Business Law, 8e: Chapter 26

Chapter 26
Secured Transactions: Priorities and Enforcement:

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1. Under the UCC, it is impossible for two parties to have an interest in the same collateral.: a. True
b. False

2. Generally, the first creditor to file or perfect has priority to the collateral.: a. True
b. False

3. If two creditors claim security interests in a debtor's equipment, upon the debtor's bankruptcy, each creditor will receive one-half of the proceeds received from the sale of the equipment.: a. True
b. False

4. The date of attachment is more important for determining priorities than the date of perfection.: a. True
b. False

5. The General Electric Capital Commercial Automotive Finance v. Spartan Motors, Ltd. case dealt with the issue of the debtor's bankruptcy.: a. True
b. False

6. If none of the parties has perfected its security interest, the first interest to attach enjoys priority.: a. True
b. False

7. If a secured party has filed a financing statement on inventory which a buyer in the ordinary course of business later purchases, the secured party has priority as to the item out of inventory and can repossess it from the buyer in the ordinary course of business.: a. True
b. False

8. If the debtor defaults, the law limits the secured party to pursuing only Uniform Commercial Code remedies.: a. True
b. False

9. The first proceeds of the sale of the collateral ordinarily go to the secured party in order to satisfy the debt owed by the debtor.: a. True
b. False

10. The debtor has the right to redeem collateral at any time before the secured party has disposed of it.: a. True
b. False

11. Maude purchased a stereo from Worst Buy, Inc. Second National Bank had a perfected security interest covering all of Worst's inventory. If Worst does not pay Second National, who will ultimately have the right to the stereo?: a. Maude.
b. Worst.
c. Second National.
d. The IRS.

12. Abdul appropriately perfects by possession. Abdul will have priority:: a. over lien creditors.
b. over unperfected secured creditors.
c. over a the trustee in bankruptcy.
d. All of the above.

13. Whoopie Cushion Wholesalers (WCW) sold 60 whoopie cushions to Practical Gags, Inc. (PGI). PGI pursuant to a signed security agreement immediately filed a financing statement covering the whoopie cushions. Tammy buys one of the whoopie cushions from PGI, with the knowledge that some lender or firm has financed PGI's existing inventory under Article 9. If PGI ultimately fails to pay its debts when due to WCW, can WCW repossess the whoopie cushion Tammy brought?: a. Yes, because WCW has superior rights pursuant to its security agreement.
b. No, because Tammy is a bona fide purchaser of consumer goods.
c. Yes, because WCW's "floating lien" covers Tammy's purchase.
d. No, because Tammy is a buyer in the ordinary course of business.

14. First Star and Credit Max have taken a security interest in Fred's Equipment. Neither First Star nor Credit Max have perfected their respective interests. Both First Star and Credit Max claim priority as to the equipment. In this situation:: a. the first to notify the debtor of the right to repossession gets the collateral.
b. First Star and Credit Max will each receive one-half of the value of the inventory.
c. the first creditor to attach has priority.
d. as secured parties, each by operation of law becomes a purchase money secured party.

15. Deep Freezers, Inc. (DFI) sells 15 freezers to Cal's Retail Sales (CRS), a retail appliance store; has CRS sign a security agreement covering the freezers; and files a legally effective financing statement regarding the freezers. Six months later, CRS defaults to DFI. At that time, DFI checks the filing records and learns that nine months earlier Second Bank had filed a financing statement denoting Second Bank's validly acquired security interest in CRS's present and after-acquired property and proceeds. In these circumstances:: a. DFI has priority because its purchase money security interest was valid upon attachment.
b. Second Bank has priority owing to DFI's failure to notify the bank of its security interest.
c. DFI has priority because Second Bank must refile each time new inventory comes into CRS's possession.
d. Second Bank has priority because it holds a common law lien that arises by operation of law.