Secured Transactions - Priority Problems

Purchaser defaults on her contract to purchase a stereo system, upon which Best Buy has a perfected security interest. Best Buy repossesses and conducts a public sale, but fails to notify Purchaser in writing of the time and place of sale. The original cost of the stereo was $5,000, and Purchaser had paid $2,000 as down payment and signed a contract to pay $3,800 over three years (the $800 reflecting interest on the balance). What is the minimum amount of damages to which Purchaser is entitled?

$1,300 $1300 = finance charge [$800] + 10% [$500]

A creditor makes a loan to a business debtor secured by equipment. The debtor defaults, and the creditor repossesses the collateral and sells it for $6,000. Because the debt and expenses came to $10,000, the creditor seeks a deficiency of $4,000. The court finds that the sale was not commercially reasonable. At trial, the creditor proves by a preponderance of the evidence that in a commercially reasonable sale, the collateral would have sold for $8,000. How much is the creditor entitled to as a deficiency judgment against the debtor?

$2,000

Debtor buys a car from Seller for $12,000 that Debtor will use for personal purposes. Debtor promises to pay $300 per month for 60 months and grants Seller a security interest in the car. Debtor defaults. Seller repossesses the car and resells it, but in the process, Seller fails to comply completely with the requirements of Article 9. How much can Debtor recover from Seller under 9-625(c)(2)?

$7200 Car is Consumer goods $7200 = finance charge [$6000] + 10% [$1200]

For many years, Fidelity Finance has made secured loans only to businesses. But in an effort to expand its customer base, Fidelity has decided to make secured loans to consumers. Fidelity realistically expects some of its consumer debtors to default, after which Fidelity may sell, lease, or otherwise dispose of the collateral at a nonjudicial foreclosure. Fidelity knows that Article 9 normally requires the secured party to send notice of the disposition to the debtor and perhaps other parties. Fidelity intends to use its existing standard form of notice for businesses as a model for its "consumer goods" disposition notice. In doing so, Fidelity must amend its existing form to mention (A) the debtor's right to attend any public disposition and purchase the collateral. (B) the debtor's liability for any deficiency remaining after the foreclosure. (C) a description of the default. (D) the debtor's right to insist on a strict foreclosure.

(B) the debtor's liability for any deficiency remaining after the foreclosure Fidelity must tell them

Holland, a resident of Florida, purchased a mechanical harvester. The purchase was financed by Exchange Bank, which took a security interest in the harvester and properly filed. Two weeks later, Holland, without the permission of the bank and in violation of the security agreement, sold the harvester to CB&O Equipment in Iowa, which is in the business of selling farm equipment. One day later, Jarrett purchased the harvester from CB&O and took it to Montana. The bank discovered these facts. Can the bank repossess the harvester from Jarrett? (A) No, because Jarrett is a BIOC. (B) No, because the bank's security interest was not perfected, since it did not file in Iowa. (C) Yes, because the security interest was not created by Jarrett's seller. (D) No, because a reasonable buyer could not have checked the filings and found the security interest.

(C) Yes, because the security interest was not created by Jarrett's seller, CB&O, but rather in Holland (the seller's seller).

MegaBank's lawyer files the continuation statement ten days after the original filing has expired. The original filing remains in the public records, and the filing clerk records the continuation statement. Which statement is true? (A) MegaBank enjoys continuous and uninterrupted perfection because both the original filing and the continuation statement are in the public records and provide a searcher with the intended notice. (B) MegaBank enjoys continuous and uninterrupted perfection because the ten-day mistake falls within Article 9's statutory grace period applicable to untimely filed continuation statements. (C) MegaBank will enjoy continuous and uninterrupted perfection if it files a new financing statement no later than thirty days following the date on which the effectiveness of its original filing lapsed. (D) MegaBank does not have, and is unable to take any action that will result in, continuous and uninterrupted perfection.

(D) MegaBank does not have, and is unable to take any action that will result in, continuous and uninterrupted perfection.

Bank loaned Company $20,000, taking a security interest in all of Company's equipment. The security agreement contains a future advance clause. Bank filed a financing statement in the proper place. One year later, on May 2, the IRS filed a tax lien against Company. On May 10, Bank loaned Company another $20,000; Bank was unaware of the tax lien. 1. Does Bank have priority and, if so, in what amount? 2. Would your answer change if Bank learned of the tax lien on May 5?

1. Does Bank have priority and, if so, in what amount? bank - is within 45d and no knowledge 2. Would your answer change if Bank learned of the tax lien on May 5? IRS gets $20, then bank gets #20

On September 30, Jones sold a grandfather clock (worth $30,000) from his business office to Buyer. He failed to mentioned that all of his equipment (worth a total of $50,000) was subject to a perfected security interest in favor of Bank, which had loaned Jones $25,000. On October 10, Bank loaned Jones an additional $26,000 in accordance with the future advance clause of their security agreement. At that time, Bank was unaware of the sale to Buyer. 1. Does Bank's security interest continue in the clock after the sale? 2. If so, in what amount? 3. Would your answer to No. 2 change if Bank made the $26,000 advance on December 10? 4. Would your answer to No. 2 change if Bank was aware of the sale to Buyer at the time it made the October 10 advance?

1. Does Bank's security interest continue in the clock after the sale? Yes 2. If so, in what amount? $51k 3. Would your answer to No. 2 change if Bank made the $26,000 advance on December 10? Yes, only $25k 4. Would your answer to No. 2 change if Bank was aware of the sale to Buyer at the time it made the October 10 advance? $25k

On January 1, CreditorOne sells Consumer a car. Consumer promises to pay CreditorOne installments of $300 per month for five years. CreditorOne takes a security interest in the car but does not perfect. On February 1, CreditorTwo loans Consumer $10,000 and takes a security interest in the car. CreditorTwo does not perfect. On March 1, Consumer defaults as to both creditors. Whose claim to the car has priority? A. CreditorOne, because its security interest was first to attach. B. CreditorTwo , because CreditorOne's failure to file misled CreditorTwo into thinking there were no security interests in the car. C. Both have a claim that is prorated according to the amount of the debt. D. Neither has an enforceable security interest because they both failed to perfect.

A. CreditorOne, because its security interest was first to attach. When neither is a perfected party, first to attach wins.

Following a corporate debtor's default, Article 9 permits the secured party to A. Dispose of collateral, whether or not the secured party has possession of it. B. Dispose of collateral, but only if the secured party has a perfected security interest in it. C. Sue the debtor for breach of contract, but only if the secured party first exhausts its rights and remedies in the collateral. D. Propose keeping the collateral in exchange for forgiving all (but not less than all) of the unpaid secured debt.

A. Dispose of collateral, whether or not the secured party has possession of it - does not have to be a pledge

When Michelle buys a laptop, she pays an extra fee so that the computer arrives at her door with the latest version of Microsoft Word pre-installed. Under Article 9, the word processing program is considered: A. Goods B. Payment intangibles C. Instruments D. None of the above

A. Goods (software embedded in other goods is goods - separate is intangibles)

Alpha perfects its security interest by properly filing a financing statement on January 1, 2010. Alpha files a continuation statement on June 1, 2014. When will Alpha's financing statement expire? A. January 1, 2015 B. June 1, 2019 C. January 1, 2020 D. Never

A. January 1, 2015 The continuation statement was filed too early and is ineffective.

A creditor and debtor state in the security agreement, "On default, the secured party shall have the right to take possession of the collateral, even if such repossession involves a breach of the peace." Does this agreement violate Article 9? A. No, § 1-302 provides that the Code rules are default rules that the parties are free to vary by agreement. B. No, it does not expressly violate Article 9, but a jurisdiction would likely determine that the agreement was contrary to public policy. C. Yes, the parties may not waive or vary the rule on breach of the peace. D. Yes, and the creditor is subject to a $500 liability for including this language in the agreement.

C. Yes, the parties may not waive or vary the rule on breach of the peace. Breach of peace is designed to protect the public and cannot waive for 3rd parties

On January 15, Creditor 1 loans money to D and takes a security interest in all of D's equipment, now owned and after acquired. Creditor 1 immediately files. On February 1, Creditor 2 sells D on credit an X1 copier that D will use in its office and takes a security interest in the X1. Creditor 2 checks the filing system, finds the filing by Creditor 1, and immediately files. Which secured party has priority in the X1 copier? A. Creditor 1, because it was first to file or perfect. B. Creditor 1, because Creditor 2 had knowledge of its security interest in equipment. C. Creditor 2, because it was first to file or perfect. D. Creditor 2, because it has a PMSI that has obtained a super-priority.

D. Creditor 2, because it has a PMSI that has obtained a super-priority. Creditor 2 perfected the PMSI in equipment within 20d of debtor taking position

Royce defaults on a loan from Freyer National Bank, which holds a security interest in his 1994 Geo Metro. Freyer National Bank hires Lambert to repossess the Geo. Royce sees Lambert coming and protests "Please. Stop. Don't take my baby." Under what circumstance may Lambert take the car? A. Lambert waits until Royce falls asleep and takes the Geo from Royce's locked garage. B. Lambert puts his hand on his holstered .44 magnum, and Royce stops protesting once he notices Lambert's "Guns don't kill people, I kill people" T-Shirt. Lambert then takes the Geo. C. Lambert calls the house and pretends to be an emergency room doctor at a local hospital and tells Royce his sister is a patient receiving emergency care. When Royce leaves for the hospital, Lambert takes the Geo. D. The next day when Royce takes the car to work, Lambert takes the Geo from the parking garage without Royce knowing.

D. The next day when Royce takes the car to work, Lambert takes the Geo from the parking garage without Royce knowing.

Bank has loaned a widget seller money secured by seller's inventory of widgets. Bank has read credible reports of a serious downturn in the widget business, and it wants to demand additional security under the following clause in the security agreement: --Bank may accelerate payment or require additional collateral when it deems itself insecure.-- If the issue goes to court, what standard would a court apply in determining whether Bank was entitled to demand additional security? A. Whether the term in the security agreement was fairly negotiated. B. Whether a reasonable bank would have made the demand. C. Whether Bank honestly believed that the prospect of payment was impaired. D. Whether Bank honestly believed that the prospect of payment was impaired and a reasonable bank would have made the demand.

D. Whether Bank honestly believed that the prospect of payment was impaired and a reasonable bank would have made the demand - Requires both subjective and objective reasoning

Creditor loans Debtor $20,000 secured by Debtor's inventory. Debtor defaults, and Creditor repossesses the inventory. Creditor believes that the inventory is worth $15,000 and wishes to keep the inventory and reduce the debt owed by Debtor to $5,000. What must creditor do to accomplish this?

Give notice and allow opportunity for objection and MUST get consent in writing Creditor must send a letter to Debtor proposing to keep the inventory and reduce the debt to $5,000; Debtor must consent to the proposal in an authenticated writing.

Bank loaned money to Debtor on February 1, secured by Debtor's computer. Bank did not file a financing statement. Debtor files a bankruptcy petition on March 7. May Debtor now file a financing statement? A. Would your answer change if the loan was a PMSI and the computer—which was delivered to Debtor on March 1—is consumer goods? B. Would your answer change if the loan was a PMSI and the computer—which was delivered to Debtor on March 1—is business equipment?

No A. Would your answer change if PMSI in consumer goods? No... automatic perfection in PMSI in consumer goods B. Would your answer change if PMSI in business equipment? B. No... okay if within the 20d grace period within the bankruptcy code

Debtor bought $100 worth of groceries one day before filing bankruptcy. Is this a preference?

No, BIOC

Bank had a perfected security interest in Debtor's car. Debtor owed Bank $1,500 and the car is now worth $3,000. One day before filing bankruptcy, Debtor paid Bank $500 (reducing the loan amount to $1,000), which covered past-due payments. Is this a preference?

No, doesn't improve her position

Creditor loans Debtor $20,000 to remodel her kitchen and takes a security interest in Debtor's personal baseball card collection. Debtor defaults, and Creditor repossesses the baseball card collection. Creditor believes that the collection is worth $15,000 and wishes to keep the collection and reduce the debt owed by Debtor to $5,000. What must Creditor do to accomplish this?

Nothing... Partial strict foreclosure may not be used for consumer goods.

On January 1, O, the owner of a farm, gave a mortgage on the land to M, which M immediately recorded. On June 1, O gave a security interest in all crops growing on the farm to S. As between M and S, who has priority with regard to the crops?

S. Crops are goods, even when growing and do not belong to the real estate the grow on

To buy a new $10,000 sign for its company headquarters, Business Company borrowed the $5,000 down payment from Lending Company, giving it a PMSI in the sign for this amount, which Lending Company promptly perfected by filing. Business Company paid the $5,000 to Sign Seller, Inc., which then sold the sign to Business Company, agreeing to finance the remaining $5,000 and take a PMSI in the sign it sold. Sign Seller, Inc. perfected its PMSI by filing in the proper place one day after Lending Company filed. Between Lending Company and Sign Seller, who has priority?

Sign Seller. Even though both are PMSP, vendor beats lender.

Store borrowed money from Bank, giving Bank a security interest in Store's existing and after-acquired inventory. Bank filed a financing statement in the proper place. One year later, on June 15, the IRS filed a tax lien against Store in the proper place. Thereafter, Store received two shipments of new shoes: one on June 20 and one on September 25. Who has priority in these shipments?

June - Bank Sept - IRS

In exchange for a loan, ABC grants a security interest in all of the copiers it holds in inventory to Bank. ABC leases a copier to L in the ordinary course of ABC's business. ABC then defaults on its loan to Bank. Between Bank and L, who has priority in the copier?

Lessee

Two weeks before filing bankruptcy, Debtor paid her regular monthly phone and electric bills. Are these preferences?

No

Able, a real estate broker from Rhode Island, bought a new lawn tractor from Sears on May 2, 2009 for a price of $2,000 for use at his vacation home in Booneville, Missouri. Able granted Sears a purchase money security interest in the lawn tractor to secure his payment of the lawn tractor. Sears did not file a financing statement. At the end of summer, Able sold the lawn tractor to Cain, the manager of The Links Golf Course for use on the course, for a price of $1,000. Cain had no idea that the sale of the lawn tractor violated Sears' security interest. Does Cain take subject to Sears' security interest? A. No, because Cain is a buyer in ordinary course of business. B. Yes, because Sears' security interest was perfected and Cain purchased the lawn tractor for use on his golf course. C. Yes, because Cain bought a farm product. D. No, because Cain did not know the sale of the lawn tractor would violate the rights of Sears.

Yes, because Sears' security interest was perfected and Cain purchased the lawn tractor for use on his golf course. Neither BIOC or Garage Sale Exception

Bank had a perfected security interest in Debtor's inventory. On January 10, the inventory was worth $20,000. On April 10, when Debtor filed bankruptcy, the inventory was worth $25,000. The amount Debtor owed was constant throughout this period. Is there a preference?

Yes, by $5,000

Lawyer learned that one of her former clients was planning to file bankruptcy. Before filing, the client paid Lawyer $1,000 for past services rendered. The client files the petition 60 days later. Is this a preference?

Yes, lawyer is an interested party

Jimmy Jones wants to borrow money to invest in a new business venture. He has decided to approach his good friend, Al Alexander, the president of New Bank of Tennessee, for a loan. Unfortunately, Jimmy's only income is from social security benefits and he has no assets to use as security for a loan except for his bank account at Old Bank of Tennessee in the amount of $25,000 and a $1 million tort claim asserted in a lawsuit against Harry Walker that is pending in the Circuit Court of Hamblen County, Tennessee. The lawsuit against Walker relates to serious personal injuries Jimmy suffered in a rear end car collision the previous year. The lawsuit is scheduled to go to trial within three months and Jimmy has already been offered a settlement of $250,000, but he has rejected the offer. Jimmy needs a $50,000 loan for his proposed investment and is willing to grant New Bank a security interest in both his bank account at Old Bank and the tort claim against Walker. Alexander has consulted you about a proposed loan to Jimmy and has indicated that New Bank is comfortable with making the loan if New Bank can obtain a valid and perfected security interest in the Old Bank account and the tort claim. Assume that the funds in the Old Bank account did not come from Social Security benefits. Under Tennessee law, can a bank obtain a valid security interest in a tort claim? Under Tennessee law, can a bank obtain a valid security interest in a bank account maintained at another financial institution? Explain the legal basis for your answer.

(1) Under Tennessee law, New Bank may not obtain a valid UCC Article 9 security interest in the tort claim, but New Bank may obtain a valid Article 9 security interest in the bank account. Tort Claim. UCC Article 9 allows a creditor to take a security interest in a "commercial tort claim." A "commercial tort claim" is defined as (a) tort claims by businesses and (b) tort claims by individuals that are business-related and do not involve personal injury. Here, Jones' lawsuit is personal in nature and involves personal injuries. Thus, it may not be used as collateral under Article 9. Bank Account. UCC Article 9 allows a creditor to take a security interest in a "deposit account" (which includes checking and savings accounts), except where such accounts are used as collateral for a consumer transaction. Here, although the deposit account is a consumer account, Jones is borrowing money for "a new business venture," which is not a consumer transaction. Thus, the deposit account may be used as collateral under Article 9.

Jimmy Jones wants to borrow money to invest in a new business venture. He has decided to approach his good friend, Al Alexander, the president of New Bank of Tennessee, for a loan. Unfortunately, Jimmy's only income is from social security benefits and he has no assets to use as security for a loan except for his bank account at Old Bank of Tennessee in the amount of $25,000 and a $1 million tort claim asserted in a lawsuit against Harry Walker that is pending in the Circuit Court of Hamblen County, Tennessee. The lawsuit against Walker relates to serious personal injuries Jimmy suffered in a rear end car collision the previous year. The lawsuit is scheduled to go to trial within three months and Jimmy has already been offered a settlement of $250,000, but he has rejected the offer. Jimmy needs a $50,000 loan for his proposed investment and is willing to grant New Bank a security interest in both his bank account at Old Bank and the tort claim against Walker. Alexander has consulted you about a proposed loan to Jimmy and has indicated that New Bank is comfortable with making the loan if New Bank can obtain a valid and perfected security interest in the Old Bank account and the tort claim. Assume that the funds in the Old Bank account did not come from Social Security benefits. Assume, for purposes of this question, that Jimmy can grant New Bank a valid security interest in both the Old Bank account and the tort claim, what legal steps should New Bank follow to insure that it has a proper lien and that such lien is properly perfected? Please explain your answer in detail.

(2) Assuming Jones can grant New Bank a valid security interest in both the tort claim and the deposit account, First Bank must ensure that both security interests are "attached" and "perfected." Tort Claim. For a security interest to attach in the tort claim (assuming it is subject to Article 9), the creditor must obtain a security agreement authenticated by the debtor that describes the tort claim with specificity (i.e., general descriptions are insufficient for commercial tort claims). In addition, the debtor must have "rights" in the collateral, and the creditor must give "value" to the debtor. To perfect a security interest in a tort claim, the creditor must file a financing statement with the Secretary of State. Here, Jones has rights in the tort claim, as he is the plaintiff. New Bank is prepared to give value—the $50,000 loan. The final step for attachment, therefore, is a security agreement authenticated (e.g., signed) by Jones. To perfect the security interest, First Bank must file a financing statement with the Tennessee Secretary of State. Bank Account. For a security interest to attach in a deposit account, the creditor must obtain a security or control agreement authenticated by the debtor. In addition, the debtor must have "rights" in the collateral, and the creditor must give "value" to the debtor. To perfect a security interest in a deposit account, the creditor must obtain "control" over the bank account. Because the bank account is maintained at Old Bank, there are two ways New Bank can obtain control: (a) have Jones, New Bank, and Old Bank agree in an authenticated record (i.e., a "control agreement") that Old Bank will comply with New Bank's instructions directing disposition of the funds in the deposit account without further consent from Jones; or (b) have New Bank become the customer on the account at Old Bank in accordance with a security agreement between New Bank and Jones. Control of the account will satisfy both attachment and perfection. Here, Jones has rights in the deposit account, as it is his bank account. New Bank is prepared to give value—the $50,000 loan. The final step for attachment and perfection is for New Bank to obtain control over the deposit account. Either of the two methods of control identified in the preceding paragraph will suffice, but the preferred method is for New Bank to become the customer on the account.

Bank lends Debtor money and properly perfects a security interest in Debtor's inventory on March 1. On July 1, Seller sells Debtor new inventory and perfects and gives notice to Bank before Debtor receives the inventory. Debtor later sells on credit some of the inventory it purchased from Seller to Buyer. Buyer signs a promissory note to pay for the inventory. 1) Who has priority in the promissory note? 2) What if Debtor sold the inventory for cash? 3) What if Debtor sold the inventory to Buyer upon Buyer's oral promise to pay within 30 days?

1) Who has priority in the promissory note? Seller 2) What if Debtor sold the inventory for cash? Seller 3) What if Debtor sold the inventory to Buyer upon Buyer's oral promise to pay within 30 days? Bank, as first to file or perfect

Jimmy Jones wants to borrow money to invest in a new business venture. He has decided to approach his good friend, Al Alexander, the president of New Bank of Tennessee, for a loan. Unfortunately, Jimmy's only income is from social security benefits and he has no assets to use as security for a loan except for his bank account at Old Bank of Tennessee in the amount of $25,000 and a $1 million tort claim asserted in a lawsuit against Harry Walker that is pending in the Circuit Court of Hamblen County, Tennessee. The lawsuit against Walker relates to serious personal injuries Jimmy suffered in a rear end car collision the previous year. The lawsuit is scheduled to go to trial within three months and Jimmy has already been offered a settlement of $250,000, but he has rejected the offer. Jimmy needs a $50,000 loan for his proposed investment and is willing to grant New Bank a security interest in both his bank account at Old Bank and the tort claim against Walker. Alexander has consulted you about a proposed loan to Jimmy and has indicated that New Bank is comfortable with making the loan if New Bank can obtain a valid and perfected security interest in the Old Bank account and the tort claim. Assume that the funds in the Old Bank account did not come from Social Security benefits. If New Bank follows the procedures you recommend and Jimmy defaults on his obligations under the New Bank loan, which bank would have priority over the funds in the Old Bank account if Jimmy also owed Old Bank on a loan created a year earlier than the New Bank loan in which Jimmy pledged all accounts at Old Bank as security for the Old Bank loan.

(3) New Bank will have priority over the funds in the account at Old Bank if New Bank obtained control over the account by becoming the customer on the account, but Old Bank will have priority if New Bank obtained control of the account with a control agreement. If there are conflicting security interests in a deposit account, the following rules apply: (a) A secured party with control has priority over a secured party without control; and (b) If there are multiple secured parties with control, they rank according to the time of obtaining control, except that a security interest held by the bank where the deposit account is maintained has priority over a conflicting security interest held by another secured party, unless that other secured party obtained control over the deposit account by becoming the bank's customer on the account. Here, because the deposit account is maintained at Old Bank, Old Bank has a security interest in the account that is automatically perfected. Old Bank's security interest has priority over New Bank's conflicting security interest (regardless of timing), unless New Bank obtained control of the deposit account by becoming the customer on the account at Old Bank or Old Bank agreed to subordinate its security interest in the control agreement with New Bank and Jones.

First Bank took a security interest in the inventory of Sound City and perfected the security interest by filing. Tony is a lawyer who has been representing Sound City for several years. Sound City owed Tony $16,000 for legal services rendered in two employment discrimination suits. Tony agreed to accept a $14,000 sound system as partial payment, and Sound City installed the sound system in his home. On Sound City's default, is First Bank entitled to repossess the sound system from Tony? (A) Yes, because Tony is not a buyer in ordinary course. (B) Yes, because Tony did not act in good faith. (C) No, because the goods are consumer goods in the hands of Tony. (D) No, because Tony is a buyer from inventory.

(A) Yes, because Tony is not a buyer in ordinary course. One must give new value on purchase and pay in regular method for industry

Farmer Brown buys a "Model A irrigation system" and finances $100,000 of the purchase price with First Bank, giving the bank a security interest in the irrigation system. First Bank files a financing statement. Two years later, Brown trades his Model A system to Farmer Smith for a cheaper Model B system plus $10,000 in cash. After the sale, Farmer Brown stops making his payments to First Bank. Can the bank repossess the Model A system, which is now owned by Farmer Smith? (A) Yes, because a security interest is effective against purchasers. (B) Yes, because the purchaser had actual knowledge of the security interest. (C) No, because the bank did not perfect the security interest. (D) No, because Smith is not the debtor.

(A) Yes, because a security interest is effective against purchasers.

MegaBank will loan $5 million to Friendly Furniture Corp. (a corporation chartered under California law that operates furniture stores in Los Angeles and San Francisco, California; Las Vegas, Nevada; and Phoenix, Arizona). Repayment of the loan will be secured by all of Friendly's personal property, including accounts, inventory, equipment, chattel paper, instruments, documents, and general intangibles. The MegaBank loan officer asks its lawyer to determine whether any other parties have non-fixture security interests in the collateral. To be effective, the Megabank's financing statement must (A) provide the name of the secured party (Megabank). (B) describe the secured debt. (C) avoid using a super-generic collateral description (such as "all assets" or "all personal property"). (D) be filed in each state where Friendly maintains its inventory, equipment, and other tangible property.

(A) provide the name of the secured party (Megabank).

A filing officer records MegaBank's financing statement on August 12, 2010. The parties contemplate that Friendly will be making periodic loan payments through December 2018. MegaBank's lawyer anticipates filing a continuation statement sometime prior to Friendly's last loan payment. Which of the following would be the best date on which to file the continuation statement? (A) Any date after Friendly has paid more than 50% of the original principal amount of the loan. (B) March 6, 2015. (C) February 23, 2016. (D) July 20, 2016.

(B) March 6, 2015.

First Bank has a perfected security interest in the inventory of Bitterroot Motors. Mary purchases a car for her personal use from Bitterroot Motors on credit, and Bitterroot Motors takes a security interest in the car. Which of the following statements is true? (A) First Bank is a BIOC because it has a security interest in inventory. (B) Mary is a BIOC because she is buying from inventory. (C) Mary is a BIOC because she is buying for personal use. (D) Bitterroot Motors is a BIOC because it has a security interest in consumer goods.

(B) Mary is a BIOC because she is buying from inventory.

Farmer Brown buys a "Model A irrigation system" and finances $100,000 of the purchase price with First Bank, giving the bank a security interest in the irrigation system. The bank does not file a financing statement. Two years later, Brown trades his Model A system to Farmer Smith for a cheaper Model B system plus $10,000 in cash. During the negotiations for the sale, Smith asked Brown if the system had any liens on it. Brown replied, "yes, the bank took a security interest in it, but those fools were asleep in their Secured Transactions class, and they neglected to file a financing statement to perfect it." After the sale, Farmer Brown stops making his payments to First Bank. Can the bank repossess the Model A system, which is now owned by Farmer Smith? (A) Yes, because a security interest is always effective as against purchasers. (B) Yes, because the purchaser had knowledge of the security interest. (C) No, because the bank did not perfect the security interest. (D) No, because Smith is not the debtor.

(B) Yes, because the purchaser had knowledge of the security interest. For a buyer (except BIOC) knowledge of sec agreement kills exception

Alex Garza borrowed $15,000 from Essex Financing for the purpose of opening a restaurant. The loan is secured by an enforceable interest in Alex's personal and business assets. In addition to a central filing, Essex Financing should consider a county filing if (A) Alex, an individual, is the debtor. (B) the collateral includes the restaurant equipment. (C) Alex is married, and he and his wife maintain their primary residence in a community property state. (D) the collateral includes his personal automobile, on which Alex pays county property taxes each calendar year.

