KY Bar Secured Transactions 2

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?

Accepted Answer

Yes, because after-acquired property clauses are generally enforceable for equipment under UCC Article 9

Answer

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?

Accepted Answer

The financing statement is seriously misleading and therefore ineffective

Answer

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?

Accepted Answer

The neighbor, under the consumer-to-consumer (garage sale) exception of UCC § 9-320(b)

Answer

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?

Accepted Answer

Identifiable cash proceeds, perfected automatically as long as they remain identifiable

Answer

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?

Accepted Answer

Bank A, because priority among filed interests dates from the first to file or perfect

Answer

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.

(KY Bar) Kentucky Bar Exam Practice Test

(KY Bar) Kentucky Bar Exam Practice Test

KY Bar Secured Transactions 2