Chapter 21 - Secured Transactions

Question 1

after-acquired property

Answer 1

• a type of evidence submitted in support of an affirmative defense in employment discrimination
• evidence that, prior to the employer’s discriminatory act, the employee engaged in misconduct sufficient enough to warrant dismissal had the employer known of it earlier

Question 2

attachment

Answer 2

-

Question 3

authentication

Answer 3

• to sign a record, or with the intent to sign a record, to execute or to adopt an electronic sound, symbol, or the like to link with the record
• a record is retrievable information inscribed on a tangible medium or stored in an electronic or other medium

Question 4

collateral

Answer 4

• under Article 9 of the Uniform Commercial Code, the property subject to a security interest

Question 5

continuation statement

Answer 5

• a statement that, if filed within six months prior to the expiration date of the original financing statement, continues the perfection of the original security interest for another five years
• the perfection of a security interest can be continued in the same manner indefinitely

Question 6

cross-collateralization

Answer 6

• the use of an asset that is not the subject of a loan to collateralize the loan

Question 7

debtor

Answer 7

• under Article 9 of the Uniform Commercial Code, any party who owes payment or performance of a secured obligation, whether or not the party actually owns or has rights in the collateral

Question 8

deficiency judgement

Answer 8

• a judgement against a debtor for the amount of a debt remaining unpaid after collateral has been repossessed and sold

Question 9

execution

Answer 9

• an action to carry into effect the directions in a court decree or judgement

Question 10

financing statement

Answer 10

• a document prepared by a secured creditor and filed with the appropriate government official to give notice to the public that the creditor claims an interest in collateral belonging to the debtor named in the statement
• the financing statement must contain the names and addresses of both the debtor and the creditor, and describe the collateral by type or item

Question 11

floating lien

Answer 11

• a security interest in proceeds, after-acquired property, or property purchased under a line of credit (or all three); a security interest in collateral that is retained even when the collateral changes in character, classification, or location

Question 12

junior lienholder

Answer 12

• a person or business that holds a lien that is subordinate to one or more other liens on the same property

Question 13

levy

Answer 13

• the obtaining of money by legal process through the seizure and sale of property, usually done after a writ of execution has been issued

Question 14

perfection

Answer 14

• the legal process by which secured parties protect themselves against the claims of third parties who may wish to have their debts satisfied out of the same collateral; usually accomplished by the filing of a financing statement with the appropriate government official

Question 15

pledge

Answer 15

• a common law security device (retained in Article 9 of the Uniform Commercial Code) in which personal property is turned over to a creditor as security for the payment of a debt and retained by a creditor until the debt is paid

Question 16

proceeds

Answer 16

• under Article 9 of the Uniform Commercial Code, whatever is received when the collateral is sold or otherwise disposed of, such as by exchange

Question 17

purchase-money security interest (PMSI)

Answer 17

• a security interest that arises when a seller or lender extends credit for part or all of the purchase price of goods purchased by a buyer

Question 18

secured party

Answer 18

• a lender, seller, or any other person in whose favor there is a security interest, including a person to whom accounts or chattel paper has been sold

Question 19

secured transaction

Answer 19

• any transaction in which the payment of a debt is guaranteed, or secured, by personal property owned by a debtor or in which the debtor has a legal interest

Question 20

security agreement

Answer 20

• an agreement that creates or provides for a security interest between the debtor and a secured party

Question 21

security interest

Answer 21

• any interest “in personal property of fixtures which secures payment or performance of an obligation” [UCC 1-201(37)]

Question 22

SAMPLE TEST QUESTIONS

1. Janet is the secured party in a secured transaction with Michelle. Janet could also be referred to as the :
   a. debtor
   b. secured creditor
   c. collateral
   d. filing officer

Answer 22

ANSWER :
(B)
CORRECT :
(B)

Question 23

SAMPLE TEST QUESTIONS

2. The payment of Fritz’s debt to Gianini is guaranteed by Fritz’s personal property. Gianini is :
   a. a debtor
   b. a secured party
   c. a secured transaction
   d. a security interest

Answer 23

ANSWER :
(D)
CORRECT :
(B)

Question 24

SAMPLE TEST QUESTIONS

3. Sally is the secured party in a transaction with Lily, the debtor. Sally files a financing statement with the appropriate state official, the financial statement must contain :
   a. Lily’s signature
   b. Sally’s bank account information
   c. Lily’s credit report
   d. a photograph of the collateral

