Code III

Question 1

Chapter 9 of Title 10, Louisiana Revised Statutes, deals with relationships between which of the following groups:

A. Between debtors and creditors
B. Between creditors and creditors.
C. Between debtors and debtors.
D. Both A and B.

Answer 1

D

Question 2

Is the same version of UCC Article 9 found in every state?

A. No, because some states have not yet enacted the Revised Article 9.
B. No, because state legislatures have made changes to the uniform version when they enacted the statute. (But ALL have adopted it)
C. Yes, because as federal law, it is uniform throughout the states.
D. Yes, because each state has enacted the uniform version

Answer 2

B

Question 3

Which of the following choice is an accurate statement about Article 9?

A. Every transaction within Article 9 involves at least one creditor, a debtor, and collateral.
B. Under Article 9, in order to perfect a security interest, you must have a valid security interest.
C. Article 9 priority rules determine which creditor of the debtor gets paid first.
D. All of the above

Answer 3

D

Question 4

Which of the following choice is NOT an accurate statement about a lien?

A. A lien is an interest in debtor’s property created by law to protect a creditor’s interest.
B. A lien can be created by statute.
C. A lien can attach only to the debtor’s personal property.
D. A lien can be created by contract.

Answer 4

C

Question 5

CarMax sells a car to Bob for $25,000. Bob puts down $5,000 as a down payment. Bob agrees to pay the rest in installments of $1,000 by signing a promissory note (a formal promise to pay). Bob defaults in payments. On these facts, what can CarMax choose to do?

• A. CarMax can repossess the car because Bob promised to pay.
• B. CarMax can sue Bob for damages for breach of contract and get a judgment
against Bob.
• C. CarMax can repossess the car because CarMax has a security interest in the car.
• D. Both A and C

Answer 5

B

Question 6

Article 9 applies to all transactions, regardless of their form, that create a security interest in personal property or fixtures by contract.

• A. True
• B. False

Answer 6

A

Question 7

Security interest” means an interest in all property or fixtures which secures payment or performance of an obligation.

• A. True
• B. False

Answer 7

B (PERSONAL property – lien is on real property)

Question 8

UCC Article 9 applies to all consignments of personal property.

• A. True
• B. False

Answer 8

B– excludes some consignments!

Question 9

Chapter 9 applies to all consignments of movable property.

A. True
B. False

Answer 9

B

Question 10

Chapter 9 of Title 10, Louisiana Revised Statutes, covers the following topic:

A. A consensual lien in immovable property.
B. Certain consensual liens in movable property.
C. All consensual liens in movable property.
D. All involuntary liens in movable property.

Answer 10

B

Question 11

Which one of the following statements is a correct statement regarding the scope of UCC Article 9?

A. UCC Article 9 covers all liens on personal property.
B. UCC Article 9 covers all consensual liens on personal property.
C. UCC Article 9 covers all (some?) consensual liens on personal property and fixtures.*
D. UCC Article 9 covers all liens on personal property, judicial liens and statutory liens such as mechanics liens.

Answer 11

C

Question 12

Pursuant to a state statute permitting it to do so, an auto repair shop retains possession of David’s car when David fails to pay for the repairs. This is not an Article 9 secured transaction because:

A. The repair shop is not extending credit.
B. The credit is not secured.
C. The transaction does not involve personal property
D. The right to retain the car by the auto repair shop is not given consensually.

Answer 12

D

Question 13

Mary collects antiques and sends them to Antique Mall, well known in the area for selling antiques on consignment. Mary delivered $3,000 worth of antiques to Antique Mall a few months ago. Mary did not comply with any Article 9 filing requirements. Antique Mall is now in financial trouble. One of its secured creditors has seized Mary’s antiques. Can Mary get her antiques back?

• A. Yes, because Mary delivered the antiques to Antique Mall for sale but did not sell
them to Antique Mall.
• B. Yes, because Mary’s consignment is not included within Article 9.
• C. No, because Mary failed to comply with Article 9’s requirements.
• D. No, because Antique Mall’s creditors may not know that it is generally engaged in
selling the goods of others.

Answer 13

B

Question 14

David signed an agreement titled “automobile lease” with CarMax whereby David was obligated to make payments of $300 per month for three years and had an option to buy the car at the end of the three year period for $10. This transaction could be included within Article 9.

• A. True
• B. False

Answer 14

A

Question 15

Federal statutes may affect security interests in ships, aircrafts, railroad equipment, and some interstate commercial vehicles.

• A. True
• B. False

Answer 15

A

Question 16

UCC Article 9 includes all sales of accounts, chattel paper, promisory notes and payment intangibles.

• A. True
• B. False

Answer 16

B

Question 17

How does a court determine whether a transaction is a lease or a secured transaction within Article 9?

A. A court will examine factors such as the length of the lease and the rights under the agreement. (Don’t look at intent → this isn’t contract law!)
B. A court will try to determine the parties’ intent.
C. A court will pay attention to how the parties themselves have treated the transaction.
D. Both A and B.

Answer 17

A

Question 18

Bob wants to buy a new dishwasher from Sears. The dishwasher costs $300 but Bob only has $100 available. Sears agrees to sell the dishwasher to Bob. Bob signs an agreement in which Bob agrees that, if he defaults, Sears has the right to take possession of the dishwasher. In the transaction between Bob and Sears, what is the security interest?

A. Sears’ right with respect to the dishwasher.
B. Buyer’s ownership of the dishwasher.
C. The contract between Bob and Sears.
D. Buyer’s debt to Sears.

Answer 18

A

Question 19

Penda Machinery, Inc. leased a $2 million manufacturing equipment to Electronics Manufacturing, Inc. (EMI) for 20 years, a period equal to the useful life of the goods. EMI has the right to terminate the lease at any time. EMI also has the option to buy the goods at the end of the lease period for their appraised fair market value. Which of the following additional facts is most likely to turn the lease into an Chapter 9 transaction?

A. EMI must insure the goods and keep them in good repair.
B. The goods were manufactured specially for EMI and not readily suitable for sale to anyone else.
C. The goods have to be integrated into EMI’s manufacturing line and the cost of removing them would exceed the total amount remaining due under the lease.
D. EMI paid $400,000 upon entering into the lease and is obligated to pay $12,000 per month for the 20 year term of the lease (an amount totaling $2,880,000).

Answer 19

C

Question 20

Muses Gallery is in the business of buying and selling expensive paintings and art pieces. Those art works typically take a long time to sell because of the price tag. Recently, Muses Gallery decided to experiment with a new business model to reduce its inventory cost and to increase foot traffic. It agreed to allow some local artists to exhibit their own art for sale in Muses Gallery. Under the terms of each arrangement, the owner sets the price and Muses Gallery keeps 20 percent of the sale proceeds after a sale. Which of the owners, if any, must comply with Chapter 9?
A. Mary who delivered a recently inherited oil painting to Muses Gallery to be sold for $15,000.
B. John who sells his painting for income delivered a recently completed water color to Muses Gallery for sale for $5,000.
C. Carol who makes pottery pieces and sells them for income delivered three newly completed pottery pieces to be sold for $250 each.
D. David who specializes in special artistic glass vases delivered two pieces of glass vases to be sold for $400 each.

Answer 20

B

Question 21

Carla took her broken television to Honest John’s Repair Shop to be repaired. Honest John quoted a repair price of $100. They did not sign any written contract and there was no verbal agreement that the television could be retained to secure payment of the repair bill. When the television was repaired, Carla refused to pay. Which of the following statements is most accurate?

A. Honest John has a right under Chapter 9 to retain the television pending payment.
B. Any right that Honest John has to retain the television arises outside of Chapter 9.
C. Honest John does not have any right to retain the television because there is no written agreement.
D. A lien granted by any state statute to Honest John falls within the definition of an Chapter 9 security interest.

Answer 21

B

Question 22

Home Depot sells electronic appliances to contractors on credit under a standard agreement calling for the contractors to pay within 60 days of receipt for any goods delivered. Once a shipment is sent out, Home Depot records the amount due as an account receivable. Home Depot then sells all of its accounts receivable outright to Financing Unlimited to obtain financing to pay for ongoing business expenses. Which of the following statements is accurate?

A. In both transactions, Home Depot is a secured creditor. The contractors and Financing Unlimited are debtors.
B. Home Depot is a secured creditor in the first transaction, but a debtor in the second transaction.
C. Home Depot is a creditor in the first transaction, but a debtor in the second transaction.
D. Home Depot is a creditor in the first transaction and Financing Unlimited is a debtor in the second transaction.

Answer 22

C

Question 23

David buys a new leather sofa from Thomas Walker Furniture for $5000, paying $100 down and signing a promissory note for the remaining amount. Thomas Walker Furniture sells the promissory note to Argo Financing as part of its usual business practice. Which one of the following statement is true?

A. Neither transaction is included within the scope of Chapter 9.
B. The first transaction is within Chapter 9.
C. The second transaction is within Chapter 9.
D. Both transactions are within Chapter 9.

Answer 23

C

Question 24

David’s Machine Shop (“DMS”) has applied for a loan from your client, Octopus National Bank (“ONB”). DMS has signed an agreement and granted ONB a security interest in its intellectual property rights. The intellectual property rights include DMS’ copyright, patents and trademarks. ONB’s in house counsel has asked you what ONB should do to protect its security interest.

A. No need to do anything, because DMS has signed an agreement and granted ONB security  
               interests in some valuable collateral.
B. ONB can best protect its interests by filing in the appropriate office under the state’s UCC 
              Article 9.
C. ONB can best protect its security interest by filing in the relevant federal offices.
D. Both B and C.

Answer 24

D

Question 25

Acme Corp. manufactures various household appliances. It sells its products to major retailers under a standard agreement calling for the buyer to pay within 60 days of receipt for any goods delivered. Once a shipment is sent out, Acme records the amount due as an account receivable. Acme needs some money to buy raw materials for the appliances. Acme sold its accounts receivable outright to a firm called Financing Unlimited. Which of the following statement is a correct description of the transaction? A. This transaction involves an outright sale of accounts receivable and is therefore outside the scope of Article 9. B. This transaction involves a sale of accounts receivable for purpose of commercial financing and is therefore within the scope of Article 9. (But all account receivables are not included!) C. This transaction involves accounts receivable and is therefore included within the scope of Article 9. D. This transaction involves a sale of accounts receivable in the ordinary course of business and is therefore excluded from the scope of Article 9.

Answer 25

B

Question 26

Which of the following statement is not true with regard to the classification of collateral under Chapter 9? A. Classification of the collateral is to be determined based on the intended use of the collateral as of the time of the creation of the security interest. B. Courts examine the principal use of the property in the debtor’s hands in order to ascertain whether goods are inventory, equipment, or consumer goods. C. Courts will look at the use of the collateral by all of the parties involved in order to determine its classification. D. Classification of collateral under Chapter 9 allows a creditor to reasonably identify the property subject to the security interest.

Answer 26

C

Question 27

Classification of the collateral is critical under Article 9 because many provisions of Article 9 make legal distinctions based on the type of collateral. * A. True * B. False

Answer 27

A

Question 28

According to Article 9-109, Article 9 applies to “a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract.” Which of the following transactions does Article 9 NOT apply to? * A. Real estate mortgages. * B. A consignment. * C. Sale of accounts, chattel paper, payment intangibles, and promissory notes. * D. Agricultural liens.

Answer 28

A

Question 29

David signed an agreement titled “automobile lease” with CarMax. Under the lease agreement, David was obligated to make payments of $300 per month for three years and had an option to buy the car at the end of the three year period for $1. The agreement also provided that, on default, CarMax had the right to terminate the lease and take back the car. CarMax did not comply with Article 9 filing requirements. David defaulted on his payments. Which advice would you give CarMax? A. The car belongs to CarMax, so it can take back the car because David breached the lease. B. The car belongs to David, but CarMax can repossess the car because it has a security interest. C. The car belongs to CarMax, but it must sue for a money judgment. D. The car belongs to David, but CarMax cannot repossess the car because CarMax did not comply with Article 9 filing requirements.

Answer 29

B Remedy for the creditor for a disguised lease is to take back the car or repossess whatever is at issue o filing requirements only have to do with perfection – only when you are dealing with creditor and creditor. When debtor and creditor, creditor can use remedy provided for in the agreement →so here the filing requirements are irrelevant o if it had been a true lease, CarMax would not have given up the title.

Question 30

“Collateral” under UCC Article 9 means the property subject to a security interest or agricultural lien. A. True B. False

Answer 30

A

Question 31

"Collateral” under UCC Article 9 is divided into many different categories. They are generally organized in three broad groups: Goods, quasi-tangible property and intangible property. * A. True * B. False

Answer 31

A

Question 32

Sears sells household appliances. The Club House buys some household appliances from Sears to furnish its club house for use by its members. Many customers of Sears however buy the appliances for their own houses. National Bank intends to make a loan to The Club House and wants to take a security interest in the appliances that The Club House buys from Sears. How should the security agreement describe the appliances using the code classification? A. Inventory. B. Equipment. C. Inventory and equipment. D. Inventory, equipment and consumer goods.

Answer 32

B

Question 33

4) Farmer McDonalds stored 50,000 bushels of wheat in the Farmer’s Co-Op grain elevator and received a receipt for the wheat. National Bank then loaned McDonalds $10,000 and took a security interest in the receipt. How would you describe the collateral? A. Goods. B. Documents. C. Farm products. D. General intangible.

