Question 1

A filed financing statement remains in force for a period of:

Accepted Answer

A filed financing statement remains in force for 5 years from the date of filing, unless a continuation statement is filed before the expiration of that period to extend the effectiveness of the original filing for another 5 years.

Question 2

If a security interest is perfected but thereafter becomes commingled with other goods that also have perfected security interest ultimately resulting in a product or mass and loss of identity,how does the security interest rank?

Accepted Answer

When a security interest is perfected but later commingled with other goods, resulting in a product or mass of goods with no identity, the UCC provides for a pro-rata distribution of the value of the commingled goods among the secured parties, based on the ratio that the cost of the goods to which each security interest originally attached bears to the cost of the total product or mass. This means that the security interests rank equally according to their proportionate share of the value of the commingled goods, rather than being determined by the order in which they were perfected or chosen.

Question 3

Which of the following is true?

Accepted Answer

To exercise the right of redemption, the debtor must pay the full amount owed plus any additional costs incurred by the creditor related to the repossession of the collateral.

Question 4

If one party's security interest attached in March,but has not been perfected,and another creditor's security interest attached and perfected in April,which of the following is true as of the following December?

Accepted Answer

Under the general rule of first-to-perfect, the security interest that is perfected first takes priority over any subsequent security interests. In this case, the creditor's security interest that attached in March but was not perfected has inferior priority to the security interest that attached and was perfected in April. Therefore, the security interest that was perfected in April has priority.

Question 5

Which security interests are perfected at the moment of attachment?

Accepted Answer

Consumer good purchase money security interests are automatically perfected upon attachment without the need for filing or possession.

Question 6

Sandy purchases a piece of equipment to use in her business.The seller of the equipment extended credit to Sandy to enable her to purchase the equipment.Sandy signs a security agreement,but the seller of the equipment does not file a financing statement anywhere.Sandy defaults on the loan and the seller of the equipment wants to get possession of the equipment.Can the seller repossess the equipment?

Accepted Answer

The seller can repossess the equipment because there is a valid security agreement. The fact that the seller did not file a financing statement does not prevent them from enforcing the security agreement. This situation pertains to an Article 9 transaction involving commercial goods, not consumer goods. Additionally, automatic perfection only applies in certain situations and is not relevant here.

Question 7

Which of the following persons can defeat a perfected security interest?

Accepted Answer

A buyer in the ordinary course of business, certain buyers of secondhand consumer goods when a financing statement has not been filed, and people with artisan's or mechanic's liens can defeat a perfected security interest. Therefore, D is the correct answer.

Question 8

Which of the following are rules established by the UCC when determining priority among conflicting claims of creditors?

Accepted Answer

A perfected security interest generally has priority over an unperfected interest in the same collateral according to the UCC.

Question 9

A security agreement can cover:

Accepted Answer

A security agreement can cover property and credit acquired later, as it is an agreement in which the borrower pledges collateral as security for a loan or other obligation. The collateral can include property that the borrower acquires after the agreement is signed, and the agreement can also cover credit that is extended to the borrower after the agreement is signed.

Question 10

Which of the following apply to filing of a financing statement?

Accepted Answer

All of the options given apply to filing of a financing statement. Option A is true, as filing a financing statement makes it a public record that may be reviewed by anyone. Option B is also true, as many states require specific types of financing statements to be filed with the county clerk. Finally, Option C is true, a continuation statement may be filed up to six months before the original financing statement's expiration date to extend its validity for another five years. Therefore, all three options apply to filing of a financing statement.

Question 11

Ajax Corporation borrowed $50,000 from National Bank,giving National a security interest in its factory equipment.The agreement stated that the equipment would be security for this $50,000 loan and any future loans that National made to Ajax.National filed a valid financing statement.Over the next several months,Ajax borrowed another $100,000 from National.No additional financing statements were filed.Ajax has not made any payments on its loans from National.Ajax defaults on these loans.National wants to foreclose on the collateral.Assuming this security agreement is valid and perfected,how much of National's debt is secured?

Accepted Answer

The security agreement between Ajax Corporation and National Bank included a future advances clause, which means that the security interest in the factory equipment covers not only the initial $50,000 loan but also any future loans that National makes to Ajax. Since National filed a valid financing statement for the initial loan and the future advances clause is valid, National's security interest covers the entire $150,000 loan. Therefore, the answer is D.

