VA Bar Secured Transactions 3 — Questions and Answers
Question 1: Two unperfected security interests in the same collateral are in conflict. Which has priority under UCC Article 9?
- The security interest that attached first (Correct answer)
- The security interest held by the larger creditor
- Both interests share priority pro rata based on the amounts owed
- The security interest whose financing statement was filed first
Correct answer: The security interest that attached first
Under UCC § 9-322(a)(3), as between two unperfected security interests, priority goes to the one that first attached to the collateral.
Question 2: A PMSI in inventory obtains superpriority over a prior perfected security interest only if the PMSI holder:
- Perfects before the debtor receives the inventory AND sends written notice to prior secured parties before the debtor receives it (Correct answer)
- Perfects within 20 days after the debtor receives the inventory
- Files a financing statement before the prior secured party filed
- Obtains a judicial lien before the debtor's default
Correct answer: Perfects before the debtor receives the inventory AND sends written notice to prior secured parties before the debtor receives it
Under UCC § 9-324(b), inventory PMSI superpriority requires both pre-delivery perfection AND written notification sent to prior secured parties before the debtor receives the inventory.
Question 3: Bank holds a perfected 'all assets' security interest. Supplier sells equipment to Debtor on credit, retaining a PMSI, and perfects 15 days after Debtor receives the equipment. What is Supplier's priority as to the equipment?
- Supplier has priority because it perfected within the 20-day superpriority window (Correct answer)
- Bank has priority because its security interest was perfected first in time
- Supplier has priority only up to the unpaid purchase price, not the equipment's full value
- Bank and Supplier share priority equally as to the equipment
Correct answer: Supplier has priority because it perfected within the 20-day superpriority window
Under UCC § 9-324(a), a PMSI in non-inventory goods has superpriority over prior perfected security interests if perfected within 20 days of the debtor's receipt — Supplier's 15-day filing qualifies.
Question 4: Bank 1 files a financing statement covering Debtor's accounts in January but its security agreement is later discovered to be fatally defective. Bank 2 files a valid security interest in the same accounts in March. Who has priority?
- Bank 1, because it filed its financing statement first in January
- Bank 2, because Bank 1's security interest never attached due to the defective agreement (Correct answer)
- Bank 1, because filing establishes priority regardless of attachment
- Neither bank, because both claims are void once the defect is discovered
Correct answer: Bank 2, because Bank 1's security interest never attached due to the defective agreement
A fatally defective security agreement prevents attachment, so Bank 1 has no security interest despite its earlier filing, giving Bank 2 — with a valid interest — priority.
Question 5: A buyer in ordinary course of business takes collateral free of a security interest created by the seller. This protection applies even if:
- The buyer knows of the existence of the security interest at the time of purchase (Correct answer)
- The buyer does not give value for the goods
- The seller created the security interest after the date of sale
- The buyer purchases at an auction rather than from a retail establishment
Correct answer: The buyer knows of the existence of the security interest at the time of purchase
Under UCC § 9-320(a), a buyer in ordinary course of business takes free of security interests created by the seller even with knowledge that the security interest exists.
Question 6: A lien creditor (judgment creditor who has levied on collateral) has priority over a secured party when the secured party:
- Had a perfected security interest before the lien creditor acquired the lien
- Had a PMSI and perfected within 20 days of the debtor receiving the collateral
- Filed its financing statement after the lien creditor acquired the lien (Correct answer)
- Had possession of the collateral before the lien was obtained
Correct answer: Filed its financing statement after the lien creditor acquired the lien
A lien creditor defeats a secured party who first files or perfects after the lien creditor acquires its lien, because the lien creditor's rights relate back to the date of levy.
Question 7: Under UCC Article 9's 'first to file or perfect' priority rule, the party who files first has priority even if:
- The competing secured party had no actual knowledge of the first filing
- The first secured party had not yet given value at the time of filing
- The first party's security interest had not yet attached to the collateral when the financing statement was filed (Correct answer)
- Both security interests cover after-acquired property rather than existing collateral
Correct answer: The first party's security interest had not yet attached to the collateral when the financing statement was filed
Under the first-to-file-or-perfect rule in UCC § 9-322(a)(1), filing a financing statement establishes priority position even before the security interest has attached to the collateral.
VA Bar Secured Transactions 3
Two unperfected security interests in the same collateral are in conflict.
Which has priority under UCC Article 9?