DE Bar Secured Transactions 3 — Questions and Answers
Question 1: A debtor uses a tractor 90% of the time on the family farm and 10% for personal errands. For Article 9 classification purposes, the tractor is best classified as what type of collateral?
- Consumer goods
- Inventory
- Farm products
- Equipment (Correct answer)
Correct answer: Equipment
Goods used primarily in a business or farming operation are equipment, and classification depends on the debtor's principal use of the collateral.
Question 2: A lender files a financing statement on June 1 but the security agreement is signed and value is given on August 1. A second lender attaches and perfects by filing on July 1. Who has priority in the collateral?
- The first lender, because priority dates from its earlier filing (Correct answer)
- The second lender, because it perfected first
- The second lender, because the first lender's filing was ineffective before attachment
- They share priority pro rata
Correct answer: The first lender, because priority dates from its earlier filing
Under UCC 9-322(a)(1), priority goes to the first to file or perfect, so the first lender's June 1 filing gives it priority even though attachment came later.
Question 3: A consumer buys a refrigerator on credit from an appliance store, which retains a PMSI. The store never files a financing statement. The consumer later sells the refrigerator to a neighbor for personal use, who pays value and has no knowledge of the security interest. Who prevails?
- The store, because a PMSI in consumer goods is automatically perfected
- The neighbor, under the garage-sale (consumer-to-consumer) exception since no financing statement was filed (Correct answer)
- The store, because buyers can never take free of a PMSI
- The neighbor, because all sales to good-faith buyers cut off security interests
Correct answer: The neighbor, under the garage-sale (consumer-to-consumer) exception since no financing statement was filed
Under UCC 9-320(b), a buyer of consumer goods for personal use who pays value without knowledge takes free of an automatically perfected PMSI unless a financing statement was filed.
Question 4: A secured party with a perfected security interest in a debtor's inventory claims the cash the debtor received from selling that inventory. For how long is the security interest in the identifiable cash proceeds perfected?
- Only 20 days after receipt, in all cases
- It remains continuously perfected because the proceeds are identifiable cash proceeds (Correct answer)
- It is never perfected without a new filing covering money
- Only until the debtor deposits the cash into a bank account
Correct answer: It remains continuously perfected because the proceeds are identifiable cash proceeds
Under UCC 9-315(d)(2), a security interest in identifiable cash proceeds remains perfected beyond the 20-day period without further action.
Question 5: A debtor corporation is incorporated in Delaware but has its chief executive office and all collateral in Pennsylvania. Where must a creditor file a financing statement to perfect a security interest in the debtor's accounts?
- Pennsylvania, where the chief executive office is located
- Pennsylvania, where the collateral is located
- Delaware, the state of incorporation (Correct answer)
- Both Delaware and Pennsylvania
Correct answer: Delaware, the state of incorporation
A registered organization is located in its state of organization under UCC 9-307(e), so filing must occur in Delaware regardless of where offices or collateral sit.
Question 6: A judgment creditor becomes a lien creditor by levying on a debtor's equipment on March 1. A secured lender had filed a financing statement on February 1 and gave value, but the security agreement was not authenticated until March 15. Who has priority?
- The secured lender, because it filed first
- The lien creditor, because the security interest was unperfected at the time of the levy and the 9-317(a)(2) filing-plus-agreement condition was not met (Correct answer)
- The secured lender, because attachment relates back to the filing date
- The lien creditor, but only if it had no knowledge of the filing
Correct answer: The lien creditor, because the security interest was unperfected at the time of the levy and the 9-317(a)(2) filing-plus-agreement condition was not met
Under UCC 9-317(a)(2), a lien creditor defeats a security interest unless before the levy the interest was perfected or a financing statement was filed and the debtor had authenticated a security agreement, and here the agreement came too late.
Question 7: After default, a debtor wishes to redeem the collateral before the secured party sells it. What must the debtor tender to redeem?
- Only the missed installment payments
- Fulfillment of all obligations secured by the collateral plus the secured party's reasonable expenses, including repossession costs (Correct answer)
- Half the outstanding balance as a good-faith deposit
- Nothing, because redemption is automatic upon request
Correct answer: Fulfillment of all obligations secured by the collateral plus the secured party's reasonable expenses, including repossession costs
Under UCC 9-623, redemption requires tender of all obligations secured by the collateral plus reasonable expenses and attorney's fees, not merely past-due installments (unless the debt was not accelerated).
DE Bar Secured Transactions 3
A debtor uses a tractor 90% of the time on the family farm and 10% for personal errands.
For Article 9 classification purposes, the tractor is best classified as what type of collateral?