Q&A Hero

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: The payment of Eden's debt to Flem is guaranteed by Eden's personal property. This property is A.a secured party. B.a secured transaction. C.a security interest. D.collateral.

Q: The payment of Frida's debt to Gianini is guaranteed by Frida's personal property. Gianini is A.a debtor. B.a secured party. C.a secured transaction. D.a security interest.

Q: Dag is the secured party in a secured transaction with Elmo. In this transaction, Dag A.has a security interest. B.owes payment. C.owes performance. D.owns collateral.

Q: The payment of Mo's debt to Neil is guaranteed by Mo's personal property. This is A.governed by Article 2 of the UCC. B.governed by Article 3 of the UCC. C.governed by Article 9 of the UCC. D.not governed by the UCC.

Q: The payment of Brian's debt to Chuck is guaranteed by Brian's personal property. This is A.a reorganization. B.a secured transaction. C.a suretyship agreement. D.a violation of most state laws.

Q: The price that a secured party obtains on a sale of collateral is all that the creditor can recover on the debt.

Q: If collateral consists of consumer goods subject to a purchase-money security interest, the secured party must "purchase" the goods on default.

Q: To qualify as a commercially reasonable sale, a secured party's sale of collateral, after default and repossession, must be public.

Q: On default, unless the security agreement states otherwise, the secured party has the right to repossess collateral.

Q: When a secured debt is paid, the secured party must file a termination statement regardless of the goods' classification.

Q: A secured party can release the collateral described in a filed financing statement only if the debtor has paid the debt.

Q: Under certain conditions, a purchase-money security interest will take priority over a previous creditor's interest in after-acquired property.

Q: A buyer in the ordinary course of business has priority over any security interest created by the seller.

Q: The first security interest to be perfected is the last in priority over any other perfected security interests.

Q: When two conflicting security interests are unperfected, the first to attach has priority.

Q: The last security interest to be perfected is the first in priority over any other perfected security interests.

Q: The concept of a floating lien does not apply to a shifting stock of goods.

Q: A security interest that provides for a security interest in proceeds is a floating lien.

Q: Intermittent advances against a line of credit can be subject to the same collateral.

Q: A future advance against a line of credit must be of the same type as the original advance to be subject to the same collateral.

Q: Proceeds consist of whatever is received when collateral is sold.

Q: A continuation statement is effective only if it is filed within six months before the expiration of a financing statement.

Q: A financing statement is effective for no more than five months from the date of filing.

Q: Filing a financing statement with the appropriate public office is the only way to perfect a purchase-money security interest in consumer goods.

Q: A purchase-money security interest arises only when a seller provides a buyer with the "purchase money" to buy goods.

Q: A purchase-money security interest in consumer goods is perfected automatically at the time of a credit sale.

Q: A pledge is a promise by a debtor to take reasonable care of the collateral.

Q: An improper filing renders a secured party unperfected.

Q: The state office in which a financing statement should be filed depends on the creditor's location.

Q: A description of collateral as "all the debtor's assets" is too general to reasonably identify the subject of a security agreement.

Q: To be valid, a security agreement must contain a description of the collateral.

Q: A financing statement is effective only if it is filed electronically.

Q: A security agreement must be filed in person to be valid and enforceable.

Q: A security interest cannot be perfected without the filing of a financing statement.

Q: A security interest may attach to intangible collateral but cannot be perfected.

Q: For a creditor to have an enforceable security interest, the debtor must have title to the collateral.

Q: To create an enforceable security interest, the secured party must give value.

Q: A security interest is enforceable only if the collateral is in the secured party's possession.

Q: A security interest is not enforceable after the creditor's rights have attached to the collateral.

Q: The person who owes the payment of a secured obligation is the secured party.

Q: Efrem owns Fans & Players, a retail sporting goods shop. When Great Hill Lodge, a new ski resort, is built in the area, Efrem decides to expand and borrows a large sum from Hometown Bank. The bank takes a security interest in Efrem's present inventory and any after-acquired inventory as collateral for the loan. The bank properly perfects the security interest by filing a financing statement. Efrem's business is profitable, and he begins doubling his inventory. A year later, an avalanche destroys the ski slope and lodge. Efrem's business takes a turn for the worse, and he defaults on his debt to the bank. The bank seeks possession of his entire inventory, even though the inventory is twice as large as it was when the loan was made. Efrem claims that the bank has rights to only half of his inventory. Is Efrem correct? Explain.

Q: Sara needs $1,513 to buy textbooks and other school supplies. Tomas agrees to loan Sara $1,513, accepting as collateral Tomas's car. They put their agreement in writing and sign it. Sara keeps possession of the car. Does Tomas have an enforceable security interest? How can Tomas let other creditors know of his interest in the car?