Answer 24

ANSWER :
(A)
CORRECT :
(A)

Question 25

SAMPLE TEST QUESTIONS

4. Khalil holds a security interest in inventory owned by Luc. Khalil protects his claims to the inventory in the event of Luc’s default by :
   a. assignment
   b. perfection
   c. redemption
   d. retention

Answer 25

ANSWER :
(B)
CORRECT :
(B)

Question 26

SAMPLE TEST QUESTIONS

5. Lenders Bank files a financing statement regarding a transaction with Metro Construction Company. To be valid, the financing statement must contain all of the following except :
   a. a description of the collateral
   b. a statement of the purpose for the transaction
   c. Lenders’ name
   d. Metro’s name

Answer 26

ANSWER :
(A)
CORRECT :
(B)

Question 27

SAMPLE TEST QUESTIONS

6. The payment of Olinda’s debt to Pari is guaranteed by Olinda’s personal property. Pari is most likely to perfect her interest by ;
   a. insuring Olinda’s property for the full amount of its value
   b. calculating the precise amount of Olinda’s debt
   c. correcting grammatical errors in the parties’ written agreement
   d. filing a financing agreement with the appropriate authority

Answer 27

ANSWER :
(D)
CORRECT :
(D)

Question 28

SAMPLE TEST QUESTIONS

7. Kathy is the secured party in a transaction with Julie, who is the debtor. The collateral is a 2007 Chevrolet F150 pick-up truck. Kathy files a financing statement in which she describes the collateral as “a vehicle.” To perfect Kathy’s interest this is :
   a. not sufficient
   b. sufficient
   c. sufficient if the financing statement also includes Julie’s signature
   d. sufficient if the financing statement includes the location of the collateral

Answer 28

ANSWER :
(C)
CORRECT :
(A)

Question 29

SAMPLE TEST QUESTIONS

8. Corporate Bank wants to perfect it’s security interest in inventory owned by Outdoor Outfitters, Inc. Most likely, a financing statement should be filed with :
   a. the bank manager
   b. the county clerk
   c. the U.S. Department of the Interior
   d. the Secretary of State

Answer 29

ANSWER :
(D)
CORRECT :
(D)

Question 30

SAMPLE TEST QUESTIONS

9. Super Discount Store sells goods to consumers and businesses in several states in the Midwest. Most of the goods are sold on credit. Super Discount often takes a security interest with the goods as collateral. The state in which a financing statement should be filed depends on the location of :
   a. the debtor
   b. the collateral
   c. the store in which the goods were sold
   d. the place from which Super Discount manages its operations

Answer 30

ANSWER :
(D)
CORRECT :
(A)

Question 31

SAMPLE TEST QUESTIONS

10. Home2U Stores, Inc., sells household consumer goods. To create a purchase-money security interest, Home2U must :
    a. assign, to a collecting agent, a portion of its accounts payable
    b. assign, to a collecting agent, a portion of its accounts receivables
    c. extend credit for part or all of the purchase price of the goods
    d. refer purchases to a third-party lender

Answer 31

ANSWER :
(C)
CORRECT :
(C)

Question 32

SAMPLE TEST QUESTIONS

11. City Bank’s financing statement in collateral owned by Delta Waters Corporation will expire in less than a year. Filed timely, a continuation statement could extend the effectiveness of the financing statement for :
    a. one year
    b. two years
    c. five years
    d. ten years

Answer 32

ANSWER :
(C)
CORRECT :
(C)

Question 33

SAMPLE TEST QUESTIONS

12. Joan borrows money from Jake under a security agreement. After borrowing the money, Joan buys a new kayak. The kayak is considered.
    a. a floating lien
    b. after-acquired property
    c. a future advance
    d. proceeds

Answer 33

ANSWER :
(B)
CORRECT :
(B)

Question 34

SAMPLE TEST QUESTIONS

13. Debit & Credit Financing, Inc., and Equity Lending Company are secured parties with security interests in property owned by Fleet Shipping Corporation. Priority between these security interests is generally determined by :
    a. the amount of the claim
    b. the custom in the trade
    c. the time of perfection or attachment
    d. the “float” of the liens

