Perfection of Security Instruments Flashcards
Which of the following requires a filing for perfection?
A. A purchase money security interest in consumer goods.
B. A purchase money security interest in equipment.
C. A security interest in negotiable promissory notes.
D. None of the above.
B. A purchase money security interest in equipment.
Here, possession as a method of perfection is not practical, and, although it is a purchase money security interest, the collateral equipment is not covered by the automatic perfection rule. Thus, a filing is required
Wrong Answer
C. A security interest in negotiable promissory notes.
Although a negotiable instrument can be perfected by filing, the best method is by possession due to the rights of a holder in due course upon the instrument transfer.
Jones lives in Oklahoma and is the owner of a large number of valuable antiques. Treasures Delight, located in Arkansas, is a seller of antiques. Treasures Delight is owned by Sally Delight. Delight offers to purchase all of the antiques owned by Jones paying 60% of the agreed price and, by agreement, signs a security agreement for the balance putting up her entire inventory as security. The security agreement provides for monthly payments. Which of the following is correct?
A. Since this is a purchase money security interest, Jones is automatically perfected without a filing.
B. Although this is a purchase money security interest, Jones must file to have a perfected security interest.
C. There is not a purchase money security interest because being antiques for resell classifies the collateral as inventory.
D. If Jones decides to file for perfection of his security interest, Jones would file a financing statement in Oklahoma.
B. Although this is a purchase money security interest, Jones must file to have a perfected security interest.
The antiques are classified as inventory (collateral to be held for resell). Thus, although a purchase money security interest was created, being inventory, a filing is required for perfection.
Wrong Answer
A. Since this is a purchase money security interest, Jones is automatically perfected without a filing.
Although this is a purchase money security interest (retained by a seller to secure the price), the collateral is not in consumer goods (purchased for personal, family, or household purposes), which would be automatically perfected upon creation of the security interest. The collateral here is purchased as inventory.
Under the Secured Transactions Article of the UCC, which of the following items can usually be excluded from a filed original financing statement?
A. The name of the debtor.
B. The address of the debtor.
C. A description of the collateral.
D. The amount of the obligation secured.
D. The amount of the obligation secured.
There need not be the amount of the debt reflected in the publicly filed financing statement. All that needs to be included is which collateral is subject to the security interest, not the value of the collateral or the debt.
Wrong Answer
B. The address of the debtor.
The address of the debtor is critical for purposes of sending default notices and sale notices, etc.
Grey Corp. sells computers to the public. Grey sold and delivered a computer to West on credit. West executed and delivered to Grey a promissory note for the purchase price and a security agreement covering the computer. West purchased the computer for personal use. Grey did not file a financing statement.
Is Grey’s security interest perfected?
A. Yes, because Grey retained ownership of the computer.
B. Yes, because it was perfected at the time of attachment.
C. No, because the computer was a consumer good.
D. No, because Grey failed to file a financing statement.
Filing is not necessary to perfect this security interest, because Grey has a purchase money security interest (PMSI) in the computer to be used for personal use (a consumer good). A PMSI arises when a creditor extends credit that is used to purchase the collateral, as a consumer good, which is the computer in this security agreement. A PMSI is perfected automatically at the time the interest attaches.
B. Yes, because it was perfected at the time of attachment.
Filing is not necessary to perfect this security interest, because Grey has a purchase money security interest (PMSI) in the computer to be used for personal use (a consumer good). A PMSI arises when a creditor extends credit that is used to purchase the collateral, as a consumer good, which is the computer in this security agreement. A PMSI is perfected automatically at the time the interest attaches.
Wrong Answer
D. No, because Grey failed to file a financing statement.
Filing is not necessary to perfect this security interest, because Grey has a purchase money security interest (PMSI) in the computer to be used for personal use (a consumer good). A PMSI arises when a creditor extends credit that is used to purchase the collateral, as a consumer good, which is the computer in this security agreement. A PMSI is perfected automatically at the time the interest attaches.
The Smiths are remodeling their kitchen and want to purchase new appliances: a large refrigerator-freezer, microwave oven, dishwasher, garbage disposal, and stove-oven. Z Bank has advertised a special consumer loan rate, and AP Appliances has great discount rates on appliances. The Smiths can only pay AP Appliances 20% of the purchase price. AP Appliances’ credit rates are higher than Z Bank’s consumer loan rates. The Smiths sign a security agreement putting up the to-be-purchased listed appliances as security, and Z Bank issues a check for the balance payable to AP Appliances and the Smiths. Which of the following statements is correct?
A. Z Bank has a purchase money security interest in the appliances and is a perfected secured party without a filing.
B. Since Z Bank is not the seller it has a nonpurchase money security interest and must file to be perfected.
C. Z Bank has a purchase money security interest but to be perfected must file.
D. Z Bank is not a secured party until the listed appliances are purchased, and the serial numbers are added to the security agreement initialed by the Smiths.
A. Z Bank has a purchase money security interest in the appliances and is a perfected secured party without a filing.
A purchase money security interest is taken by a party who advanced value to the debtor to enable the debtor to acquire rights in the collateral. Z Bank advanced funds (check) to enable the Smiths to purchase the appliances. The listed appliances to be placed in their home (purchased for household purposes) are consumer goods. A purchase money security interest in consumer goods is automatically perfected (without a filing) upon creation of the security interest (security agreement). Thus, Z Bank has an automatic perfected purchase money security interest without a filing.
Wrong Answer
D. Z Bank is not a secured party until the listed appliances are purchased, and the serial numbers are added to the security agreement initialed by the Smiths.
The only requirements for an enforceable security agreement are that the security agreement is in writing, signed and authenticated by the debtor, and it includes an adequate description of the collateral. Here a listing of the type of appliances is all that is required.
