can regain possession by

Answer 32

exercising the right of redemption.

Question 33

Bob’s Barber Shop borrows from first Credit Company and then Debit Loans LLC, using the same property as collateral for both loans. Debit Loans perfects its security interest. Credit Company does not. The debtor defaults on both loans. The party with first rights to the collateral is

Answer 33

Debit Loans LLC.

Question 34

A floating lien is a security interest retained in collateral even when the collateral changes in character, classification, or location.

Answer 34

True

Question 35

A secured party perfects a claim by filing a financing statement with the debtor.

Answer 35

False

Question 36

Bay Marina borrows funds from Credit Union secured by Bay’s interest in the marina. If Credit Union fails to perfect its claim to the collateral, the claim will be reduced to that of

Answer 36

an unsecured creditor.

Question 37

A security agreement must describe the collateral because no security interest can exist unless the parties agree on the property subject to it.

Answer 37

True

Question 38

The payment of Commerce Inc.’s debt to Debt Service LLC is guaranteed by the firm’s property. Debt Service is most likely to perfect its interest by

Answer 38

filing a financing statement with the appropriate authority.

Question 39

Bauxite Mine borrows $60,000 from Commerce Bank, with the loan secured by the borrower’s property. The debtor defaults on the loan. Commerce relinquishes its security interest to seek a judicial remedy. To obtain funds to satisfy the debt by a seizure and sale of the borrower’s nonexempt property, after a writ is issued, the creditor can use the process of

Answer 39

levy.

Question 40

Providing only a debtor’s trade name in a financing statement is sufficient for perfection even if the trade name is not the legal name of the business.

Answer 40

False

Question 41

The legal process by which a secured party protects against the claims of third parties who wish to have their debts satisfied out of the same property of the debtor is perfection.

Answer 41

True

Question 42

A security agreement determines most of the rights and duties of a debtor and a secured party.

Answer 42

True

Question 43

Proceeds from the disposition of collateral after default on the underlying debt are distributed first to pay

Answer 43

reasonable expenses incurred by the secured party to sell the collateral.

Question 44

Highway Autos Inc. borrows funds from Investment Company under a security agreement. Later, the borrower buys new vehicles to add to its inventory. The lender has a security interest in the new vehicles if

Answer 44

the security agreement included an after-acquired property clause.

Question 45

Because the UCC encourages a debtor and creditor to include in their security agreement the standards to measure their rights and duties, the parties can stipulate the conditions that will constitute a default.

Answer 45

True

Question 46

Appliance Sales & Repair wants to get paid for its goods and services, so it will not sell goods or perform services unless payment is guaranteed. This is the concept of

Answer 46

a secured transaction.

Question 47

Bond Bank assigns to Capital Invest LLC the bank’s security interest in certain real property owned by Developer Inc. Capital Invest becomes the secured party of record. The bank’s security interest in the collateral is

Answer 47

terminated.

Question 48

Retail Store Inc. can give Secure Loan Company a security interest in future inventory to be acquired by the debtor.

Answer 48

True

Question 49

Credit Financing Inc. and Debt Lending Company hold security interests in property owned by Fleet Cartage Inc. Both lenders’ interests are perfected. Priority between these security interests is generally determined by

Answer 49

the time of perfection.

Question 50

Consideration to support a simple contract is not sufficient value to support the acquisition of a security interest.

Answer 50

False