SECU

Question 1

On October 1, Winslow Corporation obtained a loan commitment of $250,000 from Liberty National Bank. October 5, the $250,000 loan was consummated and Winslow signed a security agreement granting the bank a security interest in inventory, accounts receivable, and proceeds from the sale of the inventory and collection of the accounts receivable. Liberty’s security interest was perfected

Answer 1

On October 6

Question 2

Which of the following is(are) purchase money security interest(s) in consumer goods?

I. A department store purchases light fixtures on credit from Rampart Corporation who has security interest in these light fixtures. The department store plans on selling this inventor,’ primarily to consumers.

Il. A person purchases a dining room table for consumer use from a retail outlet on credit. The outlet has the consumer sign security agreement and the set is delivered.

Answer 2

II only

Question 3

Perfection of a security interest under the UCC by a creditor provides added protection against other parties in the event the debtor does not pay his debts. Which of the following is not affected by perfection of a security interest?

a. A buyer in the ordinary course of business.
b. Other prospective creditors of the debtor.
c. The trustee in a bankruptcy proceeding.
d. A subsequent personal injury judgment creditor.

Answer 3

A buyer in the ordinary course of business.

Question 4

Batch Department store sold a refrigerator to Conrad for his home. Conrad agreed to installment payments and Batch had him sign a security agreement. Batch did not file a financing statement. After having the refrigerator in his home for a time, Conrad quit making payments and sold it to Backus for use in her home. Backus was unaware that Conrad still owed Batch for the refrigerator. Batch is now seeking to get paid for the balance owed or to repossess the refrigerator. Which of the following statements is correct?

a. Batch can repossess the refrigerator from Backus, but Backus has no right to recover her money from Conrad.
b. Batch has no right to repossess the refrigerator from Backus.
c. Batch has the legal right to collect from Backus the unpaid balance.
d. Batch can repossess the refrigerator from Backus, and Backus has the right to recover her money from Conrad.

Answer 4

Batch has no right to repossess the refrigerator from Backus.

Question 5

Perfection of security interest permits the secured party to protect its interest by

Answer 5

Establishing priority over the claims of most subsequent secured creditors.

Question 6

Gilbert borrowed $10,000 from Merchant National Bank and signed a negotiable promissory note Which contained an acceleration clause. In addition, securities valued at $11,000 at the time of the loan were pledged as collateral. Gilbert has defaulted on the loan repayments. At the time of default, due, and the securities had a value of $3,000. Merchant

Answer 6

Is entitled to proceed against Gilbert on either the note or the collateral or both.

Question 7

Rich Electronics sells various brand name televisions and stereos at discount prices. Rich maintains a large inventory which it obtains from various manufacturers on credit. These manufacturer-creditors have all filed and taken security interests in the goods and proceeds therefrom which they have sold to Rich on credit. Rich in turn sells to hundreds of ultimate consumers; some pay cash but most buy on credit. Rich takes a security interest but does not file a financing statement for credit sales. Which of the following is correct?

a. Since Rich takes a purchase money security interest in the consumer goods sold, its security interest is perfected upon attachment.
b. A subsequent sale by one of Rich’s customers to a bona fide purchaser will be subject to Rich’s security interest.
c. The appliance manufacturers can enforce their security interests against the goods in the hands of the purchasers who paid cash for them.
d. The goods in Rich’s hands are consumer goods.

Answer 7

Since Rich takes a purchase money security interest in the consumer goods sold, its security interest is perfected upon attachment.

Question 8

Under the Secured Transactions Article of the UCC, for which of the following types of collateral must financing statement be filed in order to perfect purchase money security interest?

a. Personal jewelry.
b. Stock certificates.
c. Promissory notes.
d. Inventory.

Answer 8

Inventory

Question 9

Under certain conditions, perfection of a security interest is accomplished by completing attachment with no further steps required. Which of the following qualify?

I. Purchase money security interest in tables that are purchased to be used in the buyer’s restaurant.

II. Purchase money security interest in tables that are purchased by retailer to sell in the buyer’s furniture store primarily to consumers.

Answer 9

Neither I nor II

Question 10

In the course of an examination of the financial statements of Control Finance Company, the auditors learned that the company has just taken possession of certain heavy industrial equipment from Arrow Manufacturing Company, a debtor in default. Arrow had previously borrowed $60,000 from Control secured by a security interest in the heavy industrial equipment. The amount of the loan outstanding is $30,000. Which of the following is correct regarding the rights of Control and Arrow?