Q: Hal's Hardware store defaults on a debt to Intrastate Bank, which takes possession of the collateral securing the debt. Intrastate sells the collateral. The proceeds from the sale are applied first to A.Hal's debt to Intrastate. B.Hal's debts to other creditors. C.Intrastate's fees for the sale. D.payments Hal's made on the debt to Intrastate.

Q: Computer World (CW), after repossessing a multimedia system from Dave, a consumer, decides to keep the system instead of reselling it. CW sends written notice to Dave. CW can now keep the system A.only after attempting an unsuccessful public sale of the system. B.only after notifying any other appropriate secured party. C.unless Dave objects. D.under any circumstances.

Q: Green Landscape Company buys a backhoe on credit from Heavy Equipment Corporation, but does not make a payment on the loan for several months. Heavy repossesses the backhoe by towing it from a public street. Green sues Heavy for breach of the peace. Green will probably A.not prevail, because Heavy did not use judicial process. B.not prevail, because the repossession was not a breach of the peace. C.prevail, because Green did not default on the loan. D.prevail, because the repossession was a breach of the peace.

Q: Elias repays his debt, incurred to buy consumer goods, to Fidelity Bank and immediately files a written request for a termination statement. Fidelity A.must comply within one month of receipt of the letter. B.must comply within twenty days of receipt of the letter. C.must refund $513 to Elias. D.need not comply.

Q: Khalil holds a security interest in inventory owned by Luc. Khalil assigns his interest in the inventory to Mal. Mal becomes the secured party of record A.automatically. B.if Khalil advises Luc of the assignment. C.if Mal advises Luc of the assignment. D.if Mal files a uniform amendment form.

Q: Quotient Financial Corporation is a secured party with a security interest in property owned by Retail Sales Company. Perfection of this security interest may not protect Quotient Financial against the claim of A.a bank. B.a buyer in the ordinary course of business. C.a subsequent lien creditor. D.a trustee in bankruptcy.

Q: Expert Capital Company and Frugal Financial Bank are secured parties with security interests in property owned by Grande Corporation. Between these security interests, the first to be filed or perfected has priority over other filed or perfected security interests in A.most circumstances. B.no circumstances. C.states that have not adopted Article 9 of the UCC. D.states that require a security agreement to be signed and dated by the creditor.

Q: Idle Investments, Inc., and Harbor Bank are secured parties with security interests in property owned by GR8 Manufacturing Corporation. Priority between these security interests is generally determined by A.the amount of the claim. B.the custom in the trade. C.the time of perfection. D.the time the security agreement was signed.

Q: Fact Pattern 18-2 General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation for a security interest in the equipment. The next day, GLC borrows $513,000 from Interstate Bank, also for a security interest in the equipment. GLC defaults on the loans. Refer to Fact Pattern 18-2. Suppose that two weeks after GLC takes possession of the equipment, Helpful and Interstate file financing statements, with Interstate filing first. In that circumstance, the party with priority to the equipment is A.GLC. B.Helpful and Interstate proportionately. C.Helpful only. D.Interstate only.

Q: Fact Pattern 18-2 General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation for a security interest in the equipment. The next day, GLC borrows $513,000 from Interstate Bank, also for a security interest in the equipment. GLC defaults on the loans. Refer to Fact Pattern 18-2. Suppose that Helpful perfects its security interest when GLC takes possession of the equipment. In that circumstance, the party with priority to the collateral on GLC's default would be A.GLC. B.Helpful and Interstate proportionately. C.Helpful only. D.Interstate only.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: Hoppy steals two checks from Eagle Retail Stores, Inc.: a blank check and a check payable to the order of General Supplies Company (GSC), drawn on Eagle's account with First National Bank. Hoppy forges Eagle's signature on the blank check and makes it payable to himself. Hoppy forges GSC's indorsement on the back of the check payable to GSC, and adds "Pay to the order of Hoppy." At Friendly Credit, Inc., Hoppy indorses the back of both checks with his own name and gives them to Friendly for cash. Friendly does not know about the theft or the forged signatures and presents the checks to First National, which pays them. Eagle, which was not negligent, discovers the forgeries and asks First National to recredit its account. Who suffers the loss on each check?

Q: Tiny authorizes United Bank to make transfers from his account to make payments on his debt to Vic's Auto Dealership, which sold Tiny the car that serves as collateral for the debt. After three payments, Vic's repossesses the car and refuses to return it. Tiny phones the bank to stop the payments and follows up with a confirming letter. The bank fails to stop the next two payments, and Vic's refuses to refund anything. Can Tiny get his money from the bank? Explain.

Q: E-Bank, an online financial institution, gives financial information about Paula and other customers to a federal agency without the customers' permission. E-Bank may be liable under A.the Federal Trade Commission Act. B.the Financial Services Modernization Act. C.the Right to Financial Privacy Act. D.the Uniform Electronic Transactions Act.