(B) the collateral includes the restaurant equipment. (fixtures are filed at the county level)

Bank One files and perfects a security interest in Debtor's inventory on June 1. Debtor sells a portion of its inventory in the ordinary course of business to Purchaser (such sale cutting off the security interest in the goods) on open account payable within 30 days. Debtor's accounts are subject to a security interest held by Bank Two, which had filed a financing statement with regard thereto on May 1. 1) Who has priority in Purchaser's account? 2) What if Bank One had filed on April 1?

1) Who has priority in Purchaser's account? Bank Two, as first to file or perfect 2) What if Bank One had filed on April 1? Bank One, as first to file or perfect

1. Deborah bought furniture for her home on credit from Friendly Furniture and granted Friendly a security interest in the furniture. Friendly did not file a financing statement, but its security agreement expressly prohibited Deborah from disposing of the furniture while it was subject to the security interest. Several months later, without Friendly's permission, Deborah sold the furniture at a yard sale to Brenda, who planned to use the furniture in her home. Friendly discovered these facts and insisted that Brenda surrender the furniture. Brenda refused. 1. In a dispute between Friendly and Brenda, does Brenda take free of Friendly's security interest? A. Yes, because Friendly's security interest was not perfected. B. Yes, even though Friendly's security interest was perfected. C. No, because Friendly's security interest was automatically perfected. D. No, because Deborah's sale violated the terms of her security agreement with Friendly. 2. Would your answer to No. 1 change if Friendly had filed a financing statement? 3. Would your answer to No. 1 change if, at the time of the sale, Deborah said to Brenda, "Friendly Furniture took a security interest in this furniture, but I checked, and they never filed it"?

1. B. Yes, even though Friendly's security interest was perfected, under the consumer-to-consumer Garage Sale Exception 2. No 3. Yes, because of knowledge of the security interest

Dealer borrowed money from Bank to finance the purchase of a stock of new cars and gave Bank a security interest in the new cars, which Bank perfected. Dealer then sold a car to Buyer for cash and chattel paper. Dealer then sold the chattel paper to Discount, who took possession of the chattel paper. Discount routinely buys chattel paper from Dealer and other car sellers. 1. Does Bank have a security interest in the car sold to Buyer? 2. Who has priority in the chattel paper? 3. Does Bank have a security interest in the cash received from Buyer? How long will that security continue to be perfected if Bank takes no action?

1. Does Bank have a security interest in the car sold to Buyer? No, Buyer is a BIOC 2. Who has priority in the chattel paper? Discount, as a purchaser of chattel paper that gave new value and took possession in the ordinary course of business 3. Does Bank have a security interest in the cash received from Buyer? How long will that security continue to be perfected if Bank takes no action? Yes; these are cash proceeds that are automatically perfected indefinitely.

First Bank loans Debtor $10,000 and takes a security interest in Debtor's machinery. The security agreement contains a "future advance" clause. First Bank files a financing statement in the proper place on January 1. On February 1, Debtor borrows money from Second Bank, which takes a non-PMSI security interest in the same machinery and files a financing statement on that day. On March 1, First Bank makes another loan to Debtor under the original security agreement. 1. Does First Bank have priority and, if so, does its priority extend to the March 1 loan? 2. Would your answer to No. 1 change if First Bank learned of the Second Bank loan on February 25? 3. If First Bank makes another advance of July 1, would its priority extend to this new advance?

1. Does First Bank have priority and, if so, does its priority extend to the March 1 loan? Yes... first to file 2. Would your answer to No. 1 change if First Bank learned of the Second Bank loan on February 25? No 3. If First Bank makes another advance of July 1, would its priority extend to this new advance? Yes, only way First Bank would lose is if they become unperfected

As security for a loan, Debtor delivers to Lender several bags of old silver coins. No financing statement is filed, but Lender signs a receipt for the coins, stating that they will be returned on repayment of the loan. 1. Does Lender have a perfected security interest in the coins? 2. Is Lender entitled to add insurance and storage costs to the amount of the loan and retain the coins until these are paid? 3. If the coins are stolen from Lender and insurance does not cover the full loss, who bears the loss? 4. If Lender fails to exercise reasonable care for the coins, does Lender lose the security interest?

1. Does Lender have a perfected security interest in the coins? Yes, with (oral) agreement and possession 2. Is Lender entitled to add insurance and storage costs to the amount of the loan and retain the coins until these are paid? Yes, UCC 9-207(b)(1) 3. If the coins are stolen from Lender and insurance does not cover the full loss, who bears the loss? Debtor (UCC 9-207(b)(2)), unless Debtor proves that Lender failed to use reasonable care (UCC 9-207(a)) 4. If Lender fails to exercise reasonable care for the coins, does Lender lose the security interest? No, unless no reasonable care, but Lender is liable for any losses

Painter, a professional artist, took two of her paintings (each valued at $1,500) down to the art department of Big Department Store and asked the manager if the store was interested in selling the paintings, taking a commission for doing so and remitting the excess to Painter. The store agreed, but shortly after receiving the paintings and before they were sold, Big Department Store defaulted on a loan to a creditor who had a security interest in the store's inventory. The secured creditor repossessed all of the inventory, including Painter's paintings. 1. Is Painter's consignment covered by Article 9? 2. Between Painter and the secured creditor, who has priority in the two paintings? 3. What advice would you have for Painter if she attempts such a consignment in the future?

1. Probably, not consumer goods, excess of $1k, and not a consignment shop 2. Creditor 3. Take steps to superpriority - file and give notice before delivery

LC secures a judgment against Debtor and has the sheriff seize the Debtor's property that is subject to Bank's security interest. 1. Ten days later, Bank loans Debtor more money, not knowing of the judicial lien. Does Bank have priority as to this future advance? 2. Same as No. 1, but Bank was aware of the judgment lien at the time it made the future advance. 3. Sixty days later, Bank loans Debtor more money, not knowing of the judicial lien. Does Bank have priority as to this future advance?

1. Ten days later... Bank (within 45d) 2. Ten days later, but Bank was aware of the judgment lien... Same 45d is blanket 3. Sixty days later... After 45d if didn't know

On January 1, Creditor A obtains a security interest in D's accounts (including after-acquired accounts) and properly perfects its security interest. On February 2, Creditor B obtains a security interest in D's inventory and properly perfects. On March 3, D sells inventory for cash and accounts. 1. Which creditor has priority in the accounts D acquired on March 3? 2. Would your answer to No. 1 change if Creditor B filed on December 1 of the prior year?

1. Which creditor has priority in the accounts D acquired on March 3? A, as first to file or perfect 2. Would your answer to No. 1 change if Creditor B filed on December 1 of the prior year? B, as first to file or perfect

On February 1, Bank loans D $10,000 and takes a security interest in D's equipment. On March 1, the IRS files a tax lien against D's business property in the proper place. On April 1, Bank files a financing statement in the proper place. 1. Who has priority? 2. Would your answer to No. 1 change if Bank filed the financing statement on February 15? 3. Would your answer to No. 1 change if Bank took possession of D's equipment prior to March 1?