Answer 10

Arrow is not entitled to a compulsory disposition of the collateral.

Question 11

The Town Bank makes collateralized loans to its customers at 1% above prime on certified securities owned by the customer, subject to existing margin requirements. In doing so, Which of the following is correct?

a. Notification of the issuer is necessary in order to perfect security interest.
b. A perfected security interest in the securities can only be obtained by possession.
c. Filing is a permissible method of perfecting a security interest in the securities if the circumstances dictate.
d. Any dividend or interest distributions during the term of the loan belong to the bank.

Answer 11

Filing is a permissible method of perfecting a security interest in the securities if the circumstances dictate.

Question 12

Roth and Dixon both claim a security interest in the same collateral. Roth’s security interest attached on January I, and was perfected by filing on March I. Dixon’s security interest attached on February I, and was perfected on April I, by taking possession of the collateral. Which of the following statements is correct?

a. Roth’s security interest has priority because Roth perfected before Dixon perfected.
b. Dixon’s security interest has priority because Dixon’s interest attached before Roth’s interest was perfected.
c. Roth’s security interest has priority because Roth’s security interest attached before Dixon’s security interest attached.
d. Dixon’s security interest has priority because Dixon is in possession of the collateral.

Answer 12

Roth’s security interest has priority because Roth perfected before Dixon perfected.

Question 13

Under the UCC Secured Transactions Article, if debtor is in default under payment obligation secured by goods, the secured party has the right to

a. Reduce the claim to a judgment and Sell the goods and apply the proceeds toward the debt.
b. Reduce the claim to a judgment and Take possession of the good without judicial process.
c. Sell the gods and apply the proceeds toward the debt and Take possession of the good without judicial process.
d. Reduce the claim to a judgment and Seel the goods and apply the proceeds toward the debt and Take possession of the good without judicial process.

Answer 13

Reduce the claim to a judgment and Seel the goods and apply the proceeds toward the debt and Take possession of the good without judicial process.

Question 14

Under the Secured Transactions Article of the UCC, all of the following are needed to create an enforceable security interest, except

Answer 14

A financing statement must be filed.

Question 15

On November 10, Cutter, a dealer, purchased 100 lawnmowers. This comprised Cutter’s entire inventory and was financed under an agreement with Town Bank which gave the bank a security interest in all lawnmowers on the premises, all future acquired lawnmowers, and the proceeds of sales. On November 15, Town Bank filed a financing statement that adequately identified the collateral. On December 20, Cutter sold one lawnmower to Wills for family use and five lawnmowers to Black for its gardening business. Which of the following is correct?

a. The lawnmowers sold to alack would ordinarily continue to be subject to the security interest.
b. The lawnmower sold to Wills would not ordinarily continue to be subject to the security interest.
c. The security interest may not cover after-acquired property even if the parties so agree.
d. The security interest does not include the proceeds from the sale of the lawnmowers to Black.

Answer 15

The lawnmower sold to Wills would not ordinarily continue to be subject to the security interest.

Question 16

Pine has a security interest in certain goods purchased by Byron on an installment contract. Byron has defaulted on the payments, resulting in Pine’s taking possession of the collateral. Which of the following is correct?

a. Unless otherwise agreed, Pine must pay ayan for any increase in value of the collateral while the collateral is in Pine’s possession.
b. Pine must sell the collateral if Byron has paid more than of the cash price on a purchase money security interest in business equipment.
c. Byron may waive his right of redemption at the time he executes the security agreement.
d. The collateral may be sold by Pine at private sale and, if the collateral is consumer goods, without notice to other secured parties.

Answer 16

The collateral may be sold by Pine at private sale and, if the collateral is consumer goods, without notice to other secured parties.

Question 17

Kwik Bank loaned Crocker $30,000 to finance the purchase of appliances shipped to it from Cue Company. Crocker used the money from the loan to fully pay for the appliances. Kwik had Crocker sign a security agreement that listed as collateral the entire present and future inventory of Crocker. Kwik meant to file a financing statement but failed to do so. Duncan Company, aware of Kwik’s security interest, extended credit to Crocker to purchase office supplies, which Crocker planned to sell at his store. Crocker failed to pay either Kwik or Duncan. Which of the following is correct?

a. Kwik’s security interest is not enforceable against Crocker.
b. Kwik’s security interest is enforceable against Crocker and does have priority over Duncan.
c. Kwik’s security interest is enforceable against Crocker but does not have priority over Duncan.
d. Kwik’s security interest has priority over Duncan as well as any other potential third parties.

