CCP UCC & Secured Transactions 2 — Questions and Answers
Question 1: Under UCC Article 9, which of the following best describes a 'purchase money security interest' (PMSI)?
- A security interest that arises automatically upon delivery of collateral
- A security interest taken by the seller or lender to finance the debtor's acquisition of the collateral (Correct answer)
- A security interest perfected solely by possession
- A security interest granted by a buyer in accounts receivable
Correct answer: A security interest taken by the seller or lender to finance the debtor's acquisition of the collateral
A PMSI is created when a seller retains a security interest in goods sold on credit or when a lender finances the debtor's acquisition of specific collateral.
Question 2: A secured party with a perfected security interest in inventory has a PMSI. What must the secured party do to have super-priority over conflicting security interests in that inventory?
- File a financing statement before delivery of the inventory
- Send authenticated notification to all prior secured parties before the debtor receives the inventory
- Both file before delivery and notify prior secured parties before delivery (Correct answer)
- Record the PMSI with the Secretary of State within 30 days
Correct answer: Both file before delivery and notify prior secured parties before delivery
For inventory PMSI super-priority, the secured party must both file a financing statement before the debtor receives the inventory and send authenticated notification to holders of conflicting security interests.
Question 3: Under UCC Article 9, what is the effect of a 'continuation statement' filed by a secured party?
- It creates a new security interest in after-acquired property
- It extends the effectiveness of a financing statement for an additional 5 years (Correct answer)
- It converts a temporary perfection into permanent perfection
- It adds new collateral to an existing security agreement
Correct answer: It extends the effectiveness of a financing statement for an additional 5 years
A continuation statement, filed within 6 months before expiration, extends the financing statement's effectiveness for 5 more years from the original lapse date.
Question 4: Which of the following collateral types is perfected by filing a financing statement in most U.S. states under UCC Article 9?
- Consumer goods acquired for personal use
- Motor vehicles covered by a certificate of title statute
- Deposit accounts held at a bank
- Equipment used in a business (Correct answer)
Correct answer: Equipment used in a business
Equipment is typically perfected by filing a financing statement, whereas consumer goods may be automatically perfected (PMSI), titled vehicles are covered by title statutes, and deposit accounts are perfected by control.
Question 5: Under UCC Article 9, what is the concept of 'proceeds' in the context of secured transactions?
- The principal amount of the secured loan
- Whatever is received upon sale, exchange, collection, or disposition of collateral (Correct answer)
- The value of collateral at the time of attachment
- The debtor's equity in the collateral after the security interest is deducted
Correct answer: Whatever is received upon sale, exchange, collection, or disposition of collateral
Proceeds include whatever is received when collateral is sold, exchanged, collected, or otherwise disposed of, and a perfected security interest in collateral automatically extends to identifiable proceeds.
Question 6: A debtor grants a security interest in 'all accounts now owned or hereafter acquired.' This language is commonly referred to as what type of clause?
- Dragnet clause
- After-acquired property clause (Correct answer)
- Cross-collateralization clause
- Floating lien clause
Correct answer: After-acquired property clause
An after-acquired property clause extends the security interest to collateral the debtor acquires after the security agreement is signed, which is expressly permitted under UCC Article 9.
Question 7: Under UCC Article 9, which party has the right to redeem collateral before a secured party completes a disposition following default?
- Only junior secured creditors, not the debtor
- Only the debtor, not other creditors
- The debtor and any secondary obligor or other secured party (Correct answer)
- Only the trustee in bankruptcy
Correct answer: The debtor and any secondary obligor or other secured party
UCC § 9-623 grants the right of redemption to the debtor, any secondary obligor, and any other secured party or lienholder, allowing them to satisfy the obligation and reclaim the collateral.
CCP UCC & Secured Transactions 2
Under UCC Article 9, which of the following best describes a 'purchase money security interest' (PMSI)?