QUESTION:

January 1: Ace borrows money from First Bank to fund Ace's business operations (payroll, operating expenses, etc.), and agrees to give First Bank a security interest in Ace's existing inventory and equipment, and any after-acquired inventory or equipment.

February 1: Ace borrows money from Second Bank specifically to purchase 100 widgets for its inventory, and agrees to give Second Bank a security interest in its existing inventory and any after-acquired inventory.

February 6:Ace purchases and receives 100 widgets for its inventory.

March 1: Ace borrows money from Third Bank specifically to purchase a new piece of equipment (a widget machine), and agrees to give Third Bank a security interest in the machine.

April 1: Ace's owner, Linda, buys a television set for her home on credit from Dan's Electronics, and signs a security agreement giving Dan's Electronics a security interest in the television.

May 1:As part of its ordinary business operations, Ace sells 10 widgets to Hank.

May 2:Molly buys the television set from Linda for $500.

1) What did Dan's Electronics need to do to perfect its security interest in the television set that it sold to Linda before she re-sold it to Molly?

A) Nothing, First Bank's security interest was automatically perfected when Linda signed the security agreement and took the television set.

B) Retake possession of the television set.

C) Get Linda to agree that First Bank will be the customer for Linda's personal checking account.

D) File a financing statement with the appropriate government office.

E) First Bank can perfect its security interest by all of these methods.

2) In which of the following situations would Second Bank's security interest in the 100 widgets not have priority over First Bank's security interest in Ace's inventory?

A) Second Bank's security interest would take priority over First Bank's security interest in all of these situations.

B) First Bank's security agreement is verbal, and Second Bank's security agreement is in writing.

C) First Bank does not file a financing statement, and Second Bank files a financing statement on Feb 15.

D) Each bank files a financing statement two weeks after lending the money to Ace.

E) First Bank files a financing statement on Jan 2, and Second Bank notifies First Bank and perfects its security interest before Ace receives the widgets.

3) Suppose Ace fails to repay Second Bank for the money that it borrowed to buy the 100 widgets. Can Second Bank assert its security interest in the 10 widgets that Ace sold to Hank?

A) Yes, if Hank had knowledge of Second Bank's security interest.

B) Yes, if Second Bank filed a financing statement for its security interest.

C) No, unless Second Bank has filed a fixture statement.

D) Yes, if Hank is not using the widgets for personal, family, or household use.

E) No, even if Second Bank filed a financing statement and Hank had knowledge of Second Bank's security interest.

4) Suppose Linda fails to pay Dan's Electronics for the television set that she sold to Molly. Can Dan's Electronics assert its security interest in the television against Molly?

A) Yes, but only if Dan's Electronics filed a financing statement.

B) Yes, but only if Molly had knowledge of the security interest.

C) No, even if Dan's Electronics filed a financing statement and Molly knew about the security interest.

D) No, because Molly is a buyer in the ordinary course of business.

E) Yes, if Dan's Electronics filed a financing statement or if Molly knew of the security interest.

5) Which of the following is required for attachment of a security interest in goods?

A) The creditor's money must have been used to purchase the goods.

B) The debtor must be in possession of the goods.

C) The debtor must purchase the goods in the ordinary course of business.

D) The creditor must file a financing statement that describes the goods.

E) The debtor must have rights in the goods.

6) How can a security interest in money be perfected?

A) By filing a continuation statement.

B) All of these answers are correct.

C) By the creditor taking possession or control of the money.

D) By attachment to the money (automatic perfection).

E) By filing a financing statement.

7) Which of the following is most likely to be perfected by the secured creditor taking control or possession of the collateral?

A) A security interest in accounts receivable and general intangibles.

B) All of these can be perfected by the secured creditor taking control or possession of the collateral.

C) A security interest in consumer goods.

D) A security interest in equipment.

E) A security interest in inventory.

