Secured Transactions Flashcards

A dealer sells a car out of its inventory to a consumer buyer in the ordinary course of business. The dealer's inventory financer holds a perfected security interest in all inventory and did not authorize the sale free of its lien. Does the buyer take free of the security interest?

Answer: Yes, because a buyer in ordinary course takes free of a security interest created by its seller even if perfected and even with knowledge of its existence

Under UCC 9-320(a), a buyer in ordinary course of business takes free of a security interest created by the buyer's seller, even if perfected and known to the buyer.

A lender's financing statement describes the collateral as 'all assets of the debtor.' The underlying security agreement covers only equipment. What is the scope of the enforceable security interest?

Answer: Only equipment, because the security agreement defines the collateral and a supergeneric description is valid only in a financing statement

A supergeneric description like 'all assets' is permitted in a financing statement under UCC 9-504 but not in a security agreement, so the interest attaches only to the equipment described in the agreement.

A debtor's accountant claims a security interest never attached because the debtor never signed a paper security agreement, though the debtor authenticated an electronic record describing the collateral, the lender gave value, and the debtor owned the collateral. Did the security interest attach?

Answer: Yes, because an authenticated electronic record satisfies the security agreement requirement

UCC 9-203 requires an authenticated security agreement, and authentication expressly includes adopting an electronic record, so attachment occurred.

Bank A perfected a security interest in a debtor's equipment. The debtor sells the equipment to a buyer, and Bank A did not authorize the sale free of its interest. The buyer then grants a security interest in the same equipment to Bank B, which perfects. Who has priority?

Answer: Bank A, because its security interest continued in the collateral after the unauthorized sale and it perfected first

Under UCC 9-315(a)(1), a security interest survives an unauthorized disposition, so Bank A's earlier-perfected interest continues in the equipment and outranks Bank B.

A financing statement was filed on January 10, 2020. No continuation statement is ever filed. When does the financing statement lapse, and what is the effect on a perfected security interest against a purchaser for value?

Answer: It lapses January 10, 2025, and the security interest is deemed never perfected against a purchaser for value

Under UCC 9-515, a financing statement is effective for five years, and upon lapse the security interest is deemed never to have been perfected as against a purchaser for value.

A continuation statement is filed seven months before the financing statement's five-year term expires. What is its effect?

Answer: It is ineffective because it was filed outside the six-month window before lapse

Under UCC 9-515(d), a continuation statement may be filed only within six months before the five-year period expires, so a filing seven months early is ineffective.

A secured party sells repossessed equipment and receives proceeds. In what order must the proceeds of disposition be applied?

Answer: Reasonable expenses of repossession and sale, then the secured obligation, then subordinate security interests, with any surplus to the debtor

UCC 9-615 requires application first to expenses of disposition, then to the debt owed the foreclosing secured party, then to subordinate interests, with any surplus paid to the debtor.