1. Who has priority? IRS, was not a perfected secured parties at the time of the lien 2. Would your answer to No. 1 change if Bank filed the financing statement on February 15? Yes, it was prior perfected interest 3. Would your answer to No. 1 change if Bank took possession of D's equipment prior to March 1? Yes, this would be perfection by possession in equipment

On January 10, S lends D $10,000 and obtains a security interest in all of D's inventory. As of January 10, D's bank account has a $3,000 balance (not from proceeds). D then makes the following deposits and withdrawals: On January 13, D deposits $4,000 it received from the sale of inventory. On January 16, D withdraws $6,000 from the account for payroll, rent, and other expenses. On January 30, D deposits $9,000 from the sale of a vacant lot it owned. What is the extent of S's security interest in D's bank account under § 9-315(b)? A. $1,000. B. $3,000. C. $4,000. D. $7,000.

A. $1,000. - Lowest intermediate balance rule

On February 1, BAMCO sold a lawn tractor on credit to Joe Smith, an Atlanta resident, for use in Joe's lawn care business (a sole proprietorship). BAMCO retained a security interest in the tractor to secure payment of the unpaid purchase price and filed a financing statement in Georgia on February 4. The tractor is not subject to any certificate-of-title law. In April, Joe moved his family and lawn care business (including the tractor) to Birmingham, Alabama. In May, Joe sold the tractor to his neighbor, Billy, for personal use. Billy is unaware of the transaction between BAMCO and Joe. BAMCO soon discovers Joe's relocation and sale; both actions violated the terms of Joe's security agreement. BAMCO then brings a conversion action against Billy for the tractor. BAMCO has never filed any papers in Alabama. If the lawsuit is resolved as of June 1, then... A. BAMCO will win the dispute, because Joe's sale violated the terms of BAMCO's security agreement. B. Billy will win the dispute, because he is a buyer in the ordinary course of business. C. Billy will win the dispute, because he is using the tractor as a consumer good. D. Billy will win the dispute, because BAMCO's security interest was unperfected when Billy bought the tractor.

A. BAMCO will win the dispute, because Joe's sale violated the terms of BAMCO's security agreement. Billy doesn't fit any of the exceptions AND BAMCO has 4 mo. from the time of relocation to file.

ZinnMark Fashions operates several retail clothing stores. On May 1, Bank entered into a binding commitment to make advances to ZinnMark Fashions in an aggregate amount not to exceed $2 million. On that date, ZinnMark Fashions executed a security agreement in which it granted to Bank a security interest in all of its inventory, accounts receivable, and equipment. The security agreement included an after-acquired property clause and a future advance clause. Bank filed a proper financing statement with the appropriate official on May 8. Pursuant to its binding commitment, Bank made the following advances to ZinnMark Fashions (none of which have been repaid): DATE AMOUNT 5/8 $300,000 7/12 $200,000 8/3 $400,000 8/22 $100,000 9/9 $300,000 On July 1, the IRS assessed a $700,000 tax lien against ZinnMark Fashions. The IRS filed a tax lien notice with the appropriate officials on August 1. Bank discovered the tax lien notice on August 21. In a priority dispute concerning a shipment of dresses and shoes acquired by ZinnMark Fashions on September 7... A. Bank's security interest enjoys priority. B. The tax lien enjoys priority because the items are not "commercial financing security." C. The tax lien enjoys priority because ZinnMark Fashions acquired the items after Bank discovered the tax lien notice. D. The tax lien enjoys priority because ZinnMark Fashions acquired the items more than forty-five days after the IRS assessed the tax lien.

A. Bank's security interest enjoys priority. There is blanket protection for after-acquired collateral for 45d

MegaBank will loan $5 million to Friendly Furniture Corp. (a corporation chartered under California law that operates furniture stores in Los Angeles and San Francisco, California; Las Vegas, Nevada; and Phoenix, Arizona). Repayment of the loan will be secured by all of Friendly's personal property, including accounts, inventory, equipment, chattel paper, instruments, documents, and general intangibles. The MegaBank loan officer asks its lawyer to determine whether any other parties have non-fixture security interests in the collateral. In response, the lawyer should order a UCC search report against Friendly from the appropriate filing officer in (A) California only. (B) California, Nevada, and Arizona. (C) California and, if different, the state in which Friendly maintains its chief executive office. (D) California and, if different, the state in which its stores generate the greatest percentage of Friendly's gross sales revenues.

A. California only. Debtor's location (here corporate) - if fixtures/minerals, then in each county

American Bank, Customer (the debtor), and Creditor agree that American Bank will follow the instructions of Creditor (as well as those of Customer) as to the disposition of the contents of Customer's bank account. A. If Customer deposits cash proceeds belonging to some other secured party with an interest in the account, would Creditor have priority over these cash proceeds? B. If Customer takes out a loan from American Bank and fails to pay it, is American Bank's right of setoff against the account superior to the rights of Creditor? C. Would your answer to (B) change if Creditor achieved control by having the account placed only in Creditor's name?

A. Creditor (control beats filing) B. Yes C. Yes, if it's in creditor's name

On January 15, Creditor 1 loans money to D and takes a security interest in all of D's inventory, now owned and after acquired. Creditor 1 immediately files. On February 1, Creditor 2 sells D on credit an item that D puts in its inventory and takes a security interest in the item. After delivery of the item to D, Creditor 2 checks the filing system, finds the filing by Creditor 1, and immediately files. Which secured party has priority in the item? A. Creditor 1, because it was first to file or perfect. B. Creditor 1, because Creditor 2 had knowledge of its security interest in equipment. C. Creditor 2, because it was first to file or perfect. D. Creditor 2, because it has a PMSI that has obtained a super-priority.

A. Creditor 1, because it was first to file or perfect. Creditor 2 would have had to file BEFORE the debtor got delivery AND then would have had to have notice

D is seeking a $40,000 loan from CreditorOne. In the course of the negotiations, with D's consent, CreditorOne files a financing statement on January 4, 2003, indicating D's accounts as collateral. CreditorOne and D are unable to agree on terms, so no loan is made. On February 2, 2006, CreditorTwo lends D $50,000 and obtains and perfects a security interest in D's accounts. On March 1, 2006, CreditorOne lends D $40,000 and obtains a security interest in D's accounts. Which claim has priority? A. CreditorOne, because it was first to file or perfect. B. CreditorTwo, because it was first to file or perfect. C. CreditorTwo, because there was no other creditor with a security interest in D's accounts at the time of its transaction with D. D. CreditorTwo, because CreditorOne failed to file after the March 1, 2006, transaction.