Answer 33

B (creditor is bank, debtor is farmer, what is collateral? It’s the property given – here it is the receipt)

Question 34

Autos Express sells automobiles. National Bank intends to make a loan to Autos Express and wants to take a security interest in the automobiles. What is the collateral for the loan? A. Consumer goods. B. Equipment. C. Inventory. D. Goods

Answer 34

C

Question 35

Classification of collateral is to be determined based on the intended use of the collateral as of the time of the creation of the security interest. A. True B. False

Answer 35

A

Question 36

Courts examine the principal use of the property in order to ascertain whether goods are inventory or equipment. * A. True * B. False

Answer 36

A

Question 37

David bought a new computer on credit from Best Buy. Best Buy asked him to sign a “Conditional Sales Contract” by which David agreed that title to the computer would remain with the store until he had fully paid for his computer. David signed the contract. The contract described the computer in detail by its serial number. Which of the following statement is correct under Chapter 9? A. The transaction is a secured transaction within Chapter 9. B. Best Buy is not a secured creditor because David only promised to pay for the computer and did not grant a security interest to Best Buy. C. Best Buy is not a secured creditor because David failed to authenticate any security agreement. D. Best Buy does not need any security interest because it successfully reserved title to the computer.

Answer 37

A

Question 38

9) Sears sells electronic appliances. Its customers include both companies that will buy the appliances for business purpose and individuals who will buy the appliances for their personal use. National Bank intends to make a loan to Sears and wants to take a security interest in the electronic appliances. How should you describe the electronic appliances using Article 9 classification? A. Inventory and consumer goods. B. Inventory and equipment. C. Inventory. D. Inventory, equipment and consumer goods.

Answer 38

C Collateral = electronic appliances. Look at what the debtor is using the collateral for! Here, they are holding it for sale, so its inventory

Question 39

Auto Zone is a car dealer. It buys a van from Ford on credit and grants Ford a security interest in the van. Auto Zone plans to use the van as a “courtesy car” to shuttle customers from their homes or offices to the dealer repair shop while their cars are being serviced. What Article 9 classification best describes the collateral? A. Inventory. B. Equipment. C. Consumer Goods. D. Courtesy car.

Answer 39

B

Question 40

Under Article 9, a professional pianist’s piano, chickens from a chicken farmer’s farm, the tractor that the chicken farmer uses to transport the chickens, and ink used by a newspaper to print newspapers are respectively classified as the following when used as collateral (in the order mentioned): A. Instrument, farm products, equipment, and inventory. • B. Equipment, consumer goods, tractor, and inventory. • C. Equipment, farm products, equipment, and inventory. • D. Consumer goods, farm products, equipment and instrument.

Answer 40

C

Question 41

Which of the following statement is not true regarding the creation of a valid security interest? * A. The creditor must have given value to the debtor. * B. The debtor must have rights in the collateral. * C. There has to be a written security agreement. * D. A financing statement does not have to be filed

Answer 41

C need valid secured interest for creation of SI but don’t need financing statement – only for perfected SI

Question 42

Bob bought a flat screen television for $600 on credit from Best Buy. Bob signed a contract that describes the television and states that Best Buy will keep the title to the television until Bob pays all amounts due. Best Buy did not file any financing statement related to the transaction under UCC Article 9. If Bob fails to pay under the contract, can Best Buy repossess the television? A. Yes, because Best Buy has a valid security interest in the television. OR B. Yes, because contract law allows a seller the remedy of possession when a buyer does not pay. C. No, because Bob did not grant Best Buy a security interest in the television. D. No, because Best Buy may not take a security interest in household goods.

Answer 42

A. Yes, because the retention of title by a seller creates a security interest. Creditor must have given value (Best buy sold goods on credit), debtor must have rights in collateral (Bob has rights because he bought it); and 1 of the 3 requirements (Bob signed a contract – authentication)

Question 43

David and Sally were having lunch and discussing the sale of Sally’s car, a 1963 MGB, to David. Sally wanted $10,000 for the car, but David did not have that much money. Sally said: “I’ll let you pay $1,000.00 each month. If you miss any payment, I can take the car back.” David agreed. Sally wrote these notes on a napkin: 1963 MGB, $10,000 total, $1,000 per month, take back if no pay. David initialed the napkin and they shook hands on the deal. David has missed a monthly payment. Can Sally take the car back? A. Yes, because the oral agreement is enforceable. B. Yes, because Sally has a security interest in the car. C. No, because Sally did not actually sign any agreement. D. It depends on whether parol evidence of the security agreement is admissible to supplement the writing.

Answer 43

B Agreement doesn’t have to be signed – sally wrote on napkin and David initialed – this is authentication – doesn’t have to be a full signature – can be any symbol that person consented Only the debtor has to authenticate agreement – doesn’t matter whether creditor signs or not

Question 44

Joe desperately needed some cash. He asked Mary if he could borrow $5,000.00 from her. He promised to repay the amount with interest within a year and offered a valuable diamond ring that he owned as collateral. Mary agreed. She wrote him a check for $5,000. 00 and in exchange, Joe handed over the diamond ring to Mary. Mary and Joe did not sign any agreement. Which choice below correctly describes the transaction? A. This transaction did not create a security interest because Mary and Joe did not sign any security agreement. B. This transaction created a security interest because Mary lent Joe $5,000. C. This transaction did not create any security interest because Mary did not authenticate a security agreement. D. This transaction created a security interest in Mary’s favor because Mary had the collateral in her possession pursuant to their oral agreement.

Answer 44

D. Need value and rights, the other are collaterals – authenticate, possession or control here we have value and rights, and creditor has possession of collateral, so its a valid security interest

Question 45

Which of the following statement is NOT true regarding a financing statement? • A. A financing statement is commonly used to perfect a creditor’s security interest in the collateral. • B. A financing statement needs to be signed by a creditor. • C. A financing statement is generally filed by a creditor. • D. To be effective, a financing statement needs to identify the parties and indicate what collateral is covered.

Answer 45

B Financing statement does not need to be signed by anyone. The other one needs to be signed by the debtor, but this doesn’t need to be signed by anyone

Question 46

Al Bundy owns and operates a women’s shoe store. In addition to shoes, the store sells belts and purses. Citibank has agreed to loan Bundy necessary funds for operating expenses. Bundy has signed a security agreement granting Citibank a security interest in all of the shoes, belts and purses. To be effective, Citibank’s “financing statement” (“Security Agreement” = A) can describe the collateral as: A. All of the debtor’s inventory B. All of the debtor’s assets. C. All of the debtor’s personal property D. Any of the above.

Answer 46

D

Question 47

Joe’s Auto, a car dealer, went to National Bank to obtain a $10,000 loan on June 10. On that day, Joe’s signed an application for a loan with National Bank and authorized National Bank to file a financing statement. On June 17, National Bank told Joe’s that its application was approved. On that day Joe’s signed a security agreement which granted the bank a security interest in all of his inventory. National Bank gave Joe’s a cashier’s check for $10,000. On that day, Joe’s had an inventory of 500 cars. On June 20, National Bank filed a financing statement covering Joe’s inventory. On which date was a security interest created in favor of National Bank? A. June 10 B. June 17. C. June 20 D. June 10 or June 20.

Answer 47

B. financing statement not relevant in creation of SI between debtor and creditor. Has to be be really real or politically correct o application for a loan doesn’t make security agreement o the fact that bank can file financing statement doesn’t help o filing of financing statement is not relevant in SI between debtor and creditor

Question 48

A security agreement can reasonably identify a debtor’s collateral by specifically listing the collateral, describing the collateral by category or describing the collateral as all of the debtor’s assets or personal property. A. True B. False

Answer 48

B | cant be super generic description – stricter for a security agreement)

Question 49

Tom lent Della $3,000 pursuant to an oral agreement. A couple of months later, Tom needed to borrow some money from National Bank. He signed a security agreement with National Bank, granting the bank a security interest in his right to payment under the oral agreement with Della. What category best describes Tom’s right under the oral agreement using Chapter 9 classification? A. An account. B. General intangible. C. A contract right. D. Payment intangible

Answer 49

D Only requirement is that she pay him back)

Question 50

A properly filed financing statement remains effective to perfect a security interest in the collateral that the debtor has at the time of the perfection even if the debtor changes its name after the filing. A. True B. False

Answer 50

A

Question 51

On April 1, John Kerry signed a security agreement with the Bank, granting the Bank a security interest in all of his presently existing and after-acquired equipment. The Bank committed itself to lending Kerry $10,000. On that day, John Kerry owned various pieces of equipment. On April 2, Bank filed a properly completed financing statement in the proper place, properly naming the debtor as John Kerry. The collateral was described in the financing statement as “debtor’s presently-owned and after-acquired equipment.” On June 1, John Kerry legally changed his name to John Kennedy, in honor of the former president. It is now December 1. As to the equipment acquired by Kerry/Kennedy on November 15: A. Bank has no security interest. B. Bank has a security interest, which has been unperfected since it attached on November 15. C. Bank has a security interest, which became unperfected on Dec.1. D. Bank has a perfected security interest at this time.

Answer 51

B Only good for 4 months after a name change!!! (different question where it is within 4 months) all of the above is answer of that question

Question 52

Johnnie Cochran borrowed money from Citibank to expand his law practice. To secure the loan, he granted Citibank a security interest in all of his equipment and agreed in writing that Citibank could take the equipment if he defaulted. Citibank failed to comply with the filing requirements under Article 9. Cochran defaulted on his loan. Can Citibank repossess the collateral from Cochran? A. No, because the security interest is not effective due to Citibank’s failure to comply with the filing requirements of Article 9. B. Yes, because Citibank has a valid security interest in the collateral. C. Yes, because as between creditor and debtor, the creditor only needed to make a good faith effort to perfect. D. No, because without filing, third parties lack notice of Citibank’s security interest.

Answer 52

B

Question 53

The security agreement signed by the debtor stated that the collateral was “all of the debtor’s machinery, equipment, furniture, and fixtures.” The financing statement filed by the creditor described the collateral as “all of the debtor’s machinery, equipment, fixtures, accounts receivable, and inventory.” Assuming that the creditor has given value and that the debtor has rights in the collateral, which of the following statements correctly describes the creditor’s security interest under Article 9? A. The creditor has a perfected security interest in all of the debtor’s machinery, equipment, furniture, fixtures, accounts receivable and inventory. B. The creditor has a perfected security interest in all of the debtor’s machinery, equipment, furniture, and fixtures. C. The creditor has a valid security interest in all of the debtor’s machinery, equipment, furniture and fixtures. D. The creditor has a valid security interest in the debtor’s machinery, equipment, furniture, fixture, accounts receivable and inventory.

Answer 53

C

Question 54

Which of the following is not correct under Article 9? A. A creditor must have a valid security interest before it can perfect it. B. To create a security interest, the debtor must authenticate the security agreement, or the debtor must have possession or control of the collateral pursuant to an oral agreement. C. To create a security interest, the debtor must have rights in the collateral. D. To create a security interest, the creditor must have given value.

Answer 54

B

Question 55

Toys R’Us (“Toys”) wanted to borrow $10,000 from National Bank for business financing. On May 3, Toys and National Bank signed a security agreement that granted National Bank a security interest in Toys’ presently existing and after-acquired inventory. On that day, National Bank also committed to lend Toys $10,000. On May 3, Toys owned an inventory of various toys. On May 10, National Bank filed a financing statement covering Toys’ inventory. On June 20, Toys received another shipment of toys for sale including the latest wii games for sale. On which date was a security interest first created in favor of National Bank? * A. May 3. * B. May 10. * C. June 20. * D. May 3 and June 20.

Answer 55

C. When did national bank’s security interest attach to the wii games?

Question 56

Ace Company owes considerable amount of money to National Bank. Recently, Ace closed certain business transactions in the bank’s office and obtained some valuable promissory notes as a result of those transactions. The bank collected the promissory notes and put them in its own vault for safekeeping. Which of the following statement is correct? A. The bank’s security interest attaches to the notes because the bank has physical possession of those notes. B. The bank’s security interest does not attach to the notes because the bank’s possession of the promissory notes is not pursuant to any security agreement with Ace Company. C. The bank does not have any security interest in the notes because the bank has not given any value. D. The bank does not have any security interest in the notes because the parties did not sign any written security agreement.

Answer 56

B

Question 57

David Ink signed a security agreement granting a security interest in all of his assets to secure the loan from Chase Bank. Chase Bank filed a proper financing statement in the proper filing office. Both the security agreement and the financing statement described the collateral as “all of David’s assets.” David owned, among other things, a collection of Harry Potter books autographed by J.K. Rowling. Does Chase Bank have a security interest in the Harry Potter books? A. Yes, because David Ink granted Citibank a security interest in all of David Ink’s assets. B. No, because the security agreement and the financing statement failed to reasonably identify the collateral. C. Yes, because Chase Bank filed a proper financing statement in the proper filing office. D. No, because the security agreement failed to reasonably identify the collateral.

Answer 57

D

Question 58

Dave sent an email to Carl, asking if he could borrow $5,000 for one year at 10 percent, with the obligation secured by Dave’s football-card collection. Carl said that he had to see the football-card collection first. Dave and Carl got together at Dave’s house. After looking at the collection, Carl said: “It is a deal. You can hold onto the collection subject to my security interest.” Carl gave Dave a check for $5,000. Dave failed to pay the loan. Carl sought to exercise his Article 9 rights to the football-card collection. Did a security interest attach to the football-card collection? A. Yes, because the email from Dave satisfies the requirement of an authenticated security agreement. B. Yes, because the transaction was a financing transaction within Article 9. C. No, because Dave never authenticated a security agreement. D. No, because Carl did not file a financing statement covering the collateral.