Answer 34

ANSWER :
(C)
CORRECT :
(C)

Question 35

SAMPLE TEST QUESTIONS

14. Dredging, Inc., borrows $50,000 from Equity Financing Corporation in a secured transaction using Dredging’s equipment a collateral. Dredging the borrows $70,000 from First Choice Lenders, Inc., using the same equipment as collateral. Neither Equity Financing nor First Choice perfects its security interest. Dredging defaults on the loans. The party with priority is :
    a. Equity Financing, because it’s interest was the first to attach
    b. First Choice, because Dredging owes it more money
    c. First Choice, because it’s interest was second to attach
    d. Equity Financing, because Dredging owes it less money

Answer 35

ANSWER :
(A)
CORRECT :
(A)

Question 36

FACT PATTERN 21-1B
Resource Drilling Company buys equipment for use in operations, borrowing $1 million from Security Finance Corporation for a security interest in the equipment. The next day, Resource Drilling borrows $500,000 from Touchstone Loans, also for a security interest in the equipment. Resource Drilling defaults on both loans.

Question 37

FACT PATTERN 21-1B

15. Refer to Fact Pattern 21-1B. Suppose that Security Finance perfects its security interest when Resource Drilling takes possession of the equipment. In that circumstance, the party with priority to the collateral on Resource Drilling’s default would be :
    a. Resource Drilling
    b. Security Finance and Touchstone Loans proportionately
    c. Security Finance only
    d. Touchstone Loans only

Answer 37

ANSWER :
(C)
CORRECT :
(C)

Question 38

FACT PATTERN 21-1B

16. Refer to Fact Pattern 21-1B. Suppose that two weeks after Resource Drilling takes possession of the equipment, Security Finance and Touchstone Loans file financing statements, with Touchstone Loans filing first. In that circumstance, the party with priority to the equipment is :
    a. Resource Drilling
    b. Security Finance and Touchstone Loans proportionately
    c. Security Finance only
    d. Touchstone Loans only

Answer 38

ANSWER :
(D)
CORRECT :
(D)

Question 39

SAMPLE TEST QUESTIONS

17. Rural Financial Corporation is a secured party with a security interest in property owned by Strawberry Fields, Inc. Perfection of this security may not protect Rural Financial against the claim of :
    a. a bank
    b. a buyer in the ordinary course of business
    c. a subsequent lien creditor
    d. a trustee in bankruptcy

Answer 39

ANSWER :
(B)
CORRECT :
(B)

Question 40

SAMPLE TEST QUESTIONS

18. A-One Loans, Inc., holds a security interest in kitchen and restaurant equipment owned by Brunch n’ Lunch Bistro. A-One assigns it’s interest in the equipment to Commercial Investments Corporation. Commercial Investments becomes the secured party of record :
    a. automatically
    b. if A-One advises Brunch n’ Lunch of the assignment
    c. if Commercial Investments advises Brunch n’ Lunch of the the assignment
    d. if Commercial Investments files a uniform amendment form

Answer 40

ANSWER :
(A)
CORRECT :
(D)

Question 41

SAMPLE TEST QUESTIONS

19. Pizza Now! A delivery, dine-in, or takeout restauran, buys a delivery truck on credit from Quality Auto & Truck Dealers Corporation, but does not make a payment on the loan for several months. Quality Auto repossesses the vehicle by towing it from a public street. Pizza Now! sues Quality Auto for breach of the peace. Pizza Now! will probably :
    a. not prevail, because Quality Auto did not use judicial process
    b. not prevail, because the repossession was not a breach of the peace
    c. prevail, because Pizza Now! did not default the on the loan
    d. prevail, because the repossession was a breach of the peace

Answer 41

ANSWER :
(B)
CORRECT :
(B)

Question 42

SAMPLE TEST QUESTIONS

20. Sweetwater Cafe defaults on debts to Town & Country Bank and Uno Loan Company. Town & Country perfect it’s security interest before Uno. Town & Country takes possession of the collateral in which it has a security interest. On a sale of collateral, the proceeds will be applied first or :
    a. Sweetwater’s previous payments on the debts
    b. Sweetwater’s unpaid payments on the debts
    c. the balance of Sweetwater’s debt to Town & Country
    d. the balance of Sweetwater’s debt to Uno

Answer 42

ANSWER :
(B)
CORRECT :
(C)