Answer 17

Kwik’s security interest is enforceable against Crocker and does have priority over Duncan.

Question 18

ABC Company purchased some musical instruments from a wholesaler to sell in its store. ABC borrowed the money for this inventory from Redletter Bank who perfected a security interest by filing. Adams purchased a piano for his home since he wished to take piano lessons. This is strictly for personal, not business, use. Banner, a professional pianist, purchased a piano for his music studio. ABC defaults on its loans with Redletter Bank and the bank wishes to repossess the pianos from Adams and Banner. From which parties can Redletter Bank repossess?

Answer 18

Neither Adams nor Banner.

Question 19

Cross has an unperfected security interest in the inventory of Safe, Inc. The unperfected security interest

Answer 19

Is subordinate to lien creditors of Safe whose lien interest aase prior to any subsequent perfection by Cross.

Question 20

Mern Corp. is in the business of selling computers and computer software to the public. Mern sold and delivered a personal computer to Whyte on credit. Whyte executed and delivered to Mern a promissory note for the purchase price and a security agreement covering the computer. If Whyte purchased the computer for personal use and Mern fails to file a financing statement, which of the following statements is correct?

a. Mern’s security interest is not enforceable against Whyte because Mern failed to file financing statement.
b. Perfection of Mern’s security interest occurred at the time of attachment.
c. The computer was a consumer good while in Mern’s possession.
d. Mern does not have a perfected security interest because it failed to file financing statement.

Answer 20

Perfection of Mern’s security interest occurred at the time of attachment.

Question 21

The perfection of security interest by filing financing statement

Answer 21

Serves to protect the secured party’s interest in the collateral against most creditors who acquire a security interest in the same collateral after the filing.

Question 22

Myles Software, Inc., a wholesale distributor of software computer products, borrowed $100,000 from the Gem Finance Co. secured by Myles’ present and future inventory and accounts receivable and the proceeds thereof. The parties signed a financing statement which described the collateral and was filed in the appropriate state office. Myles subsequently defaulted in the repayment of the loan and Gem attempted to enforce its security interest. Myles contended that Gem’s security interest was unenforceable. In addition, Johns, Who subsequently gave credit to Myles without knowledge of Gem’s security interest, is also attempting to defeat Gem’s alleged security interest. The security interest in question is

Answer 22

Valid in respect to both Myles and Johns.

Question 23

Under the UCC Secured Transactions Article, for security interest to attach, the

Answer 23

Debtor must agree to the creation of the security interest.

Question 24

Pix Co., which is engaged in the business of selling appliances, borrowed $13,000 from Lux Sank. Pix executed a promissory’ note for that amount and pledged all of its customer installment receivables as collateral for the loan. Pix executed a security agreement that described the collateral, but Lux did not file a financing statement. With respect to this transaction

Answer 24

Attachment of the security interest tock place When the loan was made and Pix executed the security agreement.

Question 25

A typewriter, which was subject toa prior UCC security interest, was delivered to Ed Fogel for repair. Fogel is engaged in the business of repairing typewriters. Fogel repaired the typewriter. However, the owner of the typewriter now refuses to pay for the services performed by Fogel. The state in which Fogel operates his business has a statute which gives Fogel an artisan’s lien on the typewriter. Fogel’s artisan’s lien

Answer 25

Takes priority over a prior perfected security interest unless the statute expressly provides otherwise.

Question 26

Fogel purchased a TV set for $900 from Hamilton Appliance Store. Hamilton took a promissory note signed by Fogel and a security interest for the $800 balance due on the set. It was Hamilton’s policy not to file a financing statement until the purchaser defaulted. Fogel obtained a loan of $500 from Reliable Finance which took and recorded a security interest in the set. A month later, Fogel defaulted on several loans outstanding and one of his creditors, Harp, obtained a judgment against Fogel which was properly recorded. After making several payments, Fogel defaulted on a payment due to Hamilton, who then recorded a financing statement subsequent to Reliable’s filing and the entry of the Harp judgment. Subsequently, at a garage sale, Fogel sold the set for $300 to Mobray. Which of the parties has the priority claim to the set?

Answer 26

Hamilton.

Question 27

On June 3, Muni Finance loaned Page Corp. $20,000 to purchase four computers for use in Page’s trucking business. Page contemporaneously executed a promissory note and security agreement. On June 7, Page purchased the computers with the $20,000, obtaining possession that same day. On June 10, Mort, a judgment creditor of Page, levied on the computers. Which of the following statements is correct?

a. Muni’s security interest attached on June 3.
b. Muni’s security interest did not attach.
c. Muni’s security interest attached on June 7.
d. Muni failed to qualify as a purchase money secured lender.

