R5 M6 - Secured Transactions

Question 1

What is secured Transactions?

Collateral can be personal property such as furniture, jewelry, inventory equipment, account receivable, etc.

Question 2

Which of the following requirements is not necessary in order to have a security interest attach?

A.	Value must be given by the creditor.

B.	Either the creditor must take possession of the collateral or the debtor must sign a security agreement that describes the collateral.

C.	There must be a proper filing.

D.	The debtor must have rights in the collateral.

Answer 2

Choice “C” is correct. A security interest attaches on the last to occur of the following; all three elements are required: (i) the parties must agree to create the security interest evidenced by either the creditor’s taking possession of the collateral or a written security agreement that describes the collateral and is signed by the debtor; (ii) the creditor must give value in exchange for the security interest; and the debtor must have rights in the collateral. Filing is not necessary; it is a possible method of perfecting but is not required for attachment.

Question 3

Chris exchanges his computer for an updated model. The seller of the original computer retained a security interest in the original computer for credit extended to Chris. The debt on the original computer has not been fully paid by Chris. If the seller perfected their interest in the original computer, what is the seller’s status with respect to the new computer?

A.	The seller’s interest is perfected for four months in the new computer.

B.	The seller’s perfection of the original computer transfers to the new computer.

C.	The seller’s interest is perfected for 20 days in the new computer.

D.	Once the new computer was purchased, the seller no longer has a security interest in the new computer.

Answer 3

Choice “C” is correct. A security interest is temporarily perfected in the new collateral for 20 days from the debtor’s receipt of the proceeds.

Choice “A” is incorrect. A four-month grace period is allowed when the same collateral is moved from one state to another. The creditor would have to perfect in the new state.

Choices “D” and “B” are incorrect per the above explanation.