Question 12

Which of the following is true about when perfection and attachment occur?

Accepted Answer

Attachment must occur before or at the same time as perfection because a security interest cannot be perfected until it has attached to the collateral. Attachment is the process that makes the security interest enforceable against the debtor, while perfection is the process that makes it enforceable against third parties.

Question 13

A creditor who has repossessed collateral may choose to retain it:

Accepted Answer

A creditor who has repossessed collateral may choose to retain it unless the secured party receives an appropriate notice within 20 days or in the case of consumer goods, if more than 60 percent of the price has been paid. This is stated in the Uniform Commercial Code (UCC) 9-210.

Question 14

Pat went to Eighth National Bank in Oregon and obtained a loan to purchase a computer from a friend.Pat signed a security agreement granting the bank a security interest in the computer.Pat planned to use this computer in his home-based publishing business.The bank gave Pat $2,500 to use in purchasing the computer.However,Pat immediately went to Las Vegas without purchasing the computer and has not been seen since.The bank has filed a financing statement covering the computer.The bank wants the computer.Can the bank get the computer?

Accepted Answer

The security interest has not attached because attachment requires that the debtor has rights in the collateral, which Pat never acquired since he did not purchase the computer.

Question 15

Under Article 9 of the UCC,"protection of the buyers of goods" means that which of the following is true?

Accepted Answer

Under Article 9 of the UCC, a buyer in the ordinary course of business takes free of any security interest. This means that if a buyer purchases goods in the ordinary course of their business from a seller who has a security interest in those goods, the buyer takes ownership of the goods free of that security interest. This protection is provided to buyers to ensure that they can purchase goods without concern for any prior claims on those goods by third parties.

Question 16

Which of the following would relieve a creditor of filing a financing statement?

Accepted Answer

Under the Uniform Commercial Code (UCC), a creditor can perfect their security interest by taking physical possession of the collateral, thereby relieving them of the requirement to file a financing statement. Options A and D are not valid methods of relieving the creditor of filing a financing statement, and option B would require the agreement to be in writing and signed by the debtor, which can be difficult to obtain.

Question 17

Under Article 9 of the UCC,whatever is received upon the sale,exchange,collection,or other disposition of collateral,is classified as:

Accepted Answer

According to Article 9 of the UCC, whatever is received upon the sale, exchange, collection, or other disposition of collateral is classified as proceeds. Therefore, choice A is the correct answer. Goods refer to tangible personal property that can be seen, touched, and moved, while documents refer to papers and records. Value is a broader term that can refer to any numerical worth, including non-tangible assets like intellectual property or reputation.

Question 18

Which of the following statements is false?

Accepted Answer

This statement is false. While the creditor generally has a right to retain the collateral to satisfy the debt, there are situations where the debtor may have a right to redeem the collateral or the court may order the creditor to return the collateral to the debtor.

Question 19

A secondhand buyer of consumer goods that were subject to a purchase money security interest in the hands of the original buyer takes those goods free of the purchase money security interest:

Accepted Answer

The Uniform Commercial Code provides that a secondhand buyer of consumer goods (goods purchased for personal, family or household use) takes those goods free of the purchase money security interest if the original creditor did not file a financing statement and the secondhand buyer does not have actual or constructive notice of the security interest. This is known as the "consumer goods exception" to the general rule that a security interest in personal property travels with the property into the hands of a buyer. The exception applies only to consumer goods and only if the secondhand buyer did not have notice of the security interest.

Question 20

Generally,if two creditors have perfected security interests in the same collateral,only one of which is a purchase money security interest,which has the superior right (priority),assuming all notice is properly given within the appropriate time periods?

Accepted Answer

Under the Uniform Commercial Code (UCC), a purchase money security interest (PMSI) in collateral, such as equipment or inventory, has a superior right over existing security interests if certain conditions are met. If the PMSI creditor gives proper notice of its security interest within the required time period, it will take priority over the existing security interest. Therefore, in this scenario, the PMSI creditor would have the superior right as long as they properly perfected their security interest and gave notice within the required time period.

Quiz 27: Secured Transactions and Electronic Filing