Answer 27

Muni’s security interest attached on June 7.

Question 28

Thrush, a wholesaler of television sets, contracted to sell 100 sets to Kelly, a retailer. Kelly signed a security agreement with the 100 sets as collateral. The security note for the agreement provided that Thrush’s security interest extended to the inventory, to any proceeds therefrom, and to the after-acquired inventory of Kelly. Thrust filedhis security interest. Later, Kelly sold one of the sets to Haynes who purchased with knowledge of Thrush’s perfected security interest. Haynes gave a purchase price and signed a security agreement using the set as collateral. Kelly is now in default. Thrush can

Answer 28

Not repossess the set from Haynes, but is entitled to any payments Haynes makes to Kelly on his note

Question 29

Under the Secured Transactions Article of the UCC, which of the following statements is (are) correct regarding the filing of financing statement?

I. A financing statement must be filed before attachment of the security interest can occur.

Il. Once filed, financing statement is effective for an indefinite period of time provided continuation statements are timely filed.

Answer 29

II only

Question 30

Under the UCC, which of the following is correct regarding the disposition of collateral by secured creditor after the debtor’s default?

a. The collateral must be disposed of at a public sale.
b. A good-faith purchaser for value and without knowledge of any defects in the sale takes free of any subordinate liens or security interests.
c. It is improper for the secured creditor to purchase the collateral at a public sale.
d. Secured creditors with subordinate claims retain the right to redeem the collateral after the disposition of the collateral to third party.

Answer 30

A good-faith purchaser for value and without knowledge of any defects in the sale takes free of any subordinate liens or security interests.

Question 31

Acorn Marina, Inc. sells and services boat motors. On April I, Acorn financed the purchase of its entire inventory with GAC Finance Company. GAC required Acorn to execute a security agreement and financing statement covering the inventory and proceeds of sale. On April 14, GAC properly filed the financing statement pursuant to the UCC Secured Transactions Article. On April 27, Acorn sold one of the motors to Wilks for use in his charter business. Wilks, who had once worked for Acorn, knew that Acorn regularly financed its inventory with GAC. Acorn has defaulted on its obligations to GAC. The motor purchased by Wilks is

Answer 31

Not subject to the GAC security interest because Wilks is regarded as a buyer in the ordinary course of Acorn’s business.

Question 32

With regard to a prior perfected security interest in goods for which financing statement has been filed, which of the following parties is most likely to have a superior interest in the same collateral?

a. A subsequent buyer of consumer goods who purchased the goods from another consumer.
b. The trustee in bankruptcy of the debtor.
c. A buyer in the ordinary course of business who purchased the goods from a merchant.
d. Lien creditors of the debtor.

Answer 32

A buyer in the ordinary course of business who purchased the goods from a merchant.

Question 33

Which of the following is necessary in order to have security interest attach?

a. The creditor must take possession of the collateral.
b. There must be a proper filing.
c. The debtor must have rights in the collateral.
d. The debtor must sign a security agreement which describes the collateral.

Answer 33

The debtor must have rights in the collateral.

Question 34

Tawney Manufacturing approached Worldwide Lenders for a loan of $50,000 to purchase vital components it used in its manufacturing process. Worldwide decided to grant the loan, but only if Tawney would agree to a field warehousing arrangement. Pursuant to their understanding, Worldwide paid for the purchase of the components, tock a negotiable bill of lading for them, and surrendered the bill of lading in exchange for negotiable warehouse receipts issued by the bonded warehouse company that had established a field warehouse in Tawney’s storage facility. Worldwide did not file a financing statement. Under the circumstances, Worldwide

Answer 34

Has a security interest in the goods which has attached and is perfected.

Question 35

Under the Secured Transactions Article of the UCC, what secured transaction document must be signed by the debtor?

Answer 35

Security agreement.

Question 36

In order for security interest in goods to attach, the

Answer 36

Creditor must have given value.

Question 37

Under the Secured Transactions Article of the UCC, secured party generally must comply with each of the following duties except:

a. Filing or sending the debtor a termination statement when the debt is paid.
b. Assigning the security interest to another party at the debtor’s request.
c. Using reasonable care in preserving any collateral in the secured party’s possession.
d. Confirming, at the debtor’s request, the unpaid amount of the debt.

Answer 37

Assigning the security interest to another party at the debtor’s request.