A. CreditorOne, because it was first to file or perfect. When both are a perfected party, first to file or perfect wins.

Bruce buys a wall tapestry for use in his law office on credit from Gilmore Artworks for $8,000 on April 20. Gilmore Artworks retains an enforceable security interest in the tapestry and perfects its interest by filing a financing statement within two weeks after the sale. A few days later, Bruce contracts with Framed Again to make a frame, at a cost of $2,000, for the tapestry. Framed Again makes the frame, affixes it to the tapestry, and returns the finished product to Bruce on May 23. Framed Again retains a security interest in the frame and perfects its interest by filing a financing statement on June 15. Last week, Bruce filed a Bankruptcy petition, still owing $7,500 to Gilmore Artworks and $1,500 to Framed Again. The trustee has sold the framed tapestry (which had been hanging in Bruce's law office) for $6,500. The trustee should distribute: A. Nothing to Framed Again and $6,500 to Gilmore Artworks. B. $1,000 to Framed Again and $5,500 to Gilmore Artworks. C. $1,100 to Framed Again and $5,400 to Gilmore Artworks. D. $1,500 to Framed Again and $5,000 to Gilmore Artworks.

A. Nothing to Framed Again and $6,500 to Gilmore Artworks Because when competing security interests in accession and original goods regular priority applies Here Framed Again was PMSI more than 20d out and thus did not get superpriority

R has a mortgage on D's office building that is properly recorded. S loans D money, takes a non-PMSI security interest in the central air conditioning for the office, and immediately makes a fixture filing. Who has priority? A. R, because the general rule is that a mortgage interest has priority over a security interest in fixtures. B. R, because in order to obtain priority, S must file before loaning the money and must notify R. C. S, because the general rule is that a security interest in fixtures has priority over a mortgage interest. D. S, because there is an exception for PMSIs in fixtures that are timely filed.

A. R, because the general rule is that a mortgage interest has priority over a security interest in fixtures.

Debtor contracted to buy a couch for $600 on credit from Freddie's. The contract granted Freddie's a security interest in the couch. Debtor defaulted on his payments, and Freddie's wants to know if it can repossess the couch. The state statute on exempt property provides that "[a] judgment debtor is entitled to exemption from execution on the following property: (1) the judgment debtor's interest, to the extent of a value not exceeding $600 in any item of property, in household furnishings and goods." Would you advise Freddie's that it can repossess the couch? A. Yes, because repossession by a secured party is not execution against a judgment debtor. B. Yes, because the couch is not exempt property under the statute. C. No, because the statute specifically prohibits execution on household furnishings of that value. D. No, because Freddie's did not perfect its security interest

A. Yes, because repossession by a secured party is not execution against a judgment debtor - exemptions do not apply to Art. 9 sec. interests

First Bank takes a security interest in the crops of a farmer and files an Article 9 financing statement in the office of the Secretary of State. A representative from General Mills buys 50,000 bushels of wheat from the farmer. Based on the language of UCC § 9-320(a) and 7 U.S.C. § 1631(d), does General Mills take free of First Bank's security interest? A. Yes, because the Food Security Act so provides, and in a conflict between the Food Security Act and the UCC, the Food Security Act governs. B. Yes, because the UCC so provides, and in a conflict between the Food Security Act and the UCC, the UCC governs. C. No, because the UCC so provides, and in a conflict between the Food Security Act and the UCC, the UCC governs. D. No, because the Food Security Act so provides, and in a conflict between the Food Security Act and the UCC, the Food Security Act governs.

A. Yes, because the Food Security Act so provides, and in a conflict between the Food Security Act and the UCC, the Food Security Act governs.

Lender has an enforceable security interest in Debtor's current and future accounts. Last week, Debtor triggered a default. Lender wants to contact the account debtors and direct them to make payments to Lender (rather than Debtor) for application against the unpaid secured debt. Lender can do so A. but must proceed in a commercially reasonable manner. B. but must wait until Debtor has been in default for thirty consecutive calendar days. C. but only if its security interest is perfected. D. but only it its security interest is senior to all other security interests.

A. but must proceed in a commercially reasonable manner.

Consumer financed the purchase of a car through Credit Union, which held a perfected PMSI therein. The car broke down, and Consumer took it to Al's Repair Shop. Consumer failed to pay the repair bill, leaving the car at Al's. By state law, Al's has an "artisan's lien" in the car. Consumer then missed two payments to the Credit Union, which tried to repossess the car. Between Al's and Credit Union, who has priority?

Al, who still has possession

Which of the following examples of collateral is most likely to merit a fixture filing? A. Coal in the ground B. A large video screen that drops down from the ceiling of a church C. A grand piano that cannot be removed from its location without removing one or more doors and related door frames or, alternatively, disassembling the piano D. Daily revenues earned by a hotel for making its rooms available to travelers

B. A large video screen that drops down from the ceiling of a church

Dealer has repossessed Tim's car, which Tim had always driven primarily for personal use. The default that prompted Dealer's repossession was Tim's failure to make a $400 monthly payment. The loan papers included an acceleration clause. Dealer has taken all steps necessary to trigger the acceleration clause. As a result, Tim now owes $11,400. Tim's father, Robert, guaranteed repayment of the debt. Robert has contacted Dealer to discuss the possibility of redeeming the car. Which statement is true? A. Article 9 permits Tim, but not Robert, to redeem the car. B. Article 9 permits Robert to redeem the car, but the redemption price will be $11,400 (rather than $400) C. Article 9 usually permits Robert to redeem the car, but an exception bars Robert from exercising his redemption rights because the accelerated debt exceeds the statutory cap of $10,000. D. Article 9 usually permits Robert to redeem the car, but Robert will be contractually barred from exercising his redemption rights if he waived those rights in the security agreement or other loan paper.

B. Article 9 permits Robert to redeem the car, but the redemption price will be $11,400 (rather than $400)

Grappino Corporation ("GC"), chartered under Delaware law, owns and operates three wineries and related vineyards in the Sonoma Valley, north of San Francisco. Bay Area Bank holds a mortgage on the real estate and "all fixtures now or hereafter affixed thereto." The mortgage (which is not a construction mortgage) was filed in the local property records in January. On July 8, GC purchased four storage tanks on credit from BAMCO, with BAMCO retaining an enforceable security interest in the tanks. BAMCO delivered and installed the tanks (each a "fixture" under applicable law) on August 5. In November, GC defaulted on his obligations to Bay Area Bank and BAMCO. The two creditors are disputing whose property interest in the storage tanks enjoys priority. Assume that BAMCO exercises due care in removing the tanks under applicable law, but still causes damage of $6,000. In addition, the absence of the three tanks has caused GC's property to decrease in value by $36,000. Bay Area Bank and GC each contend that BAMCO owes $42,000 to it. Which statement is true? A. BAMCO owes $42,000 to Bay Area Bank, and nothing to GC. B. BAMCO owes $6,000 to Bay Area Bank, and nothing to GC. C. BAMCO owes $36,000 to Bay Area Bank, and $6,000 to GC. D. BAMCO owes nothing to Bay Area Bank, and $6,000 to GC.

