CCP UCC & Secured Transactions 3 — Questions and Answers
Question 1: Under UCC Article 9, what is the 'first-to-file-or-perfect' rule?
- Priority goes to the secured party who first physically possesses the collateral
- Priority goes to the secured party who first files a financing statement or first perfects, whichever is earlier (Correct answer)
- Priority goes to the lender who first extends credit to the debtor
- Priority goes to the creditor with the highest dollar claim
Correct answer: Priority goes to the secured party who first files a financing statement or first perfects, whichever is earlier
Between conflicting perfected security interests, priority goes to the party who first filed a financing statement or first perfected their interest, whichever occurred earlier.
Question 2: Which of the following describes a 'floating lien' under UCC Article 9?
- A lien that automatically moves from one piece of collateral to another as the debtor's assets change (Correct answer)
- A maritime lien on vessels that float on water
- A lien that is not yet perfected and floats until a financing statement is filed
- A lien on intangible property such as patent rights
Correct answer: A lien that automatically moves from one piece of collateral to another as the debtor's assets change
A floating lien covers a shifting pool of collateral (e.g., inventory or accounts) that constantly changes as old items are sold and new ones are acquired, enabled by after-acquired property and proceeds clauses.
Question 3: A secured creditor repossesses collateral after the debtor's default. Under UCC Article 9, the secured party may conduct a 'strict foreclosure.' What does this mean?
- The secured party sells the collateral at a court-supervised auction only
- The secured party retains the collateral in full satisfaction of the debt with debtor's consent (Correct answer)
- The secured party must obtain a deficiency judgment before selling collateral
- The secured party files a lien on the debtor's real property
Correct answer: The secured party retains the collateral in full satisfaction of the debt with debtor's consent
Strict foreclosure (acceptance of collateral in satisfaction) allows the secured party to keep the collateral and discharge the debt, but requires written consent from the debtor and notice to other interested parties.
Question 4: Under UCC Article 9, a 'termination statement' is filed when:
- A debtor defaults on the secured obligation
- The secured obligation is paid off and the secured party no longer claims a security interest (Correct answer)
- A new debtor assumes the secured obligation
- A secured party assigns its interest to another party
Correct answer: The secured obligation is paid off and the secured party no longer claims a security interest
A termination statement is filed to indicate that the secured party no longer claims an interest under the financing statement, typically after the debt is fully paid.
Question 5: Under UCC Article 9, perfection by 'control' is the required method for which type of collateral?
- Motor vehicles and titled goods
- Investment property and deposit accounts (Correct answer)
- Farm products and crops
- Consumer goods under a PMSI
Correct answer: Investment property and deposit accounts
Deposit accounts can only be perfected by control, and investment property (including securities accounts) is most effectively perfected by control, which grants priority over filing-only secured parties.
Question 6: What is the significance of a 'debtor name' error on a UCC financing statement?
- It is always harmless if the address is correct
- It renders the financing statement seriously misleading and may defeat perfection if a search under the correct name does not reveal it (Correct answer)
- It is corrected automatically by the filing office
- It only matters if the debtor files for bankruptcy
Correct answer: It renders the financing statement seriously misleading and may defeat perfection if a search under the correct name does not reveal it
Under UCC § 9-506, an error in the debtor's name is seriously misleading if a search of the filing office records under the correct name would not disclose the financing statement, potentially defeating perfection.
Question 7: Which of the following is a 'fixture' under UCC Article 9?
- Personal property that has never been attached to real estate
- Goods that have become so related to real estate that an interest in them arises under real property law (Correct answer)
- Any collateral covered by a certificate of title
- Intangible assets such as trademarks or copyrights
Correct answer: Goods that have become so related to real estate that an interest in them arises under real property law
Fixtures are goods that are so closely associated with real property that they can be subject to both real property law and UCC Article 9, requiring a fixture filing for priority against real estate interests.
CCP UCC & Secured Transactions 3
Under UCC Article 9, what is the 'first-to-file-or-perfect' rule?