Fact Situation #1

Ben has recently inherited a painting by Monet.Excited about his good fortune he hires Bob Villa to remodel his home.The bill from Bob Villa is $30,000.Ben pays Bob with a promissory note for $30,000 payable on Jan. 1, 2013.Bob is aware that Ben is unemployed and has a poor credit history so he has Ben sign a security agreement which pledges the Monet as collateral for the promissory note.A week later, Ben decides to have a party in his newly remodeled house but is a little short of cash. To cover the cost of the party Ben borrows $5000 from his elderly Aunt Clara.Ben has borrowed money from Clara in the past and failed to repay it so this time Clara has Ben sign a security agreement which pledges the Monet as collateral for the repayment of the loan.Aunt Clara then immediately files a financing statement at the courthouse.At his party Ben asks his girlfriend to marry him and she agrees.The next day they go shopping for an engagement ring. They find the perfect ring at I.J.Gems.Ben buys the ring on credit.The cost of the ring is $15,000.I.J. Gems requires that Ben sign a security agreement which pledges the Monet as collateral for the credit purchase and then takes possession of the Monet.A week later Ben's fianc runs off with the drummer from the band he hired to play at his party, taking the ring with her.Ben fails to pay any of his creditors and on Jan. 1 Bob Villa forecloses on the Monet.

1. How many security interests have attached to Ben's Monet?

2.Whose security interest was first to attach?

3.Whose security interests have been perfected?

4.Whose security interest was first to be perfected?

Assuming that the Monet was sold to pay Ben's debts.There are no costs associated with the sale or repossession of the painting. The Monet is sold for $40,000.

5.How much would Bob Villa receive from the sale?

6.How much would Aunt Clara receive?

7.How much would I.J.Gems receive?

Fact Situation #2(you will see a set of questions similar to this on the next exam)

Questions 8 - 11 refer to the following fact situation.

Ross paints Herbert's car,and Herbert pays for the paint job with a $1250 installment note which requires Herbert to pay Ross $100 a month.Because of Herbert's lousy credit history Ross requires Herbert to sign a security agreement which pledges Herbert's boat as collateral for the note.As soon as Herbert signs the agreement, Ross files a financing statement at the courthouse.Later in the month, Rhonda agrees to loan Herbert $1000 to be repaid at the end year.In order to insure repayment of the loan Rhonda has Herbert sign a written security agreement which pledges Herbert's boat as collateral for the loan. Rhonda then has Herbert tow the boat to her house and place it in her garage.Herbert then falls a month behind in his rent and owes his landlord $500.He gives his landlord a promissory note for $500 and agrees to pay in full before the end of the year.The landlord requires Herbert to sign a security agreement which pledges his boat as collateral for the note.Herbert defaults on all his obligations.

8.Which creditor's security interest was the first to attach

to the boat:

a. Ross

b. Rhonda

c. Landlord

d. No security interests have attached to the boat.

9.In the above fact situation how many security interests have

been perfected?

a. none

b. one

c. two

d. three

10.After Herbert defaults on his obligations, which creditor has a

superior claim to Herbert's boat?

a. Ross

b. Rhonda

c. Landlord

d. All creditors have an equal claim on the boat.

11.Assume that Herbert did not pay any of his debts and the boat

is sold to satisfy Herbert's debts.The sale proceeds are $2050 and

there are no costs associated with the repossession and sale of

the boat.How much of the proceeds will Ross receive?

a. $0

b. $150

c. $550

d. $1250