DE Bar Secured Transactions 2 — Questions and Answers
Question 1: A bank takes a security interest in a debtor's equipment but never files a financing statement. The debtor later sells the equipment to a buyer who knows about the security interest. What is the buyer's status?
- The buyer takes subject to the security interest because attachment alone makes it effective against the debtor and third parties with knowledge (Correct answer)
- The buyer takes free of the security interest because it was unperfected
- The buyer takes free only if the buyer is a buyer in ordinary course of business
- The sale is void because the debtor lacked authority to sell collateral
Correct answer: The buyer takes subject to the security interest because attachment alone makes it effective against the debtor and third parties with knowledge
An unperfected security interest is still enforceable against buyers who have knowledge of it; only buyers without knowledge who give value take free under UCC 9-317(b).
Question 2: A debtor grants a security interest in 'all inventory now owned or hereafter acquired.' Six months later the debtor acquires new inventory. When does the security interest attach to the new inventory?
- When the security agreement was originally signed
- When the debtor acquires rights in the new inventory (Correct answer)
- When the secured party files an amended financing statement
- Never, because after-acquired property clauses are unenforceable for inventory
Correct answer: When the debtor acquires rights in the new inventory
Under UCC 9-204, an after-acquired property clause is effective, but attachment occurs only when the debtor acquires rights in the new collateral.
Question 3: A creditor perfects a security interest in a debtor's negotiable promissory note. Which method of perfection gives the creditor priority over a later purchaser who takes possession of the note for value?
- Filing a financing statement
- Taking possession of the note (Correct answer)
- Sending notice to the maker of the note
- Obtaining the debtor's authenticated consent
Correct answer: Taking possession of the note
Possession of a negotiable instrument defeats competing claims because a purchaser who takes possession for value in ordinary course can otherwise achieve priority over a filed interest under UCC 9-330(d).
Question 4: A seller delivers goods to a debtor and retains a purchase-money security interest (PMSI) in the goods, which are equipment. To have priority over an earlier-filed blanket lien, the seller must perfect within what period?
- Before the debtor receives possession of the equipment
- Within 10 days after the debtor receives possession
- Within 20 days after the debtor receives possession (Correct answer)
- Within 30 days after attachment regardless of possession
Correct answer: Within 20 days after the debtor receives possession
Under UCC 9-324(a), a PMSI in goods other than inventory has priority if perfected within 20 days after the debtor receives possession of the collateral.
Question 5: A financing statement lists the debtor as 'Bob's Auto Shop' when the debtor is actually an individual named Robert Smith. A search under 'Smith, Robert' using the filing office's standard search logic does not disclose the filing. What is the result?
- The filing is effective because trade names are acceptable debtor names
- The filing is seriously misleading and ineffective (Correct answer)
- The filing is effective against creditors who knew of the trade name
- The filing is effective for 4 months, then lapses
Correct answer: The filing is seriously misleading and ineffective
Under UCC 9-506, a financing statement with an incorrect debtor name is seriously misleading and ineffective unless a search under the correct name using standard search logic would disclose it.
Question 6: A debtor defaults, and the secured party repossesses a delivery van from the debtor's driveway at night without informing the debtor. The debtor was not present and no confrontation occurred. Is the repossession lawful?
- No, because self-help repossession always requires prior notice to the debtor
- No, because entering the driveway is automatically a breach of the peace
- Yes, because the repossession occurred without a breach of the peace (Correct answer)
- Yes, but only if a court order was obtained beforehand
Correct answer: Yes, because the repossession occurred without a breach of the peace
UCC 9-609 permits self-help repossession without notice or judicial process so long as there is no breach of the peace, and a peaceful nighttime taking from a driveway generally qualifies.
Question 7: A secured party sells repossessed collateral at a private sale for a price far below market value to its own affiliate. The debtor challenges the sale. What standard governs the debtor's challenge?
- The sale is automatically void because low price alone violates Article 9
- Every aspect of the disposition must be commercially reasonable, and a low price invites close scrutiny of the sale's procedures (Correct answer)
- Price is irrelevant so long as the secured party gave notice
- The debtor may only challenge public sales, not private sales
Correct answer: Every aspect of the disposition must be commercially reasonable, and a low price invites close scrutiny of the sale's procedures
Under UCC 9-610 and 9-627, a low price alone does not make a sale invalid, but it triggers careful judicial scrutiny of whether every aspect of the disposition was commercially reasonable.
DE Bar Secured Transactions 2
A bank takes a security interest in a debtor's equipment but never files a financing statement.
The debtor later sells the equipment to a buyer who knows about the security interest.
What is the buyer's status?