Answer 58

C

Question 59

On June 1, David who operated a shoe store applied for a $10,000 loan with Citibank. David owned various women’s and men’s shoes at that time. On June 6, he signed a security agreement granting Citibank a security interest in his inventory and Citibank promised to loan David $10,000. On June 8, Citibank filed a financing statement covering David’s inventory and accounts. Citibank had a perfected security interest in David’s A. Inventory and accounts on June 6. B. Inventory on June 6. C. Inventory and accounts on June 8. D. Inventory on June 8

Answer 59

D

Question 60

David owned and operated a women’s leather goods store, as a sole proprietor. He needed to borrow money for his business expenses. In addition to leather shoes, the store sold belts and purses. He also had some accounts receivable from his preferred customers who bought items on store credit. In addition, he owned a Dell desk top computer which he used to keep track of his purchase orders, sales and inventory. Citibank agreed to loan the necessary funds if David gave sufficient security for the loan. David agreed and signed a security agreement which described the collateral as “Debtor’s Dell desk top computer and all of his existing and after-acquired women’s shoes.” Citibank filed a proper financing statement describing the collateral as all of Debtor’s equipment and inventory, existing and here after acquired. Citibank has a security interest in : A. Debtor’s Dell desktop computer and all of the existing and after-acquired women’s shoes. B. Debtor’s inventory and accounts, existing and after-acquired. C. Debtor’s equipment and inventory, existing and after-acquired. D. Debtor’s inventory, accounts, and equipment.

Answer 60

A

Question 61

Al Bundy, who owned and operated a women’s shoe store, needed funds to pay his employees’ salaries. In addition to shoes, the store sold belts and purses. Citibank agreed to loan the necessary funds provided that Bundy gave sufficient security for the loan. Bundy agreed and signed a security agreement granting Citibank a security interest in his computer (which he used to keep track of purchase orders, sales and inventory) and in all of his existing and after-acquired women’s shoes. The financing statement listed the collateral as “existing and after-acquired inventory and accounts.” Assuming Citibank files the financing statement in the proper place, Citibank will have a perfected security interest in: A. Nothing, since the descriptions in the security agreement and financing statement do not match. B. Inventory and accounts (existing and after-acquired). B isn’t right because SA didn’t mention accounts – doesn’t exist C. Inventory (existing and after-acquired). D. Women’s shoes (existing and after-acquired).

Answer 61

D Do you have attached security interest? Need value/rights – yes, Citibank agreed and there is rights in the shoes. Also need one of the other 3 – here we have authenticated security agreement. The question is…what is it in? Focus on the security agreement. You cannot perfect something that doesn’t exist. SI granted in the computer. Computer is classified as what type of collateral? Its equipment. The women’s shoes – he must be holding shoes for sale so its inventory.

Question 62

Holmes borrowed $25,000 from Citibank to buy a new car. Holmes signed a security agreement granting Citibank a security interest in his rare stamp collection and delivered his collection to Citibank. Now, Holmes wants to host a big party with his stamp collector friends at his home. One thing that he and his friends plan on doing at this party is to admire each other’s stamps. Holmes calls Citibank and asks whether he can have his stamp collection just for the party and he promises to return the collection the next day. Assuming that Citibank calls you for advice, how would you advise Citibank? A. Holmes can have his collection for the party. Citibank will not lose its perfected status in the collection as long as Citibank has it back within 20 days. B. Citibank can give up its possession of the collection. Citibank is protected by a security interest in Holmes’ new car. C. Holmes can have his collection for the party. Citibank will not lose its perfected status in the collection because Holmes authenticated a security agreement. D. Citibank should file a financing statement covering the collection first prior to giving up possession of the collection.

Answer 62

D

Question 63

Bob bought a flat screen television for $6,000 on credit from Best Buy for his newly renovated basement home theatre. Bob signed a Conditional Sales Contract that described the television and stated that Best Buy could keep the title to the television until Bob had paid all amounts due. Best Buy did not file any financing statement related to the transaction under Chapter 9. Which of the following statements is the most accurate about the transaction? (Contrast with next question) A. Best Buy has a perfected security interest in the collateral. B. Best Buy has a security interest in the television because its security interest attached to the collateral. C. Best Buy does not have a perfected security interest in the collateral because it failed to file a financing statement to perfect its security interest. D. Best Buy does not have a security interest in the television because the transaction between Bob and Best Buy is a conditional sale.

Answer 63

A

Question 64

David owns a landscape service. David bought a lawn mower for his business use on credit from Sears. Pursuant to the written sales agreement signed by David, Sears retained title in the mower until full payment is made. Sears filed no financing statement under Chapter 9. Which of the following statement is true? (Pulled from end of semester I-Clicker) A. Sears has no security interest in the mower. B. Sears has a security interest in the mower. C. Sears has a perfected purchase money security interest in the mower. D. Sears has a perfected security interest in the mower, because Sears has retained title in the mower.

Answer 64

B

Question 65

Bob contracts to buy a Bose stereo system for $4,000 on credit from Best Buy so that he can enjoy classic music in his living room. Bob signs a contract titled “Conditional Sale Contract.” The contract states that Bob promises to pay $500 per month for the stereo system and that Bob agrees that Best Buy can keep title to the stereo system until Bob pays all amounts due. Which of the following statements best describes Best Buy’s interest in the stereo system? A. Best Buy has a security interest in the stereo system. B. Best Buy does not have a security interest in the stereo system. C. Best Buy has a purchase money security interest in the stereo system. D. Best Buy has a perfected purchase money security interest in the stereo system.

Answer 65

D

Question 66

Ludwig, a world-renowned professional piano player, wanted to buy a new piano but did not have the $10,000 purchase price. He borrowed the money from his neighbor, Jack Lemon, granting Jack a security interest in the new piano. Jack did not take any additional steps to perfect his security interest. Which of the following statements is most accurate? A. Jack has a purchase money security interest because Ludwig bought the piano for use as a consumer good. B. Jack is perfected. C. Jack is perfected because the loaned funds were actually used to buy the new piano. D. Jack is perfected only if Ludwig bought the piano for use as a consumer good and the loaned funds were actually used to buy the new piano.

Answer 66

D

Question 67

Citibank takes a security interest in a Monet painting owned by Norman Simon that Simon intends to have displayed at the Museum of Art. Which of the following would most likely NOT constitute perfection by possession under Article 9? [deleted as a quiz grade, but the mistake corrected] A. The museum sends Citibank a letter acknowledging that it will hold possession of the painting for Citibank’s benefit. B. Before the painting is hung in the museum, the museum sends Citibank an email with the museum’s electronic signature stating that it will hold possession of the painting for Citibank’s benefit. C. Citibank puts a sign next to the painting, stating: Notice. Citibank has a possessory security interest in this painting. D. Citibank hires a guard to stand near the painting during the business hours of the museum and to patrol the museum when it is closed.

Answer 67

C. What constitutes possession? If collateral is in possession of 3rd party (like here), what constitutes possession by creditors? A and B would both be good enough – authentication.. THROWN OUT

Question 68

Farmer McDonald stored his corn in a co-op grain elevator. The co-op gave him a negotiable warehouse receipt. Farmer McDonald then applied for a loan with Citibank and agreed with Citibank that he would grant Citibank a security interest in the corn that he had stored at the elevator. Citibank has committed to giving Farmer McDonald a loan. Which is the easiest method for Citibank to perfect its security interest in the corn? A. File a financing statement B. Take possession of the negotiable warehouse receipt. C. Take possession of the grain. D. Have the co-op grain elevator authenticate a record acknowledging that it holds possession of the collateral for Citibank’s benefit.

Answer 68

B this is Tangible property →document of title (negotiable warehouse receipt). Easier way for tangible document that has legal significance of itself

Question 69

Home Depot sells a dishwasher to Chris on credit, resulting in an account of $700. Chris has granted Home Depot a security interest in the dishwasher. Chris plans to replace the old dishwasher in his house that he has been renovating. Home Depot sells the account to Friendly Finance Company for $600. Which party to this transaction may need to file a financing statement to be fully protected against other potential creditors? A. Chris. B. Home Depot. C. Friendly Finance. D. Nobody.

Answer 69

C a. A cant be right because the creditor has to file financing statement B cant be right because the creditor has to file the financing statement a. multiple transactions i. 1st transaction (HD and Chris) 1. HD is seller on credit – purchase money interest security holder. Personal/family/household purpose – consumer goods a. automatic perfection status ii. 2nd transaction 1. sale of account to financing company 2. scope – TASC: this is whats included in article 9. 3. here, the seller is the debtor and FF is the creditor b. C is the better choice because automatic perfection status is rare and given only to certain things

Question 70

Which of the following statement is NOT true under Article 9? A. The only way a secured party can perfect a security interest in a general intangible is by complying with the filing requirements under Article 9. B. Under Article 9, a secured party can sometimes perfect a security interest in goods by complying with the filing requirements of Article 9 or by taking possession of the goods. C. Under Article 9, perfection of a security interest can occur automatically upon attachment sometimes. D. Under Article 9, perfection of a security interest in deposit accounts may be done by filing.

Answer 70

D

Question 71

Citibank loaned $20,000.00 to Hardware Solutions pursuant to a written security agreement signed by both parties. Hardware Solutions agreed to grant Citibank a security interest in its patents and told Citibank that it could take possession of the patent certificates. How can Citibank best perfect its security interest? A. Citibank can perfect its security interest by taking possession of the patent certificates. B. Citibank can perfect its security interest because its security interest has attached to the collateral. C. Citibank can perfect its security interest by complying with the filing requirements under UCC and/or federal law. D. Citibank does not have to do anything to perfect its security interest.

Answer 71

C Step 1 – classify collateral – patent certificates are general intangible – it doesn’t fit into any of the other categories and this is the catchall. 1. the only way to perfect general intangibles is by filing

Question 72

David and Citibank executed a security agreement wherein David granted Citibank a security interest in “all of the debtor’s equipment.” At the time, David owned a printing shop and had a X-10 copy machine. Citibank promised to lend David $10,000. Citibank filed a financing statement which described the collateral as “a X-10 copy machine.” To what collateral has Citibank’s security interest attached and in what collateral is the security interest perfected? A. Attached in all equipment and perfected in the X-10 machine. B. Attached in X-10 copy machine and perfected in X-10 copy machine. C. Attached in all equipment and perfected in all equipment. D. Attached in X-10 copy machine and perfected in all equipment

Answer 72

A a. you have value – Citibank promised to lend & b. rights – yes – shop c. agreement – security agreement tells us SI in all debtors equipment – so it has attached here d. so your choice is between A and C – look at financing statement. Says Citibank has described the copy machine – it is narrower than the SA – the financing statement failed to give notice to other creditors about the encumbrance on the debtors property

Question 73

Sears sold a lawn mower to a customer for $99.00. The customer bought the lawn mower for his home and used his Sears credit card for the purchase. The receipt signed by the customer states that Sears has a security interest in the lawn mower. Which of the following advice would you give to Sears? A. Sears must file a financing statement under UCC Article 9 to perfect its security interest. B. Sears cannot perfect its security interest in the lawn mower because Sears did not lend the customer money. C. Sears does not need to do anything. D. Sears cannot perfect its security interest because Sears and the customer did not sign a security agreement.

Answer 73

C

Question 74

On March 15, 2008, Jane who works for an accounting firm loaned $5,000.00 to her friend Walter who had his own accounting business. Walter signed a promissory note, promising to pay back the loan together with interest in two years. Walter failed to pay Jane on March 15, 2010. On March 16, 2010, Walter and Jane agreed in writing that Walter would pay Jane $1,000.00 by May 15, 2010, and the remaining payments including interests to be made in subsequent months. In the letter, Walter also assigned to Jane his accounts receivable to secure his payment under the letter agreement. Jane did not comply with UCC Article 9 filing requirements. Walter failed to pay as promised and filed for bankruptcy on June 1, 2010. If Walter attempts to avoid Jane’s security interest in Walter’s accounts receivable, what is the likely result in the bankruptcy court? A. Walter is likely to win because accounts are generally not within the scope of Article 9. B. Walter is likely to win because there is no authenticated security agreement. C. Jane is likely to lose because she did not comply with Article 9 filing requirements. D. Jane is likely to win because Jane is not engaged in the business of commercial lending or regularly taking assignment of accounts.

Answer 74

D

Question 75

Body Fitness Manufacturer (BFM) signed an agreement titled “equipment lease” with Equipment Financing, Inc. Under the agreement, BFM was obligated to make payments of $10,000 per month for four years as rental payment for an assembly line and had an option to buy the assembly line at the end of the four year period for $1. The agreement also provided that, on default, Equipment Financing, Inc. had the right to terminate the lease and take back the assembly line. BFM defaulted on the monthly payments. Equipment Financing, Inc. did not comply with the filing requirements of Chapter 9. Which one of the following statements is correct under Chapter 9? A. Equipment Financing, Inc. owns the assembly line, so it can take back the assembly line because BFM breached the lease. B. Equipment Financing, Inc. owns the assembly line, but it must sue BFM for breach of contract. C. BFM owns the assembly line, but Equipment Financing, Inc. can repossess the assembly line. D. BFM owns the assembly line, but Equipment Financing, Inc. can sue BFM for breach of contract.

