VA Bar Creditors Rights 2 — Questions and Answers
Question 1: Under UCC Article 9, a security interest in equipment is perfected when the secured party files a financing statement in the correct office AND:
- The debtor has signed the security agreement
- The secured party has given value and the debtor has rights in the collateral (Correct answer)
- The collateral has been delivered to the secured party
- The debtor has received written notice of perfection
Correct answer: The secured party has given value and the debtor has rights in the collateral
Perfection requires attachment (value given, debtor has rights, security agreement) plus the perfection step such as filing.
Question 2: A purchase-money security interest (PMSI) in goods other than inventory or livestock has priority over a conflicting security interest if perfected:
- Before the financing statement covering the collateral is filed
- Within 20 days after the debtor receives possession of the collateral (Correct answer)
- Within 30 days after the security agreement is signed
- Simultaneously with the competing security interest
Correct answer: Within 20 days after the debtor receives possession of the collateral
UCC § 9-324(a) gives a PMSI in non-inventory goods superpriority if perfected within 20 days after delivery.
Question 3: Under UCC Article 9, which method of perfection is generally NOT available for a security interest in a negotiable instrument?
- Filing a financing statement
- Possession by the secured party
- Control
- Automatic perfection upon attachment (Correct answer)
Correct answer: Automatic perfection upon attachment
Negotiable instruments are perfected by filing or possession; automatic perfection does not apply to them.
Question 4: Debtor grants Bank A a security interest in all inventory on January 1 (unperfected). On February 1, Debtor grants Bank B a security interest in the same inventory and Bank B immediately files. Bank A files on March 1. Who has priority?
- Bank A, because its interest attached first
- Bank B, because it filed first (Correct answer)
- Both banks share equally
- Bank A, because it is the older creditor
Correct answer: Bank B, because it filed first
Under the first-to-file-or-perfect rule of UCC § 9-322, Bank B wins by filing first.
Question 5: Under Virginia law, a judgment lien on real property is created when:
- The court enters judgment against the debtor
- An abstract of judgment is recorded in the circuit court clerk's office where the land is located (Correct answer)
- The creditor serves a writ of execution on the sheriff
- The creditor obtains a writ of fieri facias
Correct answer: An abstract of judgment is recorded in the circuit court clerk's office where the land is located
In Virginia, a judgment lien on real estate attaches when the judgment is docketed in the circuit court where the property is located.
Question 6: A buyer in ordinary course of business takes collateral free of a security interest created by the seller even if the buyer knows the security interest exists, PROVIDED the buyer:
- Pays fair market value for the goods
- Buys from a person in the business of selling goods of that kind (Correct answer)
- Does not know the sale violates the security agreement
- Obtains a warranty of title from the seller
Correct answer: Buys from a person in the business of selling goods of that kind
UCC § 9-320(a) protects a buyer in ordinary course who buys from a seller in the business of selling that kind of goods.
Question 7: Under Article 9, 'proceeds' of collateral include all of the following EXCEPT:
- Insurance proceeds from damage to the collateral
- Whatever is acquired upon the sale of the collateral
- The original collateral itself after repossession (Correct answer)
- Rights arising out of the collateral
Correct answer: The original collateral itself after repossession
Proceeds are what is received upon disposition of the collateral; the collateral itself is not its own proceeds.
VA Bar Creditors Rights 2
Under UCC Article 9, a security interest in equipment is perfected when the secured party files a financing statement in the correct office AND: