Question 1

Mona lives in New Jersey,but she works in New York.Mona borrows $1,000 from National Bank,using her motorcycle as collateral.To perfect its security interest,the bank must file its financing statement in at least
A)every state.
B)New Jersey.
C)New Jersey and New York.
D)New York.

Accepted Answer

The answer of Mona lives in New Jersey,but she works...

Question 2

Summit Credit Corporation lends funds to Toby,a consumer,to apply to the cost of a sport utility vehicle (SUV),which is the collateral for the loan.An enforceable security interest also requires
A)a written agreement and Summit's possession of the SUV.
B)a written agreement or Summit's possession of the SUV.
C)the vehicle seller's acknowledgement of the loan in writing.
D)Toby's possession of the SUV.

Accepted Answer

According to the Uniform Commercial Code (UCC), a security interest can be enforceable either by a written agreement or possession of the collateral by the lender. Therefore, either a written agreement or Summit's possession of the SUV would satisfy the requirement for an enforceable security interest. The vehicle seller's acknowledgement or Toby's possession of the SUV alone do not establish a security interest.

Question 3

The payment of Jose's debt to Klint is guaranteed by Jose's personal property.The process by which Klint can protect himself against the claims of third parties to this property is
A)attachment.
B)communication.
C)perfection.
D)search and seizure.

Accepted Answer

The process by which a creditor can protect their security interest in personal property against the claims of third parties is called perfection. Perfection involves taking steps to put others on notice of the creditor's interest in the property, usually by filing a financing statement or obtaining possession of the property. This ensures that the creditor's interest in the property is superior to any other claims or liens on the property.

Question 4

The payment of Nero's debt to Olly is guaranteed by Nero's personal property.Nero is located in Pennsylvania.Olly communicates to the appropriate state official a security agreement that uses only Quality Engineering,the trade name of Nero's business.To perfect Olly's interest,this is
A)irrelevant.
B)not sufficient.
C)sufficient if Quality Engineering is a sole proprietorship.
D)sufficient if the trade name is spelled correctly or misspelled slightly.

Accepted Answer

A security interest in personal property must be attached, meaning the security agreement is authenticated by both parties, value is given, and the debtor has rights in the collateral. It must also be perfected. In this case, Olly's security agreement using only Quality Engineering, the trade name of Nero's business, is not sufficient to perfect Olly's interest. This is because a trade name cannot be used as collateral for a security interest, and the appropriate state official has not been notified of the security interest. Therefore, Olly would need to use Nero's personal property as collateral and comply with Pennsylvania's specific procedures for perfecting a security interest in personal property.

Question 5

Lena borrows from Mac and Nicol,using the same collateral for both loans.Only Nicol has a perfected security interest.Lena defaults on both loans.The party with first rights to the collateral is
A)Lena.
B)Mac and Nicol,in proportion to Lena's debt to each.
C)Mac only.
D)Nicol only.

Accepted Answer

Nicol has a perfected security interest, which means that they have priority over Mac in the event of a default by Lena. Therefore, Nicol would have the first rights to the collateral. Mac would have the right to any proceeds from the sale of the collateral in proportion to Lena's debt to them, but they would not have the first rights to it. Lena, as the borrower, does not have any rights to the collateral once she defaults on the loans.

Question 6

County Bank wants to perfect its security interest in collateral owned by Direct Sales Company.Most likely,a financing statement should be filed with
A)the local chamber of commerce.
B)the county clerk.
C)the federal loan officer.
D)the secretary of state's office.

Accepted Answer

Filing a financing statement with the secretary of state's office is the standard practice for perfecting a security interest in most states in the United States. This filing puts other creditors on notice of County Bank's interest in the collateral and protects the bank's priority claim in the event of default or bankruptcy proceedings. The local chamber of commerce, county clerk, and federal loan officer do not typically handle the filing and recording of financing statements.

Question 7

The payment of John's debt to Kirsten is guaranteed by John's personal property.Kirsten is most likely to perfect her interest by
A)attaching a bright label to John's property.
B)calculating the precise amount of John's debt.
C)correcting grammatical errors in the parties' written agreement.
D)filing a financing statement with the appropriate authority.

Accepted Answer

Filing a financing statement with the appropriate authority is the most common method of perfecting a security interest in personal property. This helps to ensure that the security interest is publicly known and enforceable against third parties. Options A, B, and C do not fulfill the requirement for perfecting a security interest.