Answer 75

C

Question 76

Carl and Ben were studying in the library and while taking a break, Carl told Ben that he was trying to sell his washer and dryer. It just so happened that Ben had been looking to buy a washer and dryer to furnish his apartment. Ben agreed to buy the washer and dryer. Because Ben did not have $500 for the purchase price, Carl proposed to Ben that Ben could pay $50 as a down payment and thereafter $50 a month and Carl had the right to take the washer and dryer back if Ben did not pay the entire purchase price. Ben agreed. After they finished studying at the library, Carl used his pickup truck and delivered the washer and dryer to Ben. Neither Carl nor Ben wrote anything down. After two payments, Ben stopped paying. Which one of the following statements is correct? A. Carl cannot have his washer and dryer back because he does not have a security interest in them. B. Carl can have his washer and dryer back because he has a purchase money security interest in them. C. Carl can have his washer and dryer back because he sold the washer and dryer on credit to Ben. D. Carl cannot have his washer and dryer back because Ben has taken possession of the washer and dryer

Answer 76

A

Question 77

Illinois creates a statutory lien on farm products in favor of a person that in the ordinary course of business furnished goods or services to a debtor in connection with a debtor’s farming operation. Neal operates a corn farm in Illinois. When he borrowed money from National Bank, he granted the bank a security interest in his crop. He then bought seeds on credit from Farming Supplies, Inc. in order to plant his crop. At harvest time, Neal defaulted on his payments to National Bank and Farming Supplies, Inc. Is the transaction between Neal and Farming Supplies, Inc. within the scope of Chapter 9? A. Yes. B. No, because Neal did not authenticate a security agreement. C. Yes, because Neal granted the bank a security interest in his crop in writing. D. Yes, because Neal bought the seeds on credit

Answer 77

A

Question 78

On June 1, David borrowed $5,000 from Carl in order to pay some overdue taxes. As part of the transaction, David signed the following IOU: “I owe Carl $5,000. All my home furniture shall be collateral for this loan.” At all relevant times, Carl kept the IOU under lock in his office. Which one of the following statement is true? A. Carl has no security interest. B. Carl has a security interest. C. Carl has a perfected security interest because Carl has possession of the IOU. D. Carl has a perfected security interest because Carl has possession of the IOU, provided that the IOU is of a type normally transferred by delivery

Answer 78

B

Question 79

On August 1, 2006, National Bank acquired a security interest in the existing and after acquired inventory and accounts of Thomas Walker Furniture Store . National Bank perfected its security interest on the same day by filing a financing statement in the appropriate office describing all the relevant collateral. If National Bank filed only one continuation statement on January 15, 2011 – it is now March 2014, which one of the following statements with respect to National Bank’s security interest would be true? A. It is perfected in all of the collateral against a purchaser of the collateral for value. B. It is perfected in collateral acquired by the debtor on or before August 1, 2011, but unperfected in collateral acquired by the debtor after that date. C. It is unperfected in all the collateral against a purchaser of the collateral for value. D. National Bank no longer has a security interest in the collateral.

Answer 79

C

Question 80

On May 1, David approached Citibank for a $10,000 loan and filled out a loan application. Citibank reviewed the application and on May 15 agreed to lend David the money if David could provide adequate collateral as security for the loan. David had nothing valuable to satisfy Citibank, but David’s mother did. On May 17, David’s mother orally agreed to put up her diamond wedding ring worth about $15,000 as collateral for the loan. On May 19, David signed a written security agreement which specifically described the diamond wedding ring as the collateral for the loan. On that same day, Citibank gave David a check for $10,000. Citibank’s security interest: A. Never attached B. Attached on May 17 when David’s mother agreed to use her diamond wedding ring as the collateral. C. Attached on May 19 when David signs the written security agreement. D. Attached on May 15 when Citibank made a binding commitment to lend the money.

Answer 80

A

Question 81

Snow collected gold coins dating from the Roman Empire. A couple of years ago, when Snow purchased a new home, she borrowed $250,000 from Citibank secured by a mortgage on the house. Because Snow’s annual income was not at a level desired by Citibank, Citibank insisted on taking a security interest in her gold coin collection worth $50,000 at that time. Snow signed a security agreement which described the collateral as “Snow’s gold coin collection.” Snow has now defaulted on the mortgage. The coin collection is now worth $100,000 (the increase in value being in part due to appreciation and to periodic addition of new coins to the collection). Citibank tries to repossess the coin collection. Which of the following statements is true? A. Citibank will not be able to repossess Snow’s gold coin collection because Citibank has a mortgage on Snow’s house. B. Citibank has no right to repossess the coin collection unless it had properly filed a financing statement perfecting its security interest. C. Citibank has no right to repossess all of the coins in the collection. D. Citibank has no right to repossess more than $50,000 worth of the coins.

Answer 81

C

Question 82

On April 10, John Kerry signed a security agreement with the Bank, granting the Bank a security interest in all of his existing and after-acquired equipment. The Bank committed itself to lending Kerry $10,000. On May 1, Bank filed a properly completed financing statement in the proper place, properly naming the debtor as John Kerry. The collateral was described in the financing statement as “debtor’s presently-owned and after-acquired equipment.” On June 1, John Kerry legally changed his name to John Kennedy, in honor of the former president. It is now December 1. Assuming that Kerry/Kennedy has been acquiring new pieces of equipment every month since the signing of the security agreement, which of the following choices correctly describes the Bank’s interest in the collateral at this time? A. The Bank has a perfected security interest in the equipment acquired by Kerry/Kennedy before June 1. B. The Bank has a perfected security interest in the equipment acquired by the debtor during August. C. The Bank has a security interest in the equipment that Kerry/Kennedy acquired during November. D. All of the above

Answer 82

D

Question 83

ABC Equipment Sales and Leasing, LLC, sells and leases construction equipment. In order to secure a $100,000 loan made by Iberia Bank, ABC’s manager, with proper authority, executed on behalf of ABC a security agreement granting Iberia Bank a security interest, describing the collateral as “All of the debtor’s now owned and hereafter acquired inventory.” On that same day, Iberia Bank filed a proper financing statement in the proper office and included the same description of the collateral. On that day, ABC has new forklifts that ABC has for sale in its facility, scissor lifts that ABC leases on a weekly basis to contractors who perform construction work, and a truck that ABC uses to deliver merchandise to its customers. Assuming that the equipment that ABC sells and leases is not subject to any certificate of title statute, A. Iberia Bank has a security interest in the new forklifts, the scissor lifts and the truck. B. Iberia Bank has a perfected security interest in the new forklifts and the scissor lifts only. C. Iberia Bank has a perfected security interest in the new forklifts, the scissor lifts and the truck. D. Iberia Bank has a perfected security interest in the new forklifts only.

Answer 83

B

Question 84

On March 1, Whitney Bank lends $15,000 to Happy Hunting, Inc. (HHI), a manufacturer of bird calls, decoys, and other hunting accessories. On that date, HHI granted Whitney Bank a security interest in the forklift that HHI owns and uses in its shipping department. That same day, Whitney Bank filed a proper financing statement in the proper office describing the collateral as “the debtor’s forklift.” On June 15, HHI decided to change its name to DuckTails, Inc. Does Whitney Bank need to do anything to maintain its perfected status? A. No. It is not necessary for Whitney Bank to file any corrective filing after the name change. B. Yes, because the name change renders the original financing statement seriously misleading. C. Yes, as long as the debtor authorizes the filing of the financing statement. D. No. Whitney’s financing statement is effective for five years.

Answer 84

A

Question 85

Disney World, Inc. is a corporation registered under the laws of the state of California. Last year, Disney World granted Citibank a security interest in a ride called The Hulk located in its amusement park in California. Citibank properly filed a financing statement in the appropriate office in California describing the collateral as “equipment.” If Citibank does nothing, in which one of the following independent scenarios will Citibank lose its perfection in the Hulk most quickly? A. For tax reasons, Disney World reincorporates under the laws of the State of Delaware. B. Disney World transfers the Hulk to Creditor, a resident of California, in payment of an overdue debt. C. Disney World changes its name to Dreamworks, Inc. D. Disney World leases the Hulk to customer for two years.

Answer 85

A

Question 86

Toyland manufactures and sells toys. Rapid Transit (RT) provides transportation services to Toyland. RT transports all of Toyland’s toys to its customers all over the country. The form invoices that RT provides to Toyland when picking up toys for transport contain a provision granting RT a security interest in all property of Toyland in RT’s possession to secure payment of shipping charges owed to RT. Toyland has never paid any attention to those invoices and the parties have never discussed the provision. Which of the following statements is true? A. RT has a security interest in Toyland’s goods in RT’s possession because RT has possession of the collateral. B. RT has a perfected security interest in Toyland’s goods in RT’s possession because RT has possession of the collateral. C. RT has a security interest in Toyland’s goods in RT’s possession because of the parties’ course of dealing. D. RT has no security interest in any of Toyland’s goods.

Answer 86

D

Question 87

Bank One loaned Room & Board $100,000 and in exchange obtained a security interest in the existing and hereafter acquired inventory of Room & Board. It filed a financing statement which described the collateral as “Debtor’s existing and hereafter acquired inventory and equipment” on June 1, 2007 in the proper office. Bank Two also loaned Room & Board $50,000 and obtained a security interest in the debtor’s existing and after acquired equipment. Bank Two filed its financing statement in the proper office on August 2, 2008 describing the same collateral. Bank Two filed a continuation statement on March 14, 2013. It is now February, 2014. Assuming that the banks made only the above filings, which of the following statements is accurate? A. Bank One has a perfected security interest in the debtor’s existing and after acquired inventory. B. Bank Two has a perfected security interest in the debtor’s existing and after acquired inventory. C. Bank Two has a perfected security interest in the debtor’s existing and after acquired equipment. D. Bank One has a perfected security interest in the debtor’s existing and after acquired equipment.

Answer 87

C

Question 88

Bank One agreed to loan $20,000.00 to Software Solutions pursuant to a security agreement signed by both parties on August 1, 2010. In the security agreement, Software Solutions granted Bank One a security interest in its patents. Software Solutions told Bank One that it could take possession of the patent certificates. Bank One took the certificates and put them in its vault. Bank One did not file any financing statement. Shortly thereafter, Software Solutions needed more financing and applied for a loan with Bank Two. On October 20, 2010, Software Solutions signed a security agreement which gave Bank Two a security interest in all of Software Solutions’ equipment, general intangibles, accounts and inventory in return for Bank Two’s commitment to lend $30,000. Bank Two filed a proper financing statement in the appropriate filing office on October 25 with the same collateral description. Which creditor has a perfected security interest in Software Solutions’ patents. A. Bank One because it has the patents in its possession. B. Bank Two because it has a valid security interest in the patents. C. Bank One because Bank Two’s security interest attached later than Bank One’s. D. Bank One because it has a valid security interest in the patents.

Answer 88

B

Question 89

On May 1, 2012, Greenfield Farms, Inc. which does business in both Michigan and Wisconsin, borrowed $10,000 from Citibank in Chicago, Illinois and granted Citibank a security interest in its 30 cow-milking machines located on one of its farms in Wisconsin. On that day, Citibank filed a properly completed financing statement in the designated filing office in Wisconsin. On June 2, Greenfield Farms, Inc. decided it needed more financing and borrowed an additional $20,000 from Bank of America. Greenfield Farms, Inc. signed a security agreement with Bank of America and granted Bank of America a security interest in all of its equipment. On June 2, Bank of America filed a properly completed financing statement in the designated filing office in Delaware describing the collateral as all of the debtor’s equipment. At all relevant times, Greenfield Farms, Inc. has its chief executive office in Wisconsin, but is incorporated in Delaware. Assume that all of the states involved here have adopted the uniform version of UCC 9, if Greenfield Farms, Inc. files for bankruptcy now, which bank will get priority with regard to the 30 cow milking machines located in Wisconsin? A. Citibank because it was the first to file. B. Citibank because it was the first to perfect. C. Bank of America because it has perfected security interest in the 30 cow milking machines. D. Neither because the description of the collateral was inconsistent.

Answer 89

C Perfect where Incorporated

Question 90

David wanted to buy an expensive oriental rug to decorate his living room. He bought the rug by making a small down payment and brought the rug home. A few months later, David realized that he needed some money to continue paying for the rug. He approached your client, Bank One, and borrowed $2,000.00 to finance the installment payments and gave your client a security interest in the rug. What should your client do in order to perfect its security interest in the rug? A. Nothing, because its security interest is a purchase money security interest in consumer goods. B. Comply with the filing requirements under Article 9. C. Take possession of the rug. D. Make sure that its security interest has attached to the rug.

Answer 90

B i. Value? Yes – debtor borrowed $2,000 ii. Rights? yes, bought rug iii. Authenticated SA? didn’t really say that the debtor authenticated it…but the debtor gave creditor SI in rug. Probably ok to assume there is a SA….between D and B…B is better. Call of the question is what to do to perfect SI in the rug….automatic perfection is ok…but since it wasn’t an answer here, you can always perfect by filing

Question 91

David needed some cash and asked his friend Carol if she would lend him $12,000. He promised Carol that he would repay the money with interest within one year and offered to let Carol keep a valuable diamond ring of his as “collateral for the loan.” Carol agreed. She gave David a check for $12,000 and David handed over the ring to Carol. A. Carol does not have a perfected security interest in the ring. B. Carol has a perfected security interest in the ring. C. Carol’s security interest in the ring did not attach because the security agreement was not in writing. D. Carol does not have a perfected security interest in the ring because she did not comply with the filing requirements of Article 9.

Answer 91

B Value – yes, creditor lends $$ Rights in collateral – yes, owns ring Possession – yes Carol has possession of the ring ….Valid SI Pefected SI? can perfect by possession or control…goods in ok to be perfected by possession

Question 92

Although goods can have only one Chapter 9 classification at a time (consumer goods, equipment, farm products, inventory), most goods can be classified in several different ways, depending on how the debtor is using them. What one of the following goods can most likely fit in all of the four classifications of goods? A. A cut flower B. A horse C. A tractor D. Milk

Answer 92

B

Question 93

In anticipation of a financing transaction with a debtor, Citibank’s attorney prepares a security agreement and a financing statement. Who needs to sign which document? A. Only the debtor needs to sign the security agreement, and no one needs to sign the financing statement. B. Both parties must sign both documents. C. Both parties must sign the security agreement, but only Citibank must sign the financing statement. D. Only the debtor needs to sign the security agreement and Citibank must sign the financing statement.

Answer 93

A

Question 94

Citibank had a valid security interest in the equipment of Widget Manufacturing Co. It filed a financing statement on June 1, 2005. National Bank took a valid security interest in the same collateral and filed its financing statement on June 2, 2005. National Bank filed a continuation statement on May 25, 2010. It is now February, 2011. Which bank has a perfected security interest in the equipment of Widget Manufacturing Co.? A. Citibank has a perfected security interest in the equipment because it was the first one to file. B. National Bank does not have a perfected security interest because it was the second one to file a financing statement. C. Citibank does not have a perfected security interest because its security interest did not attach. D. National Bank has a perfected security interest in the equipment.

Answer 94

D

Question 95

On June 1, Della’s Fashion Boutique (“DFB”) applied for a loan at Citibank. DFB signed the loan application which authorized Citibank to file a financing statement. On June 2, Citibank filed a properly completed financing statement in the proper place. The financing statement described the collateral as “all of the debtor’s equipment and inventory, existing and after-acquired.” On June 20, Citibank approved DFB’s application and committed to providing a $15,000 line of credit for DBF. On June 21, DFB executed a security agreement, granting Citibank a security interest in the equipment and inventory mentioned above. When was Citibank’s security interest perfected? A. Citibank’s security interest never became perfected because Citibank filed the financing statement prematurely. B. June 21. (Perfected when security agreement is achieved) C. June 20. D. June 2.

Answer 95

B

Question 96

On March 1, Citibank signed a security agreement with David. Citibank brought its properly completed financing statement and correct filing fee to the clerk who accepted it, but inadvertently misplaced it. On March 2, Park National Bank signed a security agreement with David. That same day, Park National Bank brought its properly completed financing statement and the correct filing fee to the clerk who accepted and indexed it on the same day. On March 3, the clerk found Citibank’s financing statement and indexed it. Assuming that both banks have a valid security interest and filing was the only applicable way to perfect its security interest, which bank was the first one to perfect? A. Citibank because it was the first one to file. B. Park National Bank because its financing statement was the first one to be indexed. C. Park National Bank because it was the first to file. D. Citibank because its financing statement was the first one to be indexed

Answer 96

A

Question 97

Mary Poppins is a small business owner and lives in Chicago, Illinois. She owns an interior decorating shop in Chicago. She likes to go shopping in Michigan because of the lower sales tax. Recently, she bought a refrigerator on credit from Electronics & Plus in Michigan City, Michigan. She signed a receipt which granted Electronics & Plus a security interest in the refrigerator. She wanted to install the refrigerator for the dining lounge for her employees. Electronics & Plus has hired you to help the store to protect its security interest. What should you do? A. Nothing because Electronics & Plus’ security interest in the refrigerator is automatically perfected. not purchase $ security interest in consumer goods B. File a financing statement in the Illinois designated filing office to perfect its security interest. C. File a financing statement in the Michigan designated filing office. D. Advise Electronics & Plus that taking possession of the collateral is the best way to perfect its security interest.

Answer 97

B

Question 98

On June 1, Greenfield Farms, Inc. which does business in both Illinois and Wisconsin, borrowed $10,000 from Citibank and gave Citibank a security interest in their 30 cow-milking machines. At that time the machines were located in Illinois and the parties expected that they would remain there. After receiving the cash but before Citibank filed a financing statement, Greenfield Farms, Inc. changed its corporate mind in good faith and, on June 10, moved the machines to Wisconsin. On June 15, Citibank filed a properly completed financing statement in Wisconsin. At all relevant times, Greenfield Farms, Inc. had its chief executive office in Wisconsin, but was incorporated in Delaware. A filing in Wisconsin: A. Is effective, because the goods are located in Wisconsin. B. Is effective, because the debtor’s chief executive office is there. C. Is ineffective. D. Is effective, because the milking machines were moved from Illinois to Wisconsin.

Answer 98

C a. first question – what is the issue? (all that matters is where it is incorporated) cz i. perfection of security interest – where to file? 1. general rule – state where debtor is located with govern a. exceptions – possessory security interest b. fixture filings c. timber d. as-extracted collateral filings e. agricultural liens

Question 99

Jack, a resident of Michigan, lost too much money gambling in a casino in Las Vegas, Nevada. He went to Desperately In Need (“DIN”), a pawnshop located in Las Vegas and incorporated in Delaware. He pledged his wedding ring in return for a loan of $500 by the pawnshop. DIN gave him $500 and took possession of the ring. Which state law governs whether the security interest is perfected? A. Nevada B. Delaware C. Michigan D. Both Michigan and Nevada.

Answer 99

A GR doesn’t apply here – possessory interest – pawnshop took possession of collateral – exception – so its Nevada

Question 100

Deloitte (located in Minneapolis, Minnesota) had two creditors, Citibank and Bank of America, before it moved to Chicago, Illinois. Both Citibank and Bank of America had a perfected security interest in Deloitte’s accounts receivable before Deloitte’s move. Citibank filed its financing statement on May 1, 2010, while Bank of America filed its financing statement on May 5, 2010. Deloitte moved to Chicago on July 1, 2011. Bank of America refiled in Illinois on September 1, 2011. Citibank, however, did not realize that Deloitte had moved until December 1, 2011. Citibank refiled in Illinois on December 1. It is now February 2012. Which of the following statement is NOT true? A. Before July 1, 2011, Citibank had a perfected security interest in Deloitte’s accounts receivable. B. Citibank has retained its perfected security interest status continuously despite Deloitte’s move to Chicago, Illinois. C. Bank of American has a continuously perfected security interest in the accounts receivable. D. Citibank has a valid security interest in Deloitte’s accounts receivable.

Answer 100

B when the debtor moves, creditor has 4 months to refile in new place Citibank loses because their new date is December 1, 2011 – it has a valid SI during the lapse of time (between when Deloitte moves and when they refile), but not perfected until December 1, 2011 C is correct because Bank of American refilled within 4 months of the move to Chigago

Question 101

Perry Corp. is organized under the laws of New Jersey, but has its large retail store in New York. The CEOs of Perry Corp., a husband and wife team, live in Baltimore, Maryland. Perry Corp. borrowed $100,000 from Citibank located in New York City, New York, to finance its daily operations. Citibank is a banking conglomerate incorporated under the laws of Delaware. As security for the loan, Perry Corp. pledged the promissory notes that it received from its customers in the ordinary course of business. Citibank took possession of the promissory notes and put them in its vault in New York. Which state should the financing statement be filed in order to perfect Citibank’s security interest in the promissory notes? A. New Jersey B. Maryland C. Delaware D. New York

Answer 101

D

Question 102

Joe from Joe’s Auto Dealership (“JAD”) went to National Bank to apply for a $10,000 loan on JAD’s behalf on June 3. On that day, JAD and National Bank signed a security agreement that granted National Bank a security interest in JAD’s presently existing and after-acquired inventory. National Bank committed to lending JAD $10,000. On June 3, JAD had an inventory of 500 cars. On June 10, National Bank filed a financing statement covering JAD’s existing and after-acquired inventory. On June 20, JAD received another shipment of 50 cars for sale (assume that on this date JAD received rights in this collateral). On which date was a security interest first created in favor of National Bank? A. June 3. B. June 10. C. June 20. D. June 3 and June 20.

Answer 102

A

Question 103

General Treasures is a family owned business with its stores primarily in the midwestern states (Illinois and Wisconsin) The Chief Executive Officer of General Treasures, Lloyd Shuster, prefers the mild climate of California and lives with his family in San Francisco, Ca. He actively directs the business operations from his San Francisco home office. General Treasures recently borrowed $500,000 from Citibank located in Chicago, Illinois to finance its inventory purchases. Citibank is a banking conglomerate incorporated under the laws of Delaware. As security for the loan, General Treasures granted Citibank a security interest in all of its accounts receivable, existing and hereafter acquired. Where should Citibank file its financing statement to perfect its security interest? A. Delaware B. Wisconsin C. Illinois D. California

Answer 103

D

Question 104

Citibank loaned Widget Manufacturing Co. $10,000 and in exchange obtained a security interest in the inventory of Widget Manufacturing Co pursuant to a written security agreement. It filed a financing statement perfecting its security interest in the inventory on June 1, 2006. National Bank also loaned Widget Manufacturing Co. $10,000 and obtained a security interest in the same collateral in writing and filed its financing statement on June 2, 2006. National Bank filed a continuation statement on June 1, 2010. It is now February, 2011. Assuming that both banks’ financing statements are properly filed in the proper designated filing office, which bank has priority over the inventory of Widget Manufacturing Co.? A. National Bank because Citibank should have filed a continuation statement. B. National Bank because it was the first one to file a continuation statement. C. Citibank because it was the first one to file a proper financing statement. D. Neither because they both failed to continue their perfected secured creditor status.

Answer 104

C 5 years time to final continuation perfected SI? Citibank – attached security interest? Yes (value, rights in collateral, authenticated SA, filed financing statement) National Bank – yes, same thing 5 years = June 1, 2011. It is now Feb 2011. Who has perfected SI? Borh. The filing of continuation statement ahead of time violates 6 month prior rule, so its invalid so Citibank wins – first to file

Question 105

Which of the following statements is not correct under Article 9? A. Article 9 priority rules are generally determined by the principle of first in time, first in right. B. Under Article 9, a purchase money security interest holder has priority over an earlier perfected secured creditor under certain conditions. C. Under Article 9, a lien creditor has priority over an earlier perfected creditor. D. In a priority dispute between two secured, but unperfected creditors, the first one to attach has priority

Answer 105

C

Question 106

David owns a printing shop “David’s Printing Shop”. The shop has a printing machine, copy paper and ink. On May 1, David applied for a $10,000 loan at Citibank to finance his business operations. David authorized the bank to file a financing statement covering all of David’s personal and business assets. On that day, Citibank filed a proper financing statement in the proper filing office. David did not hear from Citibank for a while. On June 1, he decided to try his luck at his local credit union. He was able to borrow $5,000 from the credit union that day. He granted the credit union a security interest in David’s Printing Shop’s equipment and inventory to secure the loan. The credit union filed a proper financing statement in the proper office on June 1. On October 10, Citibank called David and told him that his loan application was approved. David signed a security agreement with Citibank and granted Citibank a security interest in David’s Printing Shop’s equipment and inventory. Citibank gave him a check for $10,000. Between Citibank and the credit union, who has priority over David’s Printing Shop’s equipment and inventory if David’s Printing Shop goes bankrupt? A. Citibank because it was the first one to file. B. Credit Union because it was the first one to file. C. Citibank because it was the first one to perfect. D. Credit Union because it was the first one to perfect.

Answer 106

A

Question 107

On May 1, 2012, Greenfield Farms, Inc. which does business in both Illinois and Wisconsin, borrowed $10,000 from Citibank in Chicago Illinois and granted Citibank a security interest in its 30 cow-milking machines located on one of its farms in Wisconsin. On that day, Citibank filed a properly completed financing statement in the designated filing office in Wisconsin. On June 2, Greenfield Farms, Inc. decided it needed more financing and borrowed an additional $20,000 from Bank of America. Greenfield Farms, Inc. signed a security agreement with Bank of America and granted Bank of America a security interest in all of its equipment. On June 2, Bank of America filed a properly completed financing statement in the designated filing office in Delaware. At all relevant times, Greenfield Farms, Inc. has its chief executive office in Wisconsin, but is incorporated in Delaware. Assuming that both Wisconsin and Delaware have adopted the identical UCC Article 9 priority rules, if Greenfield Farms files for bankruptcy on June 1, 2014 and the only two creditors are Citibank and Bank of America, which bank gets priority with regard to the 30 cow milking machines located in Wisconsin? A. Citibank because it was the first to file. B. Citibank because it was the first to perfect. C. Bank of America because it has perfected security interest in the 30 cow milking machines. D. Neither because the description of the collateral was inconsistent.

Answer 107

C

Question 108

David needed $3,000. On March 20, he approached his friend Carl for a loan and offered to use his extensive baseball card collection as collateral for the loan. Carl agreed and they signed a security agreement which granted Carl a security interest in the baseball collection. After Carl gave him $3,000, David offered to hand over his extensive baseball card collection (three card boxes) to Carl. Carl could not find a storage place for those baseball cards. He told David to hold onto the collection until he could find some space for them. A week later, David needed more money. He asked his mother for a $1,000 loan. To convince his mother, he signed a security agreement which granted to his mother a security interest in his extensive baseball collection. He showed his mother the boxes full of baseball cards. On April 8, David’s mother gave David a $1,000 check and asked her attorney to file a financing statement immediately. Her attorney filed a proper financing statement in the proper office on that day. If David files for bankruptcy, between David’s mother and Carl, who has priority over David’s baseball card collection? A. David’s mother because she is a perfected secured creditor. B. David’s mother because her security interest attached first. C. Carl because he has a perfected security interest in the baseball card collection. D. Carl because his security interest was the first one to attach.

Answer 108

A

Question 109

On August 1, Shoe Store applied for a $20,000 line of credit at First State Bank. At that time, Shoe Store owned a delivery truck and an inventory of men’s and women’s shoes. Shoe Store did not hear from First State Bank for a long time. On November 15, in desperate need for some quick cash, Shoe Store went to Financing Company and borrowed $10,000. Shoe Store signed a written security agreement which granted Financing Company a security interest in all of the debtor’s equipment and inventory. Financing Company gave Shoe Store a check for $10,000. Financing Company, however, forgot to file a financing statement. On November 20, First State Bank called Shoe Store and told the store owner that it approved a $15,000 line of credit for Shoe Store. On November 21, Shoe Store executed a security agreement, granting First State Bank a security interest in all of the debtor’s inventory in return for First State Bank’s commitment to provide $15,000 line of credit. First State Bank filed a financing statement covering all of the debtor’s inventory next day. If Shoe Store files for bankruptcy, between First State Bank and Financing Company, who has priority over the Shoe Store’s delivery truck? A. First State Bank because it was the first one to file. B. Financing Company because it has a perfected security interest. C. Financing Company because it has a valid security interest. D. First State Bank because it has a valid security interest.

Answer 109

C The delivery truck is equipment. Only valid security interest, not perfected, but First state bank doesn’t have any security interest in the equipment, only for the inventory

Question 110

National Bank agreed to loan $20,000.00 to Software Solutions pursuant to a security agreement signed by both parties on August 1, 2010. In the security agreement, Software Solutions granted National Bank a security interest in its patents. Software Solutions told National Bank that it could take possession of the patent certificates. National Bank took the certificates and put them in its vault. National Bank did not file any financing statement. Shortly thereafter, Software Solutions needed more financing and applied for a loan with Chase Bank. On October 20, Software Solutions signed a security agreement which gave Chase Bank a security interest in all of Software Solutions’ equipment, general intangibles, accounts and inventory in return for Chase Bank’s commitment to lend $30,000. Chase Bank filed a proper financing statement in the appropriate filing office on October 25. Between National Bank and Chase Bank, which creditor has priority over Software Solutions’ patents. A. National Bank because it was the first one to perfect its security interest in the patents. B. National Bank because it has a perfected security interest in the patents. C. National Bank because it has a valid security interest in the patents. D. Chase Bank because it has a perfected security interest in the patents.

