KY Bar Secured Transactions 3 — Questions and Answers
Question 1: A supplier sells restaurant ovens to a diner on credit, retaining a security interest, and files a financing statement 15 days after the diner receives the ovens. A bank had a prior perfected security interest in the diner's after-acquired equipment. Who has priority in the ovens?
- The bank, because its filing was first in time
- The supplier, because a PMSI in equipment filed within 20 days of delivery has superpriority (Correct answer)
- The bank, because PMSI superpriority applies only to inventory
- The supplier, but only if the bank consented in writing
Correct answer: The supplier, because a PMSI in equipment filed within 20 days of delivery has superpriority
Under UCC § 9-324(a), a PMSI in equipment takes priority over conflicting interests if perfected within 20 days after the debtor receives possession of the collateral.
Question 2: A lender wants to perfect a security interest in a debtor's checking account maintained at Third National Bank as original collateral. What is the only method of perfection?
- Control, such as becoming the bank's customer or obtaining a control agreement (Correct answer)
- Filing a financing statement describing the deposit account
- Taking possession of the debtor's checkbook
- Notation of the lien on the account statements
Correct answer: Control, such as becoming the bank's customer or obtaining a control agreement
Under UCC § 9-312(b)(1) and § 9-104, a security interest in a deposit account as original collateral can be perfected only by control.
Question 3: A Kentucky farm-supply store buys a used combine from a dealer whose inventory is subject to a perfected security interest held by a finance company. The store buys in the ordinary course of the dealer's business without knowledge that the sale violates the security agreement. Does the store take free of the security interest?
- No, because the finance company's interest was perfected by filing
- No, because buyers of farm equipment are excluded from BIOC protection
- Yes, but only if the finance company failed to file a continuation statement
- Yes, because a buyer in ordinary course of business takes free of a security interest created by its seller (Correct answer)
Correct answer: Yes, because a buyer in ordinary course of business takes free of a security interest created by its seller
Under UCC § 9-320(a), a buyer in ordinary course of business takes free of a security interest created by its seller even if perfected and even if the buyer knows the interest exists.
Question 4: A debtor's security agreement describes the collateral as "all of the debtor's assets." Is this description sufficient for attachment?
- Yes, because supergeneric descriptions are always sufficient in any Article 9 record
- Yes, as long as the debtor signed the agreement
- No, because a supergeneric description is insufficient in a security agreement, though it works in a financing statement (Correct answer)
- No, because security agreements must list each item of collateral individually by serial number
Correct answer: No, because a supergeneric description is insufficient in a security agreement, though it works in a financing statement
Under UCC § 9-108(c), "all assets" is not a sufficient collateral description in a security agreement, although § 9-504 permits it in a financing statement.
Question 5: A creditor holds a perfected security interest in a debtor's equipment. The debtor moves from Kentucky to Tennessee and, as an individual debtor, changes his principal residence. How long does the Kentucky filing remain effective for perfection?
- One year after the change in the debtor's location
- Four months after the change in the debtor's location (Correct answer)
- It remains effective until the original five-year filing lapses
- It becomes ineffective immediately upon the move
Correct answer: Four months after the change in the debtor's location
Under UCC § 9-316(a)(2), a security interest perfected in the debtor's former location remains perfected for four months after the debtor's location changes, after which the creditor must perfect in the new state.
Question 6: After repossessing a boat that secures a $30,000 consumer loan on which the debtor has paid $19,000 of the cash price, the secured party wishes to keep the boat in full satisfaction of the debt (strict foreclosure). May it do so?
- Yes, as long as the debtor does not object within 20 days
- Yes, because strict foreclosure is available for all collateral types without limitation
- No, because strict foreclosure was abolished by the 2010 amendments
- No, because in consumer goods transactions the secured party must sell the collateral once 60% of the cash price has been paid (Correct answer)
Correct answer: No, because in consumer goods transactions the secured party must sell the collateral once 60% of the cash price has been paid
Under UCC § 9-620(e), when a debtor has paid 60% of the cash price of consumer goods, the secured party must dispose of the collateral within 90 days rather than accept it in satisfaction.
Question 7: A creditor perfects a security interest in a debtor's negotiable promissory note by filing. Later, a purchaser takes possession of the same note for value. Who has priority?
- The possessory purchaser, because a purchaser of an instrument who takes possession in good faith has priority over an interest perfected by filing (Correct answer)
- The filing creditor, under the first-to-file-or-perfect rule
- The filing creditor, because instruments can only be perfected by filing
- Neither; priority in instruments is determined solely by Article 3 holder-in-due-course rules
Correct answer: The possessory purchaser, because a purchaser of an instrument who takes possession in good faith has priority over an interest perfected by filing
Under UCC § 9-330(d), a purchaser who takes possession of an instrument in good faith, for value, and without knowledge that the purchase violates the secured party's rights has priority over a security interest perfected by a method other than possession.
KY Bar Secured Transactions 3
A supplier sells restaurant ovens to a diner on credit, retaining a security interest, and files a financing statement 15 days after the diner receives the ovens.
A bank had a prior perfected security interest in the diner's after-acquired equipment.
Who has priority in the ovens?