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Exam 30: Secured Transactions

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Question 31

True/False

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For most collateral, possession by a secured party is impractical because it denies the debtor the right to use or derive income from the property to pay the debt.

A) True
B) False

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Question 32

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When a debtor defaults, a secured party who does not choose to retain the collateral must relinquish the security interest to the debtor.

A) True
B) False

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Question 33

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Bob's Barber Shop borrows from first Credit Company and then Debit Loans LLC, using the same property as collateral for both loans. Debit Loans perfects its security interest. Credit Company does not. The debtor defaults on both loans. The party with first rights to the collateral is

When a security interest is perfected, it has priority over any other perfected security interests.

Bay Marina borrows funds from Credit Union secured by Bay's interest in the marina. If Credit Union fails to perfect its claim to the collateral, the claim will be reduced to that of

A buyer in the ordinary course of business takes goods subject to any security interest created by the seller because otherwise the free flow of credit would be hindered.

Every interest in personal property that guarantees the payment or performance of an obligation is a security interest .

When two conflicting security interests are unperfected, the last to attach has priority.

Ezra owns Fans & Players, a retail sporting goods shop. When Great Lodge, a new ski resort, is built in the area, Ezra decides to expand and obtains a loan from Home Bank. The bank takes a security interest in Ezra's present inventory and after-acquired inventory as collateral for the loan. The bank properly perfects the security interest by filing a financing statement. Ezra's business is profitable, and he begins doubling his inventory. A year later, an avalanche destroys the ski resort. Ezra'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 it is twice as large as it was when the loan was made. Ezra claims that the bank has rights to only half of his inventory. Is Ezra correct? Explain.

Lending Corporation holds a perfected security interest in Medical Clinic's real property that includes priority to the proceeds from a sale of the collateral resulting from a bankruptcy. In relation to the bankruptcy trustee, this gives the secured party

Because of depreciation, an amount received on a sale of collateral may be less than the amount owed on the debt, but a debtor who has defaulted is not likely to have the funds to pay the deficiency.

To buy a delivery truck, Food-To-Go LLC borrows funds from Grow-Your-Business Inc. secured by the borrower's interest in the truck. The lender files a financing statement but not a continuation statement. Food-To-Go sells the truck to Haul-Away Corporation, a purchaser for value, and later defaults on the debt to Grow-Your-Business. Entitled to the truck is

Appliance Sales & Repair wants to get paid for its goods and services, so it will not sell goods or perform services unless payment is guaranteed. This is the concept of

Because the rights and remedies of secured parties under Article 9 are cumulative, if a secured creditor is unsuccessful in enforcing rights by one method, the creditor

With a binding agreement to extend credit, a secured party can obtain a security interest.

Business as we know it could not exist without secured transactions because otherwise sellers and lenders would be less likely to sell and lend on credit.

Attachment ensures that a security interest between a debtor and a secured party is effective.

To create an enforceable security interest, the collateral must be in the possession of neither the debtor nor the secured party, but in escrow.

Consideration to support a simple contract is not sufficient value to support the acquisition of a security interest.

Equity Bank files a financing statement regarding a transaction with Fabrication LLC. To be valid, the financing statement must contain all of the following except