Answer 110

D NB had valid security interest and took possession of patents. But patents are general intangibles, so possession is not enough – must file.

Question 111

Border’s Bookstore obtained a $30,000 loan from First National Bank (“FNB) pursuant to a written security agreement giving FNB a security interest in all of Border’s inventory. FNB, however, forgot to ask its attorney to file a financing statement. Interior Design, Inc. had previously provided some design services to Border’s. When Border’s failed to pay for the services, Interior Design sued Border’s and obtained a judgment against Border’s. It then had the sheriff levy on the inventory. Between Interior Design, Inc. and FNB, which creditor has priority over Border’s inventory? A. FNB because it has a perfected security interest. B. FNB because it has a valid security interest. C. Interior Design because it is a lien creditor. D. Interior Design because it provided services to Borders

Answer 111

C FNB has a valid SI, but in the priority battle, it doesn’t help just to have valid SI, you need perfected SI in order to take above the lien creditor.

Question 112

Toys R’Us (“Toys”) wanted to borrow $10,000 from National Bank for business financing. On May 3, Toys and National Bank signed a security agreement that granted National Bank a security interest in Toys’ presently existing and after-acquired inventory. On that day, National Bank also committed to lend Toys $10,000. On May 3, Toys owned an inventory of various toys. On May 10, National Bank filed a financing statement covering Toys’ existing and hereafter acquired inventory. On June 20, Toys bought 50 Nintendo game stations on credit from Nintendo and granted Nintendo a security interest in the game stations in writing. Toys received the shipment on June 30. Nintendo filed a proper financing statement in the proper office on July 15 to perfect its security interest. A month later, Toys filed for bankruptcy. Between National Bank and Nintendo, who has priority over the Nintendo game stations? A. National Bank because its security interest attached to the Nintendo game stations. B. Nintendo because it sold the Nintendo games to Toys on credit. C. National Bank because it had a prior perfected security interest in the Nintendo games. D. Nintendo because Article 9 gives a purchase money security interest holder super priority over a prior perfected secured creditor.

Answer 112

C ``` National bank has a perfected SI by May 10 valid SI (bank gave value and debtor has rights in collateral, and authenticated agreement and proper financing statement On June 20, it’s a purchase money security interest (sellers who sell credit – Nintendo sold games on credit). For PMSI, what kind of collateral is it? not good for consumer goods . This is inventory, so it doesn’t work here. Nintendo needs what to take priority over prior existing secured creditor? Basic rule is first in time, first in right. But you have to comply with conditions. Here – inventory needs to provide notice to the other creditor within 5 years of when they get the inventory. ```

Question 113

On January 1, Al Bundy who owned a shoe store “Happy Feet” applied for a $10,000 line of credit on behalf of Happy Feet at First National Bank. At that time, Happy Feet owned a computer which Al used to do all the office work related to the store and an inventory of men’s and women’s shoes. Al signed an application form which authorized First National Bank to file a financing statement. First National Bank filed a financing statement describing the collateral as all of the debtor’s equipment and inventory on January 2. Al did not hear from First National Bank for a few weeks. On February 21, Al went to his credit union and borrowed $10,000. Al signed a written security agreement which granted the credit union a security interest in all of the debtor’s equipment and inventory. The credit union gave Al a check for $10,000. The credit union filed a proper financing statement in the proper office. On March 1, First National Bank called Al and told Al that it approved a $10,000 line of credit for Happy Feet. On March 2, Al went to First National Bank and executed a security agreement, granting First National Bank a security interest in all of the debtor’s inventory in return for First National Bank’s commitment to provide $10,000 line of credit. If Happy Feet files for bankruptcy, between First National Bank and the credit union, who has priority over Happy Feet’s equipment? A. First National Bank because it was the first one to file a financing statement to perfect its security interest in the collateral. B. First National Bank because it has a valid security interest in the collateral. C. Credit Union because it has a perfected security interest in the collateral. D. First National Bank because it was the first one to perfect its security interest in the collateral.

Answer 113

C the security agreement for First National bank doesn’t say anything about the equipment….only the inventory. So you cant have a SI in something that doesn’t exist. The fact that the bank was the first to file doesn’t matter…

Question 114

First National Bank has had a perfected security interest in Rooms to Go’s existing and hereafter acquired inventory since 2006 when it committed to providing Rooms to Go with a revolving line of credit for inventory financing. Rooms to Go sells children’s furniture. On March 10, 2011, its manager, David, went to a furniture show in Chicago and contracted to buy over $20,000 worth of children’s cherry wood furniture (50 sets total) on credit from Harden’s, one of the exhibitors at the show. David signed on behalf of Rooms to Go a security agreement granting Harden’s a security interest in the 50 sets of children’s cherry wood furniture. Prior to delivering the furniture to Rooms to Go, Harden’s wrote to First National Bank notifying the bank of its intention to provide purchase money financing and clearly describing the collateral. Rooms to Go received the furniture on May 6. If Rooms to Go files for bankruptcy on July 16, between Harden’s and First National Bank, who has priority over the 50 sets of children’s furniture? A. Harden’s because it has a valid security interest in the furniture. B. First National Bank because it has a perfected security interest in the furniture. C. Harden’s because it has perfected its security interest in the furniture. D. Harden’s because it provided notice to the prior conflicting secured creditor prior to the furniture’s delivery to Rooms to Go

Answer 114

B

Question 115

Virtual Office, Inc. rents out office spaces for small businesses which do not have their own offices. First National Bank provides a revolving line of credit for Virtual Offices, Inc.’s operation expenses and holds a perfected security interest in all of Virtual Office’s existing and hereafter acquired equipment and inventory. Virtual Office, Inc. needed to buy some furniture for its newly renovated receptionist area. David, the office manager, went to Rooms to Go which was running a big Lease to Buy promotion. David picked out a set of Italian leather sofas with a market value of $5,500. David signed a lease agreement with Rooms to Go on behalf of Virtual Office, Inc. The lease provided that Rooms to Go retains the title to the leather sofas. The lease further provided that the Virtual Office was to pay $500 per month for 12 months. At the end of the 12 months, Virtual Office has the option to buy the furniture for $10. The sofas were delivered to Virtual Office, Inc. on April 10. Rooms to Go did not file any financing statement under Article 9. If Virtual Offices, Inc. files for bankruptcy on May 10, between First National Bank and Rooms to Go, which has priority over the Italian leather sofas? A. First National Bank because Article 9 does not apply to lease transactions. B. Rooms to Go because it has effectively reserved title to the leather sofas. C. First National Bank because it has a perfected security interest. D. First National Bank because its security interest attached to the leather sofas when Virtual Office, Inc. received delivery of the furniture.

Answer 115

C the lease to buy transaction – figure out if it’s a SI….even though they signed a lease, its not – when the lease ended the debtor would’ve paid a lot less than the market value of the couches….also he pays $10 at the end of the lease. this collateral is determined by the debtor’s use of the furniture. Here – furnish receptionist area, so it is equipment. to comply with Article 9 with equipment, Rooms to go would’ve had to file within 20 days of when they got the furniture. Rooms to go doesn’t have priority. between C and D, D is the better answer

Question 116

Ann Taylor Loft sells women’s clothes. National Bank has a perfected security interest in Ann Taylor Loft’s existing and hereafter acquired inventory because of its commitment to provide a $100,000 revolving line of credit for operational expenses. On February 21, 2012, Dorothy, Ann Taylor’s purchasing agent, went to a fashion show in New York. During the show, she bought 100 women’s silk dresses on credit from Fashion House, one of the exhibitors at the show. Dorothy granted Fashion House a security interest in the clothing in a written security agreement Dorothy signed on behalf of her employer on February 22. Immediately after Dorothy signed the sales contract and the security agreement, Fashion House filed a financing statement in the proper office correctly describing the collateral on the same day. Fashion House’s sales person however forgot to ask Dorothy to sign the financing statement. On February 26, Fashion House also wrote to National Bank stating its intent to acquire a purchase money security interest in the silk dresses and clearly describing the silk dresses by their lot numbers. The clothes were delivered to Ann Taylor Loft on March 1. If Ann Taylor Loft files for bankruptcy, between National Bank and Fashion House, who has priority over the women’s silk dresses? A. National Bank because its security interest attached to the dresses. B. Fashion House because it has priority over National Bank under Article 9. C. Fashion House because it sold the dresses to Ann Taylor Loft on credit. D. National Bank because it had a prior perfected security interest in the dresses .

Answer 116

B

Question 117

David owned a clothing store, Clothes Express. He needed some money to keep his business going. On September 2, 2012, he went to two banks, Citibank and Bank of America and asked each to loan him money using Clothes Express’ inventory as collateral. Both banks asked him to sign a security agreement describing the collateral as all of Clothes Express’ inventory, existing and hereafter acquired. Neither bank, however, made a commitment to lend him any money at that time. Bank of America filed a proper financing statement with the appropriate fees in the designated office on September 3, 2012. However, the filing office clerk misplaced the file and did not index it until September 11. On September 10, Citibank approved a loan of $2000 for David. It gave a $2,000 check to David and filed a proper financing statement in the proper office on September 11. On October 15, Bank of America approved a loan of $5,000 for David and issued a $5,000 check to him. Which of the following statement is not correct under Article 9? A. Both Citibank and Bank of America have a perfected security interest in Clothes Express’ inventory. B. Citibank perfected its security interest in Clothes Express’ inventory before Bank of America. C. Citibank’s security interest attached to Clothes Express’ inventory before Bank of America. D. Between Citibank and Bank of America, Citibank has priority over Clothes Express’ inventory.

Answer 117

D

Question 118

Citibank had a valid security interest in the equipment of Widget Manufacturing Co. It filed a financing statement describing the collateral as all of the debtor’s equipment on June 1, 2005. National Bank took a valid security interest in the same collateral and filed its financing statement on June 2, 2005. National Bank filed a continuation statement on May 25, 2009. Citibank filed a continuation statement on May 30, 2010. It is now February, 2012. Which bank has priority over the equipment of Widget Manufacturing Co.? A. Citibank because it has a perfected security interest in the equipment. B. National Bank because it was the first one to file a continuation statement. C. Citibank because it has a valid security interest in the collateral. D. National Bank because it has a perfected security interest in the equipment.

Answer 118

A

Question 119

Dairy Farms, Inc. owns multiple farms located in both Illinois and Michigan. National Bank has a perfected security interest in all of Dairy Farms’ equipment, existing and hereafter acquired, in return for a $500,000 loan that National Bank provided to Dairy Farms a few years ago. On June 1, Dairy Farms borrowed another $10,000 from Citibank to buy some refrigeration equipment for the farms. Dairy Farms granted Citibank a security interest in the refrigeration equipment in writing. On June 5, the equipment was delivered to a Dairy Farms farm in Illinois and the parties expected that it would remain there. Before Citibank filed a financing statement, Dairy Farms changed its corporate mind in good faith and, on June 10, moved the equipment to Michigan. On June 15, Citibank filed a properly completed financing statement in the designated filing office in Michigan. At all relevant times, Dairy Farms, Inc. had its chief executive office in Michigan, but was incorporated in Delaware. Between National Bank and Citibank, which has priority over the refrigeration equipment? A. Citibank because it has a perfected security interest in the equipment. B. National Bank because it has a perfected security interest in the equipment. C. Citibank because it has a purchase money security interest in the equipment. D. National Bank because it has a valid security interest in the equipment.

Answer 119

B

Question 120

Mary collects what she believes to be antiques and sends them to Antique Mall, well known in the area for selling antiques on consignment. Mary understands that the Antique Mall would try to sell the antiques for her and would return to her any unsold antiques. Recently Mary delivered $3,000 worth of antique vases to Antique Mall. Before Mary began doing business with Antique Mall, Antique Mall had granted National Bank a floating security interest on all of its equipment and inventory, existing and hereafter acquired. National Bank had properly perfected its security interest in all of Antique Mall’s equipment and inventory. Because of the tough economic times, Antique Mall has missed a few of its monthly payments. National Bank has seized all of Antique Mall’s inventory including Mary’s antique vases. Can National Bank seize Mary’s antique vases under the facts as stated? A. Yes, because Mary has failed to comply with Article 9 requirements for super priority. B. No, because Mary’s consignment is not within the scope of Article 9. C. No, because Mary is treated as a purchase money security interest in inventory under Article 9. D. Yes, because National Bank has a prior perfected security interest in Mary’s antique vases.

Answer 120

B

Question 121

David Ink owned a small printing shop. Over the years, he had accumulated various pieces of equipment such as a press, a binding machine, and so forth, all of which were fully paid for. On January 20, 2011, he went to National Bank to apply for a $10,000.00 business loan. He signed a security agreement that described the collateral securing the loan as “all of David Ink’s assets, existing and hereafter acquired.” National Bank filed a financing statement describing the above collateral in the appropriate designated filing office. National Bank gave David a $10,000.00 check. In mid February 2011, David Ink went to a printing equipment store, Printing Express, and found an improved model of the binding machine with a price tag of $3,000.00. Even though he could not really afford it, he bought the binding machine any way on credit from Printing Express. He signed a security agreement with Printing Express, granting Printing Express a security interest “in all of his equipment and inventory.” David received the binding machine on March 1, 2011. Between Printing Express and National Bank, who has priority over the binding machine? A. Printing Express because it has a valid security interest in the binding machine. B. National Bank because Printing Express failed to comply with the Article 9 requirements for super priority. C. National Bank because it has a prior perfected security interest in the binding machine. D. Printing Express because its purchase money security interest has super priority under Article 9.