Q: Paris knowingly divulges to Media Exposure magazine information about Randy's e-money payments to City Bank. The payments were in transmission to City Bank when Paris, without the consent of Randy or City Bank, discovered and revealed them. This may be a violation of A.the Electronic Communications Privacy Act. B.the Federal Reserve Board's Regulation E. C.the Right to Financial Privacy Act. D.the Uniform Electronic Transactions Act.

Q: Fact Pattern 17-3 Mike loses his National Bank access card. He realizes his loss the next day but waits a week to call National. Meanwhile, Opal finds and uses Mike's card to withdraw $3,000 from Mike's account. Refer to Fact Pattern 17-3. When Mike receives his National statement, he demands that the bank investigate the matter and recredit his account. The bank A.has no duty to investigate. B.must investigate and, if the dispute is not resolved within ten days, recredit Mike's account (at least until the dispute is resolved). C.must investigate and immediately recredit Mike's account (at least until the dispute is resolved). D.must investigate but need not recredit Mike's account.

Q: Fact Pattern 17-3 Mike loses his National Bank access card. He realizes his loss the next day but waits a week to call National. Meanwhile, Opal finds and uses Mike's card to withdraw $3,000 from Mike's account. Refer to Fact Pattern 17-3. Mike is responsible for A.$0. B.$50. C.$500. D.$3,000.

Q: Dina's debit card, issued by Eminent Bank, is stolen and used without Dina's permission. Dina tells Eminent Bank within thirty days. Dina may be required to pay no more than A.$5. B.$50. C.$500. D.$5,000.

Q: Guaranty Bank receives a check drawn on the account of Get-Rich Industries, Inc., one of the bank's customers, at 3 p.m. Friday. Garry, the presenter of the check, is not one of the bank's customers. The bank uses deferred posting with a 2 p.m. cutoff hour. If it decides to dishonor the check, it must do so by midnight A.Saturday. B.Sunday. C.Monday. D.Tuesday.

Q: Fact Pattern 17-2 Tom draws a check, on his account in State Bank in New York, payable to Digital Media, Inc., in San Francisco. Digital deposits the check in its account at First National Bank. First National deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve Bank sends the check to State Bank. Refer to Fact Pattern 17-2. When Digital's bank received the check, it was required to pass it on A.before midnight of the next banking day. B.before midnight of the next day, even if it was not a "banking" day. C.before noon of the next banking day. D.within five business days.

Q: Fact Pattern 17-2 Tom draws a check, on his account in State Bank in New York, payable to Digital Media, Inc., in San Francisco. Digital deposits the check in its account at First National Bank. First National deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve Bank sends the check to State Bank. Refer to Fact Pattern 17-2. Tom's bank is A.the cashing bank. B.the depositary bank. C.the intermediary bank. D.the payor bank.

Q: Fact Pattern 17-2 Tom draws a check, on his account in State Bank in New York, payable to Digital Media, Inc., in San Francisco. Digital deposits the check in its account at First National Bank. First National deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve Bank sends the check to State Bank. Refer to Fact Pattern 17-2. Digital's bank is A.the cashing bank. B.the depositary bank. C.the intermediary bank. D.the payor bank.

Q: On Monday, Eve deposits in her account at Fiscal Bank a local check for $500. After 5:00 p.m. on Friday, from these funds, Eve can withdraw no more than A.$100. B.$400. C.$500. D.$600.

Q: Clyde issues a check payable to Discount Mart. Elle, Discount's cashier, forges the store's indorsement and deposits the check in her bank account. Clyde's bank, First State Bank, pays the check. Clyde can recover from A.Elle, but not First State Bank. B.First State Bank, which cannot recover from Elle. C.First State Bank, which can recover from Elle. D.no one.

Q: Simon signs a check "pay to the order of Tilly" drawn on Simon's account in United Bank. Vela forges Tilly's indorsement, First Federal Bank cashes the check, and Vela disappears. United pays First Federal and debits Simon's account. Most likely, the ultimate loss will fall on A.Simon. B.Trudy. C.United Bank. D.First Federal Bank.

Q: Elmer can write checks on his account at Finance Bank. Gina steals the checks, forges Elmer's signature, and cashes the checks at Finance. The bank is excused from any liability if, after receipt of the first forged check, Elmer fails to report the forgeries within A.five business days. B.fourteen consecutive days. C.one year. D.three years.

Q: Dru signs a check "pay to the order of Eppie" drawn on Dru's account in First Federal Bank. Greta forges Eppie's indorsement. First Federal pays the check. Most likely A.Dru will be liable for the amount. B.Eppie will have to pay Dru for the amount. C.First Federal will have to recredit Dru's account. D.the Federal Reserve will reimburse all parties for their costs.