Question 8

Prime Property Investments,Inc.,files a financing statement to provide notice of its security interest in the property of Qwik Breakfast Restaurant.The initial effective term of a financing statement is a period of
A)five days.
B)five months.
C)five weeks.
D)five years.

Accepted Answer

The initial effective term of a financing statement filed under the Uniform Commercial Code is five years.

Question 9

City Bank's financing statement in collateral owned by Delta Waters Corporation will expire in less than a year.Filed timely,a continuation statement could extend the effectiveness of the financing statement for
A)one year.
B)two years.
C)five years.
D)ten years.

Accepted Answer

The answer of City Bank's financing statement in collateral owned...

Question 10

Olaf is the creditor in a transaction with Phil.Once certain requirements are met,Olaf's rights will attach,which means that Olaf will have
A)an indivisible ownership right to Phil's property.
B)an enforceable security interest in Phil's property.
C)a notice affixed to Phil's property.
D)the permission of a court to seize Phil's property.

Accepted Answer

When Olaf's rights attach, it means he has an enforceable security interest in Phil's property. This means that Phil has pledged the property as collateral for a loan, and if he defaults, Olaf can seize and sell the property to satisfy the debt. The other options are not necessarily true when Olaf's rights attach.

Question 11

Middling Credit Corporation asks Little Supply Company to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired property.This is
A)a first-in,first-out rule.
B)a floating lien.
C)a funds guaranty.
D)in violation of secured transactions law.

Accepted Answer

A security agreement that covers proceeds from the sale of after-acquired property is called a floating lien. This is legal and allowed under secured transactions law. A first-in, first-out rule is a method of inventory accounting, and a funds guaranty is a promise to ensure the availability of funds for a particular transaction or purpose.

Question 12

The payment of Yves's debt to Zac is guaranteed by Yves's personal property.Their agreement describes Yves's subject property by serial number.To establish Zac's interest,this is
A)irrelevant.
B)not sufficient.
C)sufficient if it accurately describes the parties' agreement.
D)sufficient unless it is too tedious to review.

Accepted Answer

If the agreement accurately describes the subject property by serial number, it is sufficient to establish Zac's interest in Yves's personal property as collateral for the debt. However, if the description is inaccurate or incomplete, it may not be sufficient.

Question 13

Select Furniture Store sells household consumer goods.To create a purchase-money security interest,Select Furniture must
A)assign,to a collecting agent,a portion of its accounts payable.
B)assign,to a collecting agent,a portion of its accounts receivable.
C)extend credit for part or all of the purchase price of the goods.
D)refer purchasers to a third-party lender.

Accepted Answer

To create a purchase-money security interest, Select Furniture must extend credit for part or all of the purchase price of the goods. This means that they allow the purchaser to pay for the goods in installments, and they have a security interest in the goods until the purchase price is fully paid off. They do not need to assign accounts payable or refer purchasers to a third-party lender to create a purchase-money security interest.

Question 14

Region Bank wants to perfect its security interest in timber owned by Superior Lumber,Inc.Most likely,a financing statement should be filed with
A)the local chamber of commerce.
B)the county clerk.
C)the federal loan officer.
D)the secretary of state's office.

Accepted Answer

The answer of Region Bank wants to perfect its security...

Question 15

Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.
-Refer to Fact Pattern 24-1.A car in Fine's possession is probably
A)a consumer good.
B)an accession.
C)equipment.
D)inventory.

Accepted Answer

Based on the fact pattern, Fine Auto Sales is a dealer and sells cars to consumers and businesses, indicating that the car in their possession is inventory.

Question 16

The payment of Hu's debt to Ian is guaranteed by Hu's personal property.To give public notice of his interest in Hu's property,Ian is most likely to
A)attach a bright label to Hu's property.
B)e-mail other potential creditors.
C)file a financing statement with the appropriate authority.
D)publish a collection notice in local newspapers.

Accepted Answer

Filing a financing statement with the appropriate authority is the correct way for Ian to give notice of his interest in Hu's property. This will create a public record of his security interest in the property, which will give him priority over other creditors who may claim an interest in the same property. Attaching a label or sending an email will not provide proper public notice, and publishing a collection notice may not effectively give notice to potential creditors.

Question 17

Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.
-Refer to Fact Pattern 24-1.Ira,a police officer,buys an Excel from Fine to drive in his off-duty hours.Ira's Excel is
A)a consumer good.
B)an accession.
C)equipment.
D)inventory.