Answer 121

A

Question 122

You are helping your client Citibank evaluate as to whether it should approve Widget Manufacturing’s recent application for a business loan of $300,000. Citibank has told you that Widget Manufacturing is willing to sign a security agreement granting Citibank a security interest in all of its manufacturing equipment. Yesterday, you did a search of your state’s UCC registry and discovered that Bank of American had filed a financing statement naming Widget Manufacturing Company as the debtor three years ago. That financing statement described the collateral as follows: “equipment.” How should you advise your client? A. Don’t go ahead with the transaction because there is no way the client can obtain priority. B. Ask Widget Manufacturing Company to contact Bank of America for more information. C. Go ahead with the transaction because even if the other creditor made an effective filing with respect to the equipment, you would be the first file with respect to the manufacturing equipment. D. Go ahead with the transaction because the existing filing was not effective.

Answer 122

B

Question 123

Best Buy sells electronic products such as televisions, cell pones, and e-readers. To finance its business operations, it typically borrows money from a bank and in return grants the bank a security interest in all of its inventory. A couple of years ago, Best Buy borrowed $100,000.00 from Whitney Bank. At that time, Best Buy signed a security agreement which granted Whitney Bank a security interest in all of its inventory, existing and hereafter acquired. Whitney Bank also filed a financing statement in the designated filing office describing the collateral as “all of the debtor’s assets, existing and hereafter acquired.” Recently, Betty Crawford, an avid reader, went to Best Buy and bought an e-reader from the store. She paid for the entire purchase price with cash. Assuming that Best Buy cannot pay off its loan from Whitney Bank, which of the following statements is not correct under Article 9? A. Betty Crawford qualifies as a buyer in the ordinary course of business under UCC Article 9. B. Betty Crawford can keep the e-reader even though Best Buy cannot pay off its loan to Whitney Bank. C. Whitney Bank has a perfected security interest in the e-reader that Betty Crawford bought from Best Buy. D. Whitney Bank’s security interest did not attach to the e-reader that Betty Crawford bought from Best Buy.

Answer 123

D

Question 124

To better enjoy his retirement years, Jack Lemmon bought a high end Bose stereo system for $10,000.00 on credit from Best Buy so that he could enjoy listening to some nice music. He granted Best Buy a security interest in the stereo in writing. Best Buy did not file any financing statement. A few months after the purchases, he decided that he did not want the stereo system any more. He sold it to his neighbor, Walter Matthau, for $7,000. At that time, Jack still owed $8,000 to Best Buy. Jack stopped making payments to Best Buy after he sold it to Walter. Walter planned to put the Bose stereo in his living room so that he could enjoy some classic music himself. Can Best Buy get the stereo from Walter? A. No, unless Walter bought the stereo with knowledge of Best Buy’s security interest. B. No, because Best Buy failed to perfect its purchase money security interest in the stereo set. C. Yes, because Jack failed to pay for the stereo set according to the written security agreement. D. Yes, because Best Buy has a purchase money security interest in the stereo system.

Answer 124

A

Question 125

Sears sells tools for different trades, among other things. It relies on a revolving line of credit from Chase Bank to finance its business operations. Sears has granted Chase Bank a security interest in all of its inventory, existing and hereafter acquired, in return for Chase Bank’s commitment to provide the line of credit. Chase Bank has filed a proper financing statement in the designated filing office perfecting its security interest in the above collateral. Sears has had the line of credit for the last few years. Recently, Professor Garda who teaches UCC Article 9 at a local law school went Sears and bought a set of high quality tools worth about $2,000 from Sears on credit. Professor Garda needed the tools to renovate his new house. Professor Garda is well aware that Sears finances its business operation by granting a security interest in its inventory. Professor Garda granted Sears a security interest in the tools by signing a security agreement. If Sears becomes insolvent, which of the following statements is not correct under Article 9? A. Chase Bank has a valid security interest in the tools that Professor Garda bought from Sears. Chase has perfected SI → so both A and B must be correct (cant have perfected SI without valid SI) B. Chase Bank has a perfected security interest in the tools that Professor Garda bought from Sears. C. Professor Garda cannot keep the tools because he bought the tools with knowledge that Sears’ creditor has a perfected security interest in the tools. D. Sears has a perfected purchase money security interest in the tools that Professor Garda bought from Sears on credit.

Answer 125

C

Question 126

Thomas Walker Furniture Co. (“TWF”) sells furniture to customers often on credit. Customers typically pay a small down payment and sign a promissory note to pay the remaining balance within a certain period of time. The furniture store pledged 100 promissory notes from its customers to Citibank as collateral for a $100,000 loan that Citibank promised TWF. The parties signed a security agreement on June 1. Citibank took possession of the promissory notes on that date. A month later, TWF realized that it needed more money. It asked Bank of America for a $10,000 loan. In return for Bank of America’s promise to lend the money, TWF granted Bank of America a security interest in all of its inventory, accounts and instruments, existing and hereafter acquired. Bank of America properly perfected its security interest by filing a financing statement. A few months later, TWF wanted 10 of the promissory notes back from Citibank in order to present them for payment from its customers. Citibank gave the notes to TWF on October 1. The furniture store did not return the promissory notes to Citibank or present them to its customers for payment. On December 1, the furniture store filed for bankruptcy. Which of the following statements is not true? A. Before October 1, Citibank had a perfected security interest on all the promissory notes in its possession . B. As of December 1, Citibank had a valid security interest in the 100 promissory notes. C. As of December 1, Citibank retained its priority over the 10 promissory notes that TWF got back from Citibank on October 1. D. Before October 1, Citibank did not have to file to perfect its security interest in the 100 promissory notes.

Answer 126

C

Question 127

Dillard’s is a retail store which sells all kinds of oriental rugs, among other things. It relies on a revolving line of credit from Chase Bank to finance its business operations. Dillard’s has granted Chase Bank a security interest in all of its inventory, existing and hereafter acquired, in return for Chase Bank’s commitment to provide the line of credit. Chase Bank has filed a proper financing statement in the designated filing office perfecting its security interest in the above collateral. Dillard’s has had the line of credit for the last few years. Recently, David wanted to buy an oriental rug for his living room, but did not have the money. He borrowed $5,000.00 from Citibank to purchase the rug and signed a security agreement which granted Citibank a security interest in the rug. Between Chase Bank and Citibank, who has priority over the oriental rug? A. Chase Bank because it has a prior perfected security interest in all of Dillard’s inventory including the oriental rug that David bought. B. Citibank because its purchase money security interest in the oriental rug enjoys super priority under Article 9. C. Citibank because it was the first one to perfect its security interest in the oriental rug. D. Chase Bank because Citibank failed to comply with the requirements for super priority under Article 9.

Answer 127

B

Question 128

Which of the following statements is NOT true under Chapter 9? A. Chapter 9 priority rules generally follow the principle of first in time, first in right. B. Under Chapter 9, a purchase money secured creditor has priority over an earlier perfected secured creditor under certain conditions. C. Under Chapter 9, in a priority dispute between two secured, but unperfected creditors, the first one to attach has priority. D. Under Chapter 9, a secured creditor has priority over a lien creditor.

Answer 128

D

Question 129

David was an architectural interior designer located in New Orleans, Louisiana. He worked as a freelancer for businesses and individuals, designing and printing directional signs for architectural structures. In March 2013, to finance the purchase of a printer, David borrowed $10,000 from Chase Bank and granted the bank a security interest in the printer. Chase Bank promptly filed a financing statement perfecting its security interest in the above mentioned collateral. In July 2013, David moved to Mobile, Alabama. It is now March 2014. If Chase Bank has done nothing, which one of the following statements is true? A. Chase Bank lost its security interest four months after David’s move to Alabama. B. Chase Bank’s security interest remains perfected because it is a purchase money security interest. C. Chase Bank’s security interest remains perfected because its financing statement remains effective for five years after March 2013. D. Chase Bank’s security interest became unperfected in the collateral four months after David’s move.

Answer 129

D

Question 130

Dumbledore is a professional magician who owns some expensive equipment. Last year Bank One acquired a security interest in all of Dumbledore’s existing and after-acquired equipment in return for a loan. At that time, Dumbledore was located in New Orleans, Louisiana. Bank One filed a proper financing statement in the proper office in Louisiana to perfect its security interest in the above collateral. On May 1, 2013, Dumbledore moved to San Diego, California. On June 1, Dumbledore borrowed more money from Bank Two and granted Bank Two a security interest in all of his existing and after acquired equipment. Bank Two filed a proper financing statement in the designated office in California on the same day. If Bank One filed a financing statement describing the collateral as all of the debtor’s existing and after acquired equipment in the appropriate office in California on October 1, 2013, which of the following statements is correct? A. Bank One’s security interest will be unperfected. B. Bank One’s security interest will be perfected in all of Dumbledore’s equipment and will have priority in all of Dumbledore’s equipment. C. Bank One’s security interest will be perfected in all of Dumbledore’s equipment, but Bank Two’s security interest will have priority in all of Dumbledore’s equipment. D. Bank One’s security interest will be perfected in all of Dumbledore’s equipment acquired by Dumbledore before May 1 and will have priority in Dumbledore’s equipment acquired by Dumbledore before May 1.

Answer 130

C

Question 131

David borrowed $100,000.00 from Iberia Bank. He agreed in writing to give Iberia Bank a security interest in a valuable garden sculpture designed by Michelangelo displayed in his garden behind his house in New Orleans, Louisiana. David also owns a condo in Portland, Maine, where he spends the summer and fall months, returning to New Orleans for the winter and spring months. As an attorney for Iberia Bank, where would you file to perfect Iberia Bank’s security interest in the Michelangelo sculpture most effectively? A. Louisiana because that is where the sculpture is located. B. Maine because that is where David spends his summer and fall months. C. Either Louisiana or Maine because David spends equal amount of time in either state. D. Both Louisiana and Maine

Answer 131

D

Question 132

David owned a clothing store, Clothes Express. He needed some money to keep his business going. On September 2, 2012, he went to two banks, Bank One and Bank Two and asked each to loan him money using Clothes Express’ inventory as collateral. Both banks asked him to sign a security agreement describing the collateral as all of Clothes Express’ inventory, existing and hereafter acquired. Neither bank, however, made a commitment to lend him any money at that time. Bank Two filed a proper financing statement with the appropriate fees in the designated office on September 3, 2012. The filing office clerk unfortunately misplaced the file and did not index it until September 12. On September 10, Bank One approved a loan of $2,000 for David. It gave a $2,000 check to David and filed a proper financing statement in the proper office on September 11. On October 15, Bank Two approved a loan of $5,000 for David and issued a $5,000 check to him. Which of the following statement is not correct under Chapter 9? A. Both Bank One and Bank Two have a perfected security interest in Clothes Express’ inventory. B. Bank One’s security interest attached to Clothes Express’ inventory before Bank Two. C. Bank One perfected its security interest in Clothes Express’ inventory before Bank Two. D. Between Bank One and Bank Two, Bank One has priority over Clothes Express’ inventory.

Answer 132

D

Question 133

Virtual Office, Inc. rents out office spaces for small businesses which do not have their own offices. First National Bank provides a revolving line of credit for Virtual Offices, Inc.’s operation expenses and holds a perfected security interest in all of Virtual Office’s existing and hereafter acquired equipment. Virtual Office, Inc. needed to buy some furniture for its newly renovated receptionist area. David, the office manager, went to Rooms to Go which was running a big Lease to Buy promotion. David picked out a set of Italian leather sofas with a market value of $6,000. David signed a lease agreement with Rooms to Go on behalf of Virtual Office, Inc. The lease provided that Rooms to Go retains the title to the leather sofas. The lease further provided that the Virtual Office was to pay $500 per month for 12 months. At the end of the 12 months, Virtual Office has the option to buy the furniture for $1. The sofas were delivered to Virtual Office, Inc. on April 10. Rooms to Go filed a proper financing statement in the designated office on April 19. If Virtual Offices, Inc. files for bankruptcy on May 10, between First National Bank and Rooms to Go, which has priority over the Italian leather sofas? A. First National Bank because Chapter 9 does not apply to lease transactions. B. Rooms to Go because it enjoys priority under Chapter 9 under the circumstances. C. Rooms to Go because it has effectively reserved title to the leather sofas. D. First National Bank because its security interest attached to the leather sofas when Virtual Office, Inc. received delivery of the furniture.

Answer 133

B retain title, revolving line of credit

Question 134

Costco is a discount retailer of food, appliances, and other consumer goods. It has multiple stores all over the United States, but it is incorporated in Delaware. For the last two years, Bank One has had a perfected security interest in all of Costco’s inventory, existing and hereafter acquired. Recently, Foxcom, Inc. sold several thousands of dishwashers to Costco on credit. The sales agreement provided that Foxcom reserved title to the dishwashers to secure Costco’s payment of the purchase price to Foxcom. The dishwashers were to be sold in a store located in New Orleans, Louisiana. Before the dishwashers were delivered to the Louisiana store, Foxcom filed a financing statement in Orleans’ Parish clerk of the court’s office to perfect its security interest and wrote to Bank One advising Bank One of its intent to take a security interest in the dishwashers with a detailed description of those dishwashers. Between Bank One and Foxcom, which entity has priority over the dishwashers? A. Foxcom has priority over Bank One. B. Foxcom does not have priority over Bank One because Bank One has a perfected security interest in the dishwashers. C. Foxcom does not have priority over Bank One because it should have filed within 20 days after Costco received the dishwashers. D. Foxcome has priority over Bank One because Bank One’s security interest does not extend to the dishwashers.

