LA Bar Secured Transactions 3 — Questions and Answers
Question 1: A PMSI in inventory takes priority over an earlier perfected conflicting security interest in the same inventory ONLY IF the PMSI holder perfects before the debtor receives the inventory AND:
- Files a continuation statement within 60 days of the conflict arising
- Sends authenticated notification to the holder of the conflicting interest before the debtor receives possession (Correct answer)
- Obtains a subordination agreement from the prior secured party
- Registers the PMSI with the Secretary of State in a separate filing
Correct answer: Sends authenticated notification to the holder of the conflicting interest before the debtor receives possession
UCC 9-324(b) requires the inventory PMSI holder to both perfect before the debtor receives possession AND give authenticated notification to any competing secured party who has filed a financing statement covering the same inventory type.
Question 2: A buyer in ordinary course of business who buys goods from a merchant takes the goods:
- Subject to any perfected security interest in the inventory
- Free of a security interest created by the seller, even if the security interest is perfected and the buyer knows of it (Correct answer)
- Subject to all security interests unless the buyer has no knowledge of them
- Free of all security interests regardless of who created them
Correct answer: Free of a security interest created by the seller, even if the security interest is perfected and the buyer knows of it
UCC 9-320(a) protects buyers in ordinary course from security interests created by their seller, even when the security interest is perfected and the buyer has actual knowledge of it.
Question 3: When two perfected security interests conflict in the same collateral, the general priority rule under Article 9 awards priority to whichever secured party:
- First gave value to the debtor
- First filed a financing statement or first perfected, whichever occurred earlier (Correct answer)
- First attached their security interest to the collateral
- Holds the larger outstanding debt balance
Correct answer: First filed a financing statement or first perfected, whichever occurred earlier
Under UCC 9-322(a)(1), priority between conflicting perfected security interests is determined by which party first filed a financing statement or first perfected — whichever of those events happened first.
Question 4: A lien creditor (a judgment creditor who levied on collateral) has priority over a security interest that was in what state when the lien arose?
- Attached to the collateral but not yet perfected (Correct answer)
- Already perfected before the lien arose
- Agreed upon in an authenticated security agreement
- Based on a pre-existing debt predating the judgment
Correct answer: Attached to the collateral but not yet perfected
Under UCC 9-317(a)(2), a lien creditor defeats an unperfected security interest, so a security interest that has attached but not been perfected when the lien arises is subordinate to the lien creditor.
Question 5: A PMSI in equipment (goods other than inventory) takes priority over a conflicting earlier-perfected security interest if the PMSI is perfected:
- Before the debtor executes the security agreement
- When the debtor receives possession of the equipment or within 20 days thereafter (Correct answer)
- Within 30 days after the debtor receives the equipment
- At any point before the debtor defaults
Correct answer: When the debtor receives possession of the equipment or within 20 days thereafter
UCC 9-324(a) grants PMSI super-priority in non-inventory goods if the PMSI is perfected when the debtor receives possession or within 20 days after the debtor receives delivery.
Question 6: Under Article 9, an after-acquired property clause in a security agreement CANNOT capture which of the following?
- Equipment purchased two years after the security agreement was signed
- Inventory acquired six months after the security agreement was signed
- A commercial tort claim that arises after the security agreement was signed (Correct answer)
- Proceeds generated from the sale of collateral described in the security agreement
Correct answer: A commercial tort claim that arises after the security agreement was signed
UCC 9-204(b) expressly prohibits after-acquired property clauses from creating a security interest in commercial tort claims, which must be specifically identified at the time the security interest is created.
Question 7: When a seller and a lender (non-seller) both hold purchase money security interests in the same goods, which party takes priority?
- The lender's PMSI, because it provided the actual purchase funds to the debtor
- The seller's PMSI, which takes priority over a non-seller's PMSI in the same goods (Correct answer)
- Whichever party perfected their PMSI first in time
- Both interests are equal and share the collateral pro rata
Correct answer: The seller's PMSI, which takes priority over a non-seller's PMSI in the same goods
UCC 9-324(g)(1) gives super-priority to a seller's PMSI over any competing non-seller's PMSI in the same goods.
LA Bar Secured Transactions 3
A PMSI in inventory takes priority over an earlier perfected conflicting security interest in the same inventory ONLY IF the PMSI holder perfects before the debtor receives the inventory AND: