MI Bar Secured Transactions 2 — Questions and Answers
Question 1: A bank lends money to a boutique and takes a security interest in "all inventory, now owned or hereafter acquired." The boutique later buys new dresses. Does the bank's security interest attach to the new dresses?
- Yes, because an after-acquired property clause is effective for inventory (Correct answer)
- No, because a security interest can only attach to collateral existing at the time of the agreement
- No, because after-acquired property clauses violate Article 9
- Yes, but only if the bank files a new financing statement for each shipment
Correct answer: Yes, because an after-acquired property clause is effective for inventory
Under UCC 9-204, after-acquired property clauses are generally enforceable, especially for inventory.
Question 2: A creditor files a financing statement listing the debtor as "Mike's Auto" when the debtor's registered organization name is "Michael's Automotive Repair, LLC." A standard search under the correct name does not retrieve the filing. What is the result?
- The financing statement is seriously misleading and ineffective (Correct answer)
- The financing statement is effective because the trade name is commonly used
- The financing statement is effective because minor errors are excused
- The financing statement is valid only against unsecured creditors
Correct answer: The financing statement is seriously misleading and ineffective
Under UCC 9-506, a name error is seriously misleading unless a search under the correct name using standard search logic would find the filing.
Question 3: A lender takes and perfects a purchase-money security interest (PMSI) in a restaurant's new oven by filing 15 days after the restaurant receives delivery. A judgment lien attached to the oven 5 days after delivery. Who prevails?
- The lender, because a PMSI filed within 20 days of delivery relates back to the delivery date (Correct answer)
- The lien creditor, because it attached before the lender filed
- The lien creditor, because PMSIs must be perfected before delivery
- The lender, but only if the lien creditor had actual knowledge of the PMSI
Correct answer: The lender, because a PMSI filed within 20 days of delivery relates back to the delivery date
Under UCC 9-317(e), a PMSI perfected by filing within 20 days after the debtor receives the collateral takes priority over intervening lien creditors.
Question 4: A secured party has a perfected security interest in a debtor's equipment. The debtor sells the equipment to a buyer without the secured party's authorization. Which statement is correct?
- The security interest continues in the equipment in the buyer's hands (Correct answer)
- The security interest is automatically cut off by any sale
- The security interest continues only if the buyer knew of it
- The security interest converts to an unsecured claim against the buyer
Correct answer: The security interest continues in the equipment in the buyer's hands
Under UCC 9-315(a), a security interest survives disposition of the collateral unless the secured party authorized the sale free of the interest.
Question 5: A consumer buys a refrigerator on credit from an appliance store, which retains a security interest. The store never files a financing statement. Is the store's interest perfected?
- Yes, because a PMSI in consumer goods is automatically perfected upon attachment (Correct answer)
- No, because filing is always required for goods
- No, because possession is the only way to perfect in consumer goods
- Yes, but only after the consumer makes the first payment
Correct answer: Yes, because a PMSI in consumer goods is automatically perfected upon attachment
Under UCC 9-309(1), a PMSI in consumer goods is perfected automatically upon attachment without filing.
Question 6: Two creditors have perfected security interests in the same equipment: Creditor A filed first but attached second; Creditor B attached first but filed second. Who has priority?
- Creditor A, because priority goes to the first to file or perfect (Correct answer)
- Creditor B, because attachment determines priority
- They share priority pro rata
- Creditor B, because possession-based rights trump filing
Correct answer: Creditor A, because priority goes to the first to file or perfect
Under UCC 9-322(a)(1), priority among perfected security interests goes to the first party to file or perfect, whichever is earlier.
Question 7: A debtor grants a security interest in a deposit account maintained at First Bank to Second Bank as lender. How can Second Bank perfect its interest in the deposit account as original collateral?
- Only by obtaining control, such as a control agreement with First Bank (Correct answer)
- By filing a financing statement covering deposit accounts
- By taking possession of the debtor's checkbook
- Automatic perfection applies to all deposit accounts
Correct answer: Only by obtaining control, such as a control agreement with First Bank
Under UCC 9-312(b)(1), a security interest in a deposit account as original collateral can be perfected only by control.
MI Bar Secured Transactions 2
A bank lends money to a boutique and takes a security interest in "all inventory, now owned or hereafter acquired." The boutique later buys new dresses.
Does the bank's security interest attach to the new dresses?