KY Bar Secured Transactions 2 — Questions and Answers
Question 1: A bank lends money to a farmer and takes a security interest in "all equipment now owned or hereafter acquired." Six months later, the farmer buys a new tractor with other funds. Does the bank's security interest attach to the tractor?
- Yes, because after-acquired property clauses are generally enforceable for equipment under UCC Article 9 (Correct answer)
- No, because after-acquired property clauses are void as against public policy
- No, because the farmer purchased the tractor with funds from a different source
- Yes, but only if the bank files a new financing statement covering the tractor
Correct answer: Yes, because after-acquired property clauses are generally enforceable for equipment under UCC Article 9
Under UCC § 9-204, after-acquired property clauses are enforceable for most collateral types, including equipment, so the interest attaches automatically when the debtor acquires rights in the tractor.
Question 2: A creditor's financing statement lists the debtor as "Bluegrass Café" when the debtor is actually a registered organization named "Bluegrass Café, LLC." A search under the correct legal name using the filing office's standard search logic does not retrieve the filing. What is the result?
- The financing statement is effective because the trade name is substantially similar
- The financing statement is effective because minor errors never invalidate a filing
- The financing statement is seriously misleading and therefore ineffective (Correct answer)
- The financing statement is effective against the debtor but not against lien creditors
Correct answer: The financing statement is seriously misleading and therefore 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 still find it.
Question 3: A jewelry store sells a diamond ring on credit to a consumer, retaining a security interest in the ring, and never files a financing statement. The consumer later sells the ring to a neighbor for personal use, who buys without knowledge of the interest. Who prevails?
- The jewelry store, because a PMSI in consumer goods perfects automatically and always survives resale
- The neighbor, under the consumer-to-consumer (garage sale) exception of UCC § 9-320(b) (Correct answer)
- The jewelry store, because buyers can never take free of an unfiled security interest
- The neighbor, but only if she paid at least fair market value
Correct answer: The neighbor, under the consumer-to-consumer (garage sale) exception of UCC § 9-320(b)
Under UCC § 9-320(b), a buyer of consumer goods from another consumer takes free of an automatically perfected PMSI if she buys without knowledge, for value, for personal use, and before any financing statement is filed.
Question 4: A lender perfects a security interest in a debtor's inventory. The debtor sells inventory and deposits the cash into its bank account. The lender's interest in the deposited funds is best described as an interest in what?
- Original collateral, requiring no tracing analysis
- Unperfected proceeds, because cash can never be traced
- Proceeds perfected only for 20 days regardless of type
- Identifiable cash proceeds, perfected automatically as long as they remain identifiable (Correct answer)
Correct answer: Identifiable cash proceeds, perfected automatically as long as they remain identifiable
Under UCC § 9-315, a security interest continues in identifiable proceeds, and perfection in identifiable cash proceeds continues automatically beyond the 20-day period.
Question 5: Bank A files a financing statement covering a debtor's equipment on March 1 but does not lend money until June 1. Bank B lends against the same equipment and files on April 1. Who has priority?
- Bank B, because it was the first to both attach and perfect
- Bank B, because Bank A's filing was ineffective until it lent money
- Bank A, because priority among filed interests dates from the first to file or perfect (Correct answer)
- Bank A, but only if Bank B knew of the earlier filing
Correct answer: Bank A, because priority among filed interests dates from the first to file or perfect
Under UCC § 9-322(a)(1), priority goes to the first to file or perfect, so Bank A's earlier filing gives it priority even though its interest attached later.
Question 6: A debtor defaults on a loan secured by construction equipment stored in the debtor's locked yard. The secured party's agent climbs the fence at night and tows the equipment away without incident. Was the repossession proper?
- It depends on whether the entry constituted a breach of the peace, which trespass alone may or may not establish (Correct answer)
- Yes, because self-help repossession is always permitted after default
- No, because self-help repossession is prohibited without a court order
- Yes, because no violence or confrontation actually occurred, which conclusively makes it lawful
Correct answer: It depends on whether the entry constituted a breach of the peace, which trespass alone may or may not establish
UCC § 9-609 permits self-help repossession only without breach of the peace, and courts weigh factors like unauthorized entry into enclosed areas, so trespass into a locked yard raises a genuine breach-of-peace issue rather than a per se answer.
Question 7: A secured party repossesses a debtor's delivery van after default and sells it at a private sale to the secured party's own affiliate at a below-market price without notifying the debtor. Which requirement was most clearly violated?
- The prohibition on all private sales of repossessed collateral
- The requirement that all dispositions occur at public auction
- The rule that collateral must be held for 90 days before sale
- The duty to send reasonable notification of disposition to the debtor (Correct answer)
Correct answer: The duty to send reasonable notification of disposition to the debtor
Under UCC § 9-611, a secured party must send reasonable authenticated notification of disposition to the debtor, and failure to do so exposes the secured party to damages and potential loss of deficiency rights.
KY Bar Secured Transactions 2
A bank lends money to a farmer and takes a security interest in "all equipment now owned or hereafter acquired." Six months later, the farmer buys a new tractor with other funds.
Does the bank's security interest attach to the tractor?