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Exam 30: Secured Transactions

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Question 1

Multiple Choice

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Thomas and Pauline are two secured parties. Neither party has perfected their interests. Assuming a purchase-money security interest is not involved, who would prevail in a dispute?

A) The party who attached its interest first will prevail.
B) The party who loaned money first will prevail.
C) Thomas and Pauline will divide the proceeds from the sale of the collateral evenly between them.
D) The party who loaned the most money on the collateral has priority.
E) The party who first notified the debtor of a missed payment has priority.

F) B) and D)
G) A) and C)

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Question 2

Multiple Choice

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[Overextended Debtor] Michael bought a flat screen television for his living room from ABC Electronics, and financed the purchase through ABC Electronics. Later, Michael bought a boat, a new car, and an expensive engagement ring for his girlfriend, and found he was unable to continue making payments on the television. The manager of ABC Electronics called 60 days after the sale and asked Michael to return the television. Michael refused on the basis that ABC Electronics never perfected its interest in the television. He also explained that he had later granted a secured interest in the television along with his other goods to XYZ Credit in return for a loan. No financing statement was filed on behalf of ABC Electronics although XYZ Credit, with no knowledge of any interest of ABC Electronics, did file a financing statement. -Which statement is true regarding Michael's statement that the security interest of ABC was not perfected?

A) Michael is wrong because the security interest perfected immediately.
B) Michael is correct because the security interest perfected when he was still in possession of the collateral 30 days after the purchase.
C) Michael is correct because the security interest perfected when he was still in possession of the collateral 60 days after the purchase.
D) Michael is correct because no financing statement was filed.
E) Michael is correct only because in the case of luxury goods, a financing statement must be filed within 20 days of the sale in order for the seller to establish perfection.

F) C) and E)
G) D) and E)

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Question 3

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A bank taking possession of collateral does not have to file a financing statement in order to perfect its interest.

[Dirty Laundry] Morgan planned to start her own laundry business. She borrowed $60,000 from ABC Bank. She used her car and home as collateral and also gave ABC Bank an interest in any property she acquired after the security interest was made. The bank perfected its interest. Morgan purchased a new computer from XYZ Electronics for use in her business. XYZ obtained a purchase money security interest on the computer. Morgan was having problems with cash flow and failed to make payments to XYZ Electronics on the new computer. After the sale and before Morgan stopped making payments, XYZ had filed a financing statement. The electronics store sought to repossess the computer, but the bank opposed that. Morgan's business picked up and she was able to completely repay her loan to the bank and to XYZ. She requested that the bank discontinue its security interest, but the bank did not do so as requested by Morgan, and still had not done so 45 days after Morgan had paid off the loan and requested that the bank terminate its interest. -Which statement is correct regarding priority in rights to the computer?

If Michael, ABC Electronics, and XYZ Credit have a dispute regarding entitlement to the television, who is likely to win and why?

[Dirty Laundry] Morgan planned to start her own laundry business. She borrowed $60,000 from ABC Bank. She used her car and home as collateral and also gave ABC Bank an interest in any property she acquired after the security interest was made. The bank perfected its interest. Morgan purchased a new computer from XYZ Electronics for use in her business. XYZ obtained a purchase money security interest on the computer. Morgan was having problems with cash flow and failed to make payments to XYZ Electronics on the new computer. After the sale and before Morgan stopped making payments, XYZ had filed a financing statement. The electronics store sought to repossess the computer, but the bank opposed that. Morgan's business picked up and she was able to completely repay her loan to the bank and to XYZ. She requested that the bank discontinue its security interest, but the bank did not do so as requested by Morgan, and still had not done so 45 days after Morgan had paid off the loan and requested that the bank terminate its interest. -________ property is the proper designation for any equipment subject to the bank's security interest that Morgan obtains after the initial loan agreement.

[Repo] Meredith sells used cars and trucks. She sold a used pick-up truck to Jill and a used convertible to Caleb. She properly obtained a security interest in both vehicles. Both Jill and Caleb defaulted on payments owed to Meredith for the vehicles. Meredith was under the belief that her only option was to take possession of the collateral. She decided to repossess Jill's pick-up at Jill's house. Meredith slipped into Jill's driveway after midnight and started the truck's engine. Jill immediately ran out and confronted Meredith. Meredith shoved Jill away and drove off in the pick-up truck. Meredith was able to repossess Caleb's convertible in a public parking lot with no altercation with him. -Which statement is correct about the creation of a security interest?

Which of the following is true regarding priority in a dispute involving a purchase-money security interest in business goods other than inventory?

Generally, unsecured parties have priority over secured creditors.

________ is the person or the party that holds the interest in the secured property.

The term ________ is the designation for property acquired by the debtor after a security agreement covering the property is made.

[Hang Glider] Monte borrows money from A&Z Bank and the bank has a secured interest in Monte's hang glider. The bank files a financing statement which identifies Dryden, another debtor of the bank, as the debtor for this transaction. Monte also borrows money from his neighbor, and he uses the hang glider as collateral on that transaction. His neighbor was unaware that Monte had used the hang glider as collateral for the bank loan. Monte fails to make his payment to the bank. The bank claims it should take possession of the hang glider because it has a perfected interest. When Dryden learns about the bank's interest in the hang glider, he calls that bank and tells them he has first dibs on the hang glider because their loan to Monte was not public knowledge. The bank tells Dryden that they have priority because they perfected their security interest in the hang glider when they filed the financing statement four years ago. -Is Dryden correct that the bank does not have priority because the loan was not public knowledge?

What did the court conclude in the Case Opener, the case in which the plaintiff claimed that her repossessed vehicle was not sold in a commercially reasonably manner and that she was wrongly left with a deficiency?

What is the time period in which a debtor has the right to object to retention of collateral to satisfy a debt?

Perfection of a security interest in a motor vehicle generally occurs when the secured party files the interest with the state's Department of Motor Vehicles.

[Favi's Furniture] Favi took out a loan from First Bank and executed a security agreement which gave First Bank rights to any after-acquired property as collateral. A year later, Favi took out a loan with Second Bank and executed a security agreement with Second Bank using his new delivery truck as collateral. Favi eventually defaulted on both loans. -If Favi sells the truck, what is First Bank's best option?

[Favi's Furniture] Favi took out a loan from First Bank and executed a security agreement which gave First Bank rights to any after-acquired property as collateral. A year later, Favi took out a loan with Second Bank and executed a security agreement with Second Bank using his new delivery truck as collateral. Favi eventually defaulted on both loans. -If First Bank had properly perfected its security interest, which creditor's interest would take priority?

Jullian fails to make her monthly loan payment to the bank. She is said to be in denial.

When perfection by possession occurs, the parties must have a written security agreement.

[Hang Glider] Monte borrows money from A&Z Bank and the bank has a secured interest in Monte's hang glider. The bank files a financing statement which identifies Dryden, another debtor of the bank, as the debtor for this transaction. Monte also borrows money from his neighbor, and he uses the hang glider as collateral on that transaction. His neighbor was unaware that Monte had used the hang glider as collateral for the bank loan. Monte fails to make his payment to the bank. The bank claims it should take possession of the hang glider because it has a perfected interest. When Dryden learns about the bank's interest in the hang glider, he calls that bank and tells them he has first dibs on the hang glider because their loan to Monte was not public knowledge. The bank tells Dryden that they have priority because they perfected their security interest in the hang glider when they filed the financing statement four years ago. -Is the bank correct that it has priority because it has a perfected interest in the hang glider?