8) A car dealership borrowed money from Main Street Bank to purchase cars as inventory to sell. As part of its loan, the dealer signed a security agreement, which the bank filed with the appropriate government office. The car dealership then sold several of the cars to customers in the ordinary course of business, but did not repay the loan to the bank. The bank wants to repossess the cars. Can the bank successfully assert its security interest as a basis for repossessing the cars from the customers?

A) No, because the customers are buyers in the ordinary course of business.

B) Yes, because the bank perfected its security interest.

C) Yes, because the bank attached its security interest.

D) Yes, because the bank has attached and perfected a purchase money security interest.

E) Yes, because the bank has a purchase money security interest.

9) Filing a financing statement for goods:

A) Perfects the secured party's interest in the goods against most creditors who acquire a security interest in the goods after the filing.

B) Gives the secured party superior rights over all other creditors who acquire an interest in the goods after the filing.

C) Creates a security interest in the goods.

D) Gives the public actual notice of the security interest in the goods.

E) Allows the secured party to attach its security interest in the goods.

10) Deal Hut, an appliance store, borrowed money from Main Bank to buy appliances as inventory for its store. Deal Hut gave the bank a security interest in the appliances and any proceeds from the sale of the appliances. On July 1, Deal Hut bought 10 washing machines, using the money borrowed from Main Bank. On July 5, Main Bank filed a financing statement for the washing machines. On July 20, Deal Hut sold a washing machine to Susan for personal use. Which of the following is correct?

A) The proceeds from the sale to Susan will not be subject to Main Bank's security interest.

B) The washing machine sold to Susan will not be subject to Main Bank's security interest.

C) Main Bank can repossess the washing machine from Susan if Deal Hut fails to repay the loan from Main Bank.

D) The washing machine sold to Susan will be subject to Main Bank's security interest.

E) The sale of the washing machine to Susan makes Main Bank an unsecured creditor.

11) Hairbrush Inc. makes hair brushes that it sells to Beauty Supply Inc., a wholesaler that distributes the brushes to Hair Salon Corp., a hair styling salon where the employees use the brushes when cutting and styling customers' hair, and to Drug Store LLC, a retail drug store that keeps the brushes in stock and sells them to customers, including selling one brush to Diana for her own personal use. What type of goods are the brushes with respect to Beauty Supply Inc.?

A) Instruments

B) Consumer goods

C) Equipment

D) Inventory

E) Fixtures

12) How can an electronics store perfect a security interest in a computer that it sells on credit to a customer for her own personal use, subject to a written security agreement?

A) The store must file a financing statement with the relevant government office.

B) The store must have the customer sign a security agreement in the computer and any proceeds from its sale.

C) The security interest is automatically perfected by the attachment of the security interest to the computer.

D) The store must have the customer sign a field warehousing arrangement.

E) The store must have the customer sign a security agreement in the computer.

13) A security interest in a debtor's inventory automatically covers which of the following?

A) After-acquired inventory.

B) None of these answers is correct.

C) Proceeds from the sale of the inventory, after-acquired inventory, and future advances against the inventory.

D) Future advances by the creditor against the inventory.

E) The proceeds from the sale of the inventory.

14) Hairbrush Inc. makes hairbrushes that it sells to Beauty Supply Inc., a wholesaler that distributes the brushes to Hair Salon Corp., a hair styling salon where the employees use the brushes when cutting and styling customers' hair, and to Drug Store LLC, a retail drug store that keeps the brushes in stock and sells them to customers, including selling one brush to Diana for her own personal use. What type of goods are the brushes with respect to Hair Salon Inc.?

A) Consumer goods

B) Inventory

C) Fixtures

D) Equipment

E) Instruments

15) Which is true regarding a secured creditor's disposition of collateral after a debtor defaults on a secured debt?

A) The collateral must be sold by private sale.

B) If the proceeds from the sale of collateral are not sufficient to pay the debts secured by the collateral, the creditor(s) cannot hold the debtor liable for the remaining unpaid debt.

C) The collateral must be sold by public sale.

D) Once the debtor defaults, he cannot redeem the collateral.

E) The creditor can choose to sue the debtor on the debt, or repossess the collateral.