Secured Transactions Flashcards

Under UCC Article 9, a security interest 'attaches' to collateral when which THREE elements are satisfied?

Answer: Value has been given, the debtor has rights in the collateral, and the debtor has authenticated a security agreement describing the collateral

UCC § 9-203 provides that a security interest attaches when: (1) value has been given by the secured party, (2) the debtor has rights in or the power to transfer rights in the collateral, and (3) the debtor has authenticated a security agreement that describes the collateral (or the secured party has taken possession or control). All three must be satisfied.

First Bank has a perfected security interest in Debtor's inventory. Second Bank later lends money and takes a purchase-money security interest (PMSI) in new inventory items Debtor acquires. Second Bank files a financing statement and notifies First Bank before Debtor receives the goods. Under UCC Article 9, which lender has priority in the new inventory?

Answer: Second Bank, because a PMSI in inventory has superpriority if properly perfected and First Bank is notified before debtor receives the goods

UCC § 9-324(b) grants a PMSI in inventory superpriority over a conflicting security interest if the PMSI holder (1) perfects before the debtor receives possession and (2) sends an authenticated notification to the prior secured party before the debtor receives the goods. Second Bank satisfied both conditions, so it prevails over First Bank's earlier perfected security interest.

A secured party perfects a security interest in a debtor's personal property by filing a financing statement. The financing statement is effective for:

Answer: 5 years from the date of filing, unless a continuation statement is filed

Under UCC § 9-515(a), a filed financing statement is effective for five years. To continue perfection beyond five years, the secured party must file a continuation statement within the six-month window before the five-year period expires (§ 9-515(d)). Without a timely continuation, the financing statement lapses and the security interest becomes unperfected.

Debtor grants Bank a security interest in a specific piece of equipment and Bank perfects by filing. Debtor later sells the equipment to a Buyer who gives value and takes delivery without knowledge of Bank's security interest. Under UCC Article 9, does Bank's security interest survive the sale?

Answer: Yes — a perfected security interest generally continues in collateral even after an authorized or unauthorized sale, unless an exception applies

Under UCC § 9-315(a)(1), a security interest continues in collateral notwithstanding a sale or other disposition unless the secured party authorized the disposition free of the security interest. Buyer's good faith and lack of knowledge are irrelevant when the interest is perfected and the sale was not authorized by Bank. Bank may also have a security interest in proceeds under § 9-315(a)(2).

Under UCC Article 9, the 'first to file or perfect' priority rule means that between two conflicting security interests in the same collateral, priority goes to the party who:

Answer: First filed a financing statement OR first perfected, whichever is earliest — even if the other steps had not yet occurred at that time

UCC § 9-322(a)(1) provides that conflicting perfected security interests rank according to priority in time of filing or perfection, whichever is earlier, even if the steps to completion (attachment) occurred later. A secured party who files first wins even if its interest has not yet attached, as long as it later attaches.

After a debtor defaults, a secured party who takes possession of collateral pursuant to UCC Article 9 must dispose of it in a 'commercially reasonable manner.' This requirement means the secured party must:

Answer: Conduct every aspect of the disposition — method, manner, time, place, and terms — in a commercially reasonable way, with reasonable notice to the debtor

UCC §§ 9-610 and 9-611 require that every aspect of the disposition (method, manner, time, place, and other terms) be commercially reasonable. The secured party must also send reasonable authenticated notification of the sale to the debtor and certain other parties. A specific minimum price or auction format is not required — commercial reasonableness is a flexible totality standard.