Answer 134

B Needed to file in Delaware

Question 135

Rooms to Go sells children’s furniture. Rooms to Go granted First Bank a security interest in Rooms to Go’s existing and hereafter acquired inventory and equipment on June 20, 2010 when First Bank committed to providing Rooms to Go with a revolving line of credit for inventory financing. First Bank filed a financing statement on June 21, 2010, to perfect its security interest in the above collateral. On March 10, 2013, Rooms to Go manager, David, went to a furniture show in Chicago and contracted to buy over $20,000 worth of children’s cherry wood furniture on credit from Harden’s, one of the exhibitors at the show. David signed on behalf of Rooms to Go a purchase agreement which provided that Harden had the right to repossess the furniture if Rooms to Go failed to pay for the purchase price. On April 29, 2013, prior to delivering the furniture to Rooms to Go, Harden’s wrote to First Bank notifying the bank of its intention to provide purchase money financing and clearly describing the collateral. First Bank received Harden’s notice on May 3, 2013. The furniture was delivered to Rooms to Go a couple of days later. Harden’s filed a proper financing statement in the designated office on May 15, 2013. If Rooms to Go files for bankruptcy in April 2014, between Harden’s and First Bank, who has priority over the children’s furniture? A. Harden’s because it has a valid purchase money security interest in the furniture. B. First Bank because it has a prior perfected security interest in the furniture. C. Harden’s because it is a purchase money secured creditor in inventory and enjoys super priority under Chapter 9. D. Harden’s because it provided notice to the prior conflicting secured creditor prior to the furniture’s delivery to Rooms to Go.

Answer 135

B 5 years was not over

Question 136

Toys R’Us (“Toys”) wanted to borrow $10,000 from National Bank for business financing. On May 3, Toys and National Bank signed a security agreement that granted National Bank a security interest in Toys’ presently existing and after-acquired inventory. On that day, National Bank also committed to lending Toys $10,000. On May 3, Toys owned an inventory of various toys. On May 10, National Bank filed a financing statement covering Toys’ existing and hereafter acquired inventory. On June 20, Toys bought 50 Nintendo game stations on credit from Nintendo and granted Nintendo a security interest in the game stations in writing. Toys received the shipment on June 30. Nintendo filed a proper financing statement in the proper office on July 1 to perfect its security interest. A month later, Toys filed for bankruptcy. Between National Bank and Nintendo, who has priority over the Nintendo game stations? A. National Bank because its security interest attached to the Nintendo game stations. B. National Bank because it had a prior perfected security interest in the Nintendo game stations. C. Nintendo because it sold the Nintendo game stations to Toys on credit. D. Nintendo because Chapter 9 gives a purchase money secured creditor super priority over a prior perfected secured creditor.

Answer 136

B

Question 137

Bodyworks, Inc. operates fitness centers in Louisiana. In 2009, First Bank made a $250,000 loan to Bodyworks, secured by a security interest in all of Bodyworks’ equipment, and accounts, existing and hereafter acquired. First Bank filed a financing statement in the above collateral on July 20, 2009 (the same day when Bodyworks executed a security agreement). On August 1, 2009, Bodyworks bought seven Cybex fitness machines for the fitness centers at a cost of $50,000. It financed the purchase with a loan from its majority shareholder, Warren Buffett, evidenced by a negotiable promissory note, payable in one year. On August 1, 2010, Bodyworks borrowed $50,000 from Bank Two and used the money to pay off Buffett’s loan. Bodyworks signed a security agreement granting Bank Two a security interest in the seven Cybex fitness machines. Bank Two perfected its security interest by filing a financing statement in the appropriate office. In April 2014, Bodyworks filed for bankruptcy. Between First Bank and Bank Two, which bank should get the seven Cybex fitness machines? A. Bank Two, because it has a PMSI that enjoys super priority. B. Bank Two, if it filed its financing statement no later than when its security interest attaches. C. Bank Two, if it filed its financing statement no later than twenty days after its security interest attaches. D. First Bank, because its filing date is earlier than Bank Two’s filing date.

Answer 137

D

Question 138

Best Buy sells electronic products such as televisions, cell pones, and e-readers. To finance its business operations, it typically borrows money from a bank and in return grants the bank a security interest in all of its inventory, existing and hereafter acquired. A couple of years ago, Best Buy borrowed $100,000.00 from Whitney Bank. At that time, Best Buy signed a security agreement which granted Whitney Bank a security interest in all of its inventory, existing and hereafter acquired. Whitney Bank also filed a financing statement in the designated filing office describing the collateral as “all of the debtor’s assets, existing and hereafter acquired.” Recently, Betty Crawford went to Best Buy and bought an e-reader from the store. She paid for the entire purchase price with cash. Assuming that Best Buy cannot pay off its loan from Whitney Bank, which of the following statements is not correct under Chapter 9? A. Betty Crawford can keep the e-reader even though Best Buy cannot pay off its loan to Whitney Bank. B. Whitney Bank’s security interest did not attach to the e-reader that Betty Crawford bought from Best Buy. C. Whitney Bank has a perfected security interest in the e-reader that Betty Crawford bought from Best Buy. D. Betty Crawford qualifies as a buyer in the ordinary course of business under Chapter 9.

Answer 138

B

Question 139

Bank One has a perfected security interest in all of Office Depot’s existing and hereafter acquired inventory. Office Depot sells computers and other electronic gadgets. Professor Gruning teaches Louisiana Secured Transactions in a local law school and he knows that Office Depot’s inventory is used as collateral to secure Office Depot’s loans from Bank One. Professor Gruning bought a computer from Office Depot any way. If Office Depot goes bankrupt while still owing a lot of money to Bank One, can Bank One repossess the computer that Professor Grunning bought from Office Depot? A. Yes because Professor Grunning knew about the security interest that Bank One has in the computer. B. No because Professor Grunning takes the computer free of perfected security interest under Chapter 9. C. Yes because Bank One has a perfected security interest in the computer. D. No because Bank One does not have a valid security interest in the computer.

Answer 139

B

Question 140

To better enjoy his retirement years, Jack Lemmon bought a high end Bose stereo system for $10,000.00 on credit from Dillard's so that he could enjoy listening to some nice classic music. He granted Dillard's a security interest in the stereo in writing. A few months after the purchase, he decided that he did not want the stereo system any more. He sold it to his neighbor, Walter Matthau, for $7,000. Walter did not know that Dillard’s had a security interest in the stereo. At that time, Jack still owed $8,000 to Dillard's. Jack stopped making payments to Dillard's after he sold it to Walter. Walter planned to put the Bose stereo in his living room so that he could enjoy some classic music himself. Can Dillard's get the stereo from Walter? A. Yes, because Dillard's has a purchase money security interest in the stereo system. B. No, because Dillard's failed to perfect its purchase money security interest in the stereo set. C. Yes, because Jack failed to pay for the stereo set according to the written security agreement. D. No, unless Dillard’s filed a financing statement to perfect its security interest before Jack sold the stereo to Walter.

Answer 140

D

Question 141

David owns a small business “Party Time” which organizes customized birthday parties for children between ages 5 to 10. A couple of years ago, in order to finance his business operation, David borrowed $5,000 from First National Bank. David secured the loan with all of the Party Time’s equipment, existing and hereafter acquired, in a written security agreement with First National Bank. First National Bank filed a proper financing statement in the designated filing office. One of the major attractions of Party Time is the antique popcorn machine that David uses to make popcorns for the birthday party guests. During one of the birthday parties, one of the guests’ father, Bernard, fell in love with the popcorn machine. Bernard had been collecting antique popcorn machines all his life. He made David an offer that David could not refuse: $3,000 cash on the spot. David sold the machine to Bernard as soon as he was done with the birthday party. If David defaults on the First National Bank loan, can First National Bank repossess the antique popcorn machine from Bernard? A. No, because Bernard as a buyer in ordinary course of business takes the popcorn machine free of perfected security interest. B. No, because First National Bank failed to perfect its security interest in the popcorn machine. C. Yes, because Bernard cannot take the popcorn machine free of First National Bank’s security interest under the facts of this case. D. No, because Bernard bought the popcorn machine in good faith without any knowledge about First National Bank’s security interest in the machine.

Answer 141

C

Question 142

Bank of America provided a loan of $100,000 to CarMax, a car dealer, to finance CarMax’s purchase of its inventory. CarMax sells cars from different manufacturers including Toyota and Nissan. In return for the loan, CarMax signed a security agreement granting Bank of America a security interest in all of its inventory, existing and hereafter acquired. Bank of America has properly perfected its security interest in CarMax’s inventory. David went to buy a new car from CarMax recently. He liked the Nissan Leaf that was sitting on CarMax’s dealer lot. The Nissan had a price tag of $30,000. David brought his 2006 Toyota as a trade in for the Nissan. CarMax gave him a credit of $5,000 for the Toyota. David made a $2,000.00 down payment in cash. In addition, he signed a sales contract granting CarMax a security interest in the Nissan and promising to pay $1,000 each month until he pays off the entire purchase price. What constitutes proceeds of the collateral under Chapter 9? A. David’s 2006 Toyota B. $2,000 that David paid for the Nissan. C. The sales contract that David signed as part of the sales transaction. D. All of the above.

Answer 142

D

Question 143

On July 20, Bank One obtained a security interest in the existing and hereafter acquired inventory of Gershwin Pianos, a business that sells pianos. Bank One filed its financing statement in the appropriate office against Gershwin’s inventory on July 24. On August 1, Lauren bought an upright piano from Gershwin and she paid for the piano by delivering to Gershwin (for its office) a photocopier of comparable value. As of August 24, does Bank One have a perfected security interest in the photocopier? A. Yes, because Bank One has a perfected security interest in the existing and after acquired inventory. B. Yes because Bank One has a perfected security interest in all of the debtor’s equipment. C. No, because Bank One’s security interest does not extend to the debtor’s equipment. D. No, because Lauren as a buyer in ordinary course can take free of Bank One’s perfected security interest.

Answer 143

A

Question 144

ABC Corp. sells photocopiers. In February, First Bank extended credit to ABC Corp in return for a security interest in ABC’s inventory. First Bank perfected its security interest by filing a proper financing statement in the designated UCC filing office. The security agreement and the financing statement described the collateral as “inventory.” In June, ABC Corp. sold one of its photocopiers to a law firm. The law firm paid for the purchase by tendering a cashier’s check for the full price. ABC Corp had owned the photocopier for six months before selling it to the law firm. First Bank A. Cannot claim a security interest in the cashier’s check because the security agreement failed to include an after acquired property clause and ABC Corp did not acquire rights in the cashier’s check until after it had authenticated the security agreement. B. Cannot claim a security interest in the cashier’s check because the security agreement described the collateral as “inventory” and failed to use language such as “checks or proceeds” that would cover the check. C. Can claim a security interest in the cashier’s check, but the security interest will not be perfected if the sale of the photocopier to the law firm effectively terminated First Bank’s security interest in the photocopier. D. Can claim a perfected security interest in the cashier’s check, assuming that it is identifiable as a proceed of the photocopier.

Answer 144

D

Question 145

Columbia Healthcare, Inc. (“CHI”) is a Delaware corporation that owns and operates hospitals and clinics in San Francisco, Los Angeles, and San Diego, California. A few months ago, Siemens sold three pieces of medical equipment to CHI on credit, retaining a security interest in the equipment to secure the total purchase price. Siemens filed its financing statement in the designated filing office in California. A week ago, without the knowledge or consent of Siemens, CHI sold one of the three pieces of equipment to HealthNet for $1.5 million. HealthNet paid $500,000 in cash and a $1 million negotiable promissory note for the balance. Assuming that the cash and the promissory note are clearly identifiable, Siemens has A. No security interest in either the cash or the note. B. An unperfected security interest in both the cash and the note. C. A perfected security interest in both the cash and the note, but only if Siemens filed its financing statement within twenty days after CHI took possession of the equipment. D. A perfected security interest in both the cash or the note.

Answer 145

B

Question 146

David, an avid chess player, borrowed $15,000 from his parents in August 2009 to purchase a Civil War chess set later that month on an internet auction site. At his parent’s insistence, David signed a security agreement granting to his parents a security interest in “David’s Civil War chess set.” Tim also executed a promissory note payable to his parents, with a maturity date of December 31, 2012. His parents filed a proper financing statement in the designated UCC filing office in Ohio where Tim lived and worked at that time. Tim never told his parents that someone else won the auction, or that he then used the money to take a vacation to New Zealand and pay off some credit card debt. In October 2010, David purchased an identical Civil War chess set at the same internet auction site. In July 2011, David was promoted by his employer and in that month, David moved to Rochester, New York, to assume his new responsibilities. In February 2012, David sold the chess set to another collector in exchange for three baseballs, each in mint condition and autographed by a different member of the baseball’s Hall of Fame. David failed to repay the loan when the promissory date came due on December 31, 2012. On that date, David’s parents have A. No security interest in the baseballs. B. An unperfected security interest in the baseballs. C. A perfected security interest in the baseballs, but only if the chess set was a consumer goods as used by David. D. A perfected security interest in the baseballs, whether or not the chess set was a consumer goods as used by David.

Answer 146

B

Question 147

David sells antiques that he collects from all over the country in his boutique store, Fond Memories. Mary, a friend of David’s, collects antiques and sells them to supplement her retirement income. She sometimes asks David to sell the pieces that she has collected. Recently Mary delivered $3,000 worth of antique vases to Fond Memories. Prior to Mary’s delivery of the antique vases, Fond Memories had granted National Bank a floating security interest in all of its equipment and inventory, existing and hereafter acquired. National Bank had properly perfected its security interest. Because of the tough economic times, Fond Memories missed a few of its monthly payments. National Bank has seized all of Fond Memories’ inventory including Mary’s antique vases. Can National Bank seize Mary’s antique vases? A. Yes, unless Mary has complied with Chapter 9 requirements for super priority. B. Yes, because National Bank has a prior perfected security interest in Mary’s antique vases. C. No, because Mary is treated as a purchase money security interest in inventory under Chapter 9. D. No, because Mary’s consignment is not within the scope of Chapter 9.

Answer 147

A