Accepted Answer

Since Ira is purchasing the Excel for his personal use, it is considered a consumer good.

Question 18

Everyday Loans,Inc.,takes possession of Ferbie's stock in Glade Electronics Corporation to perfect Everyday's security interest in the stock.This is
A)after-acquired property.
B)a pledge.
C)a purchase-money security interest.
D)proceeds.

Accepted Answer

Everyday Loans, Inc. is taking possession of Ferbie's stock as a pledge to secure the loan. A pledge is a type of security interest where the debtor (Ferbie) gives possession of the collateral (stock) to the creditor (Everyday Loans, Inc.) as security for a loan.

Question 19

Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.
-Refer to Fact Pattern 24-1.Holly,a professional driver,buys an Excel from Fine to drive in a Grand Prix race.Holly's Excel is
A)a consumer good.
B)an accession.
C)equipment.
D)inventory.

Accepted Answer

Holly's Excel is considered equipment because it was purchased for a specific business purpose, which is to be used in the Grand Prix race.

Question 20

Rich Financial,Inc.,files a financing statement regarding a transaction with Supreme Business Company.To be valid,the financing statement must contain all of the following except
A)a description of the collateral.
B)a statement of the purpose for the transaction.
C)Rich's name.
D)Standard's name.

Accepted Answer

While a financing statement may optionally include a statement of the purpose for the transaction, it is not required for the statement to be valid. The statement must include a description of the collateral, the names of both parties involved (in this case, Rich Financial, Inc. and Supreme Business Company), and other necessary information as required by the governing state's Uniform Commercial Code (UCC).

Quiz 24: Security Interests in Personal Property

Mona lives in New Jersey,but she works in New York.Mona borrows $1,000 from National Bank,using her motorcycle as collateral.To perfect its security interest,the bank must file its financing statement in at least

Summit Credit Corporation lends funds to Toby,a consumer,to apply to the cost of a sport utility vehicle (SUV) ,which is the collateral for the loan.An enforceable security interest also requires

The payment of Jose's debt to Klint is guaranteed by Jose's personal property.The process by which Klint can protect himself against the claims of third parties to this property is

The payment of Nero's debt to Olly is guaranteed by Nero's personal property.Nero is located in Pennsylvania.Olly communicates to the appropriate state official a security agreement that uses only Quality Engineering,the trade name of Nero's business.To perfect Olly's interest,this is

Lena borrows from Mac and Nicol,using the same collateral for both loans.Only Nicol has a perfected security interest.Lena defaults on both loans.The party with first rights to the collateral is

County Bank wants to perfect its security interest in collateral owned by Direct Sales Company.Most likely,a financing statement should be filed with

The payment of John's debt to Kirsten is guaranteed by John's personal property.Kirsten is most likely to perfect her interest by

Prime Property Investments,Inc.,files a financing statement to provide notice of its security interest in the property of Qwik Breakfast Restaurant.The initial effective term of a financing statement is a period of

City Bank's financing statement in collateral owned by Delta Waters Corporation will expire in less than a year.Filed timely,a continuation statement could extend the effectiveness of the financing statement for

Olaf is the creditor in a transaction with Phil.Once certain requirements are met,Olaf's rights will attach,which means that Olaf will have

Middling Credit Corporation asks Little Supply Company to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired property.This is

The payment of Yves's debt to Zac is guaranteed by Yves's personal property.Their agreement describes Yves's subject property by serial number.To establish Zac's interest,this is

Select Furniture Store sells household consumer goods.To create a purchase-money security interest,Select Furniture must

Region Bank wants to perfect its security interest in timber owned by Superior Lumber,Inc.Most likely,a financing statement should be filed with

Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses. -Refer to Fact Pattern 24-1.A car in Fine's possession is probably

The payment of Hu's debt to Ian is guaranteed by Hu's personal property.To give public notice of his interest in Hu's property,Ian is most likely to

Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses. -Refer to Fact Pattern 24-1.Ira,a police officer,buys an Excel from Fine to drive in his off-duty hours.Ira's Excel is

Everyday Loans,Inc.,takes possession of Ferbie's stock in Glade Electronics Corporation to perfect Everyday's security interest in the stock.This is

Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses. -Refer to Fact Pattern 24-1.Holly,a professional driver,buys an Excel from Fine to drive in a Grand Prix race.Holly's Excel is

Rich Financial,Inc.,files a financing statement regarding a transaction with Supreme Business Company.To be valid,the financing statement must contain all of the following except