MI Bar Secured Transactions 3 — Questions and Answers
Question 1: A debtor signs a security agreement describing the collateral as "all of the debtor's assets." Is this description sufficient for attachment?
- No, a supergeneric description is insufficient in a security agreement (Correct answer)
- Yes, supergeneric descriptions are always sufficient
- Yes, but only for consumer transactions
- No, unless the agreement is notarized
Correct answer: No, a supergeneric description is insufficient in a security agreement
Under UCC 9-108(c), "all assets" is insufficient in a security agreement, though it is permitted in a financing statement under 9-504.
Question 2: A farmer buys a tractor from a dealer whose inventory is subject to a perfected security interest held by a floor-plan lender. The farmer buys in good faith in the ordinary course of the dealer's business. Does the farmer take free of the lender's interest?
- Yes, a buyer in ordinary course takes free of a security interest created by the seller (Correct answer)
- No, because the lender's interest was perfected
- No, unless the lender consented to the sale in writing
- Yes, but only if the farmer pays cash
Correct answer: Yes, a buyer in ordinary course takes free of a security interest created by the 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 known to the buyer.
Question 3: A secured party repossesses a debtor's delivery van after default by hiring a towing company that takes the van from a public street at night without confrontation. Was the repossession proper?
- Yes, because self-help repossession is permitted if there is no breach of the peace (Correct answer)
- No, because self-help repossession always requires judicial process
- No, because repossession at night is per se a breach of the peace
- Yes, but only if the debtor received prior written notice of repossession
Correct answer: Yes, because self-help repossession is permitted if there is no breach of the peace
Under UCC 9-609, a secured party may repossess without judicial process so long as it does not breach the peace.
Question 4: A security interest is perfected in a debtor's equipment in Michigan. The debtor, a registered Michigan LLC, reincorporates in Delaware. How long does the original perfection remain effective?
- Four months after the change of location (Correct answer)
- One year after the change of location
- It lapses immediately upon reincorporation
- It remains effective indefinitely
Correct answer: Four months after the change of location
Under UCC 9-316(a)(2), perfection continues for four months after the debtor's location changes to another jurisdiction.
Question 5: A lender with a perfected security interest in a debtor's inventory claims the cash the debtor received from selling that inventory. For how long is the lender's interest in the identifiable cash proceeds perfected?
- Continuously, because identifiable cash proceeds remain automatically perfected beyond 20 days (Correct answer)
- Only 20 days, after which perfection lapses
- Only until the debtor deposits the cash in a bank
- Never, because cash cannot be proceeds
Correct answer: Continuously, because identifiable cash proceeds remain automatically perfected beyond 20 days
Under UCC 9-315(d)(2), perfection continues in identifiable cash proceeds beyond the 20-day period without further action.
Question 6: A creditor perfects a security interest in a promissory note by taking possession of it. Another creditor had earlier perfected in the same note by filing. Under the UCC, who generally has priority?
- The possessory purchaser, if it gave value and took possession in good faith without knowledge of the violation (Correct answer)
- The filing creditor, because it perfected first
- Neither; instruments cannot serve as collateral
- The debtor's trustee in bankruptcy automatically wins
Correct answer: The possessory purchaser, if it gave value and took possession in good faith without knowledge of the violation
Under UCC 9-330(d), a purchaser of an instrument who takes possession in good faith, for value, and without knowledge generally beats a security interest perfected by filing.
Question 7: After default, a secured party sells repossessed equipment at a private sale to its own affiliate at a below-market price without notifying the debtor. Which duty has the secured party most clearly violated?
- The duty to conduct a commercially reasonable disposition and give notice (Correct answer)
- The duty to obtain a court order before any sale
- The duty to sell only at public auction
- No duty; a secured party may dispose of collateral however it chooses
Correct answer: The duty to conduct a commercially reasonable disposition and give notice
UCC 9-610 and 9-611 require every aspect of a disposition to be commercially reasonable and require reasonable notification to the debtor.
MI Bar Secured Transactions 3
A debtor signs a security agreement describing the collateral as "all of the debtor's assets." Is this description sufficient for attachment?