B. BAMCO owes $6,000 to Bay Area Bank, and nothing to GC. Only need to pay for the damage

Jim's Friendly Car Dealership, Inc. ("Dealer") executed a security agreement granting Finance Company a security interest in "all of Dealer's present and after-acquired inventory." A proper financing statement evidencing this security interest was filed in the proper place. The financing statement listed the collateral as "all of Dealer's present and after-acquired inventory, accounts, instruments, and general intangibles." On June 1, Dealer sold a car to Joe Customer and Customer gave Dealer a check for the down-payment, a tangible note for the balance of the purchase price, and a tangible security agreement granting a security interest in the car to secure payment of the indebtedness evidenced by the note. At all relevant times Dealer retained possession of the check, the note and the security agreement, all of which are identifiable. On June 25, which of the following is true with respect to the note and accompanying security agreement executed by Customer? A. Finance Company has no security interest in the note and security agreement. B. Finance Company has a security interest in the note and security agreement, but it is not perfected. C. Finance Company has a perfected security interest in the note and accompanying security agreement. D. The note is "cash proceeds."

B. Finance Company has a security interest in the note and security agreement, but it is not perfected.

Debtor grants Bank a security interest in its current and after-acquired equipment. Bank intends to perfect its security interest by filing a financing statement with the applicable filing office. Bank is concerned that some of the equipment could be deemed a fixture, so Bank also intends to file a fixture filing. What additional requirement must the financing statement satisfy in order to be a fixture filing? A. It must be authenticated by the owner of the real estate on which the fixture is or may be located. B. It must provide a description of the real estate on which the fixture is or may be located. C. It must summarize the secured debt. D. It must describe, with detailed particularity, the equipment that is or may become a fixture.

B. It must provide a description of the real estate on which the fixture is or may be located (metes and bounds stuff, not street address)

Foxx Furniture operates three furniture stores in Atlanta. Last year, it borrowed $5 million from Peachtree Bank. The loan is secured by an enforceable security interest in Foxx Furniture's current and after-acquired inventory and accounts. Peachtree Bank filed its financing statement with the appropriate filing office within days after funding the loan. Two months ago, Foxx Furniture sold two sofas and three bookcases to an entity in exchange for a new photocopier and $1,000 cash. Three days later, Foxx Furniture took the cash and bought a new refrigerator for the employee lounge. Assuming that Peachtree Bank can satisfy any tracing burden, it has (as of today) A. A perfected security interest in the photocopier and the refrigerator. B. A perfected security interest in the photocopier and an unperfected security interest in the refrigerator. C. An unperfected security interest in the photocopier and the refrigerator. D. An unperfected security interest in the photocopier and no security interest in the refrigerator.

B. Perfected under "Same Office Rule" applies to photocopier (1st gen proceeds) but not refrigerator (2nd gen proceeds) but could perfect by filing

Sally gives her daughter a birthday gift of a new car on her daughter's sixteenth birthday. Two weeks later, when one of Sally's judgment creditors seeks to levy execution on the car to satisfy that creditor's judgment, A. Sally's daughter will retain possession of the car so long as it is titled in her name. B. The judgment creditor will prevail if it can show that Sally is not generally paying her debts as they become due, and Sally does not offer any additional evidence at trial. C. Sally's daughter will retain possession of the car if she (the daughter) can prove that she is solvent. D. The judgment creditor will prevail only if Sally did not file a financing statement against her daughter describing the car as collateral.

B. The judgment creditor will prevail if it can show that Sally is not generally paying her debts as they become due, and Sally does not offer any additional evidence at trial. (has to show this would render Sally insolvent and no fair market value)

Secured Party Finance Company's security interest in Dirk Debtor's car was perfected by notation on a certificate of title issued by State A. Debtor moved from State A to State B. No new certificate of title has been issued. More than four months have elapsed since Debtor moved to State B. The certificate of title is still effective under the law of State A. Which of the following statements is most accurate? A. The security interest has become unperfected. B. The law governing perfection is the law of State A. C. The law governing perfection is the law of State B. D. The security interest is deemed unperfected as against a bona fide purchaser for value.

B. The law governing perfection is the law of State A.

The following are examples of "accessions," except: A. The addition of two rear tires to a farm tractor that is subject to a pre-existing perfected security interest. B. The mixing of flour, water, eggs, and other ingredients to create a chocolate cake. C. The matting and framing of a law license that will be displayed on the wall of a lawyer's office. D. The sewing of decorative buttons onto a woman's jacket.

B. The mixing of flour, water, eggs, and other ingredients to create a chocolate cake. this is commingling

Vann's TV and Appliance wants to buy 100 big-screen TVs from Mitsubishi for $100,000. First Bank agrees to finance Vann's purchases of the TVs, and Vann's agrees to make payments over time that include interest. Vann's grants First Bank a security interest in its entire inventory. First Bank gives Vann's a check for $100,000 payable to Vann's and Mitsubishi, and Vann's uses that check to purchase the TVs. Does First Bank have a PMSI in the inventory of Vann's? A. Yes, in the entire inventory. B. Yes, but only in the 100 big-screen TVs. C. No, because First Bank did not sell the TVs to Vann's D. No, because the loan from First Bank was not used to acquire the TVs.

B. Yes, but only in the 100 big-screen TVs. This is a dual status question - Existing inventory would not be part of PMSI

Dealer sold a car on credit to Tim last year. To secure repayment of the purchase price, Dealer timely perfected a security interest in the car. Tim recently failed to make his monthly car payment to Dealer, triggering a default. Dealer wants to repossess the car without judicial process. In other words, Dealer wants to engage in a "self-help" repossession. To minimize the risk of incurring liability arising from the repossession of Tim's car, Dealer should A. include a provision in the security agreement that defines the behavior that will not trigger a breach of the peace. B. immediately cease any repossession in progress if Tim verbally objects. C. include a provision in the security agreement that waives any statutory duty imposed on Dealer to avoid breaching the peace. D. hire a third-party independent contractor (e.g. Repo Company) to perform the actual repossession.

B. immediately cease any repossession in progress if Tim verbally objects.

B perfects a security interest in $1,000 of raw cotton that it sells to Debtor. W perfects a security interest in $2,000 of raw wool that it sells to Debtor. Debtor spins the wool and cotton into a bolt of cloth worth $2,400. Do B and D have security interests in the cloth and, if so, in what amounts?

B= $800; W=$1600 (perfected before commingled and splits by ratio of investment)

Seller's "equipment" was subject to a perfected security interest in favor of Bank. Without the permission of Bank, Seller sold one of its computers to Buyer on credit. When the computer proved defective, Buyer used section 2-608 of the UCC to revoke its acceptance of the computer and then used section 2-711(3) to claim a security interest in the computer. Between Buyer and Bank, who has priority in the computer? Would your answer change if Buyer purchased the computer from Seller's inventory and Bank's security interest was in Seller's "inventory"?

Between Buyer and Bank... If Buyer keeps possession, then buyer Would your answer change... No, because if computer is from inventory, then buyer is BIOC and wins over Bank as the sec. interest gets cut off by being a sec. interest in inventory and inventory is sold

Bank held a perfected security interest in all of Clothing Store's inventory "now owned or after-acquired." Clothing Store, while insolvent, ordered new inventory from Seller, who failed to take a security interest in the merchandise it shipped to Clothing Store. The day the goods arrived, Seller learned of Clothing Store's insolvency and demanded return of the goods. Between Seller and Bank, who has priority in the new inventory? How could Seller have avoided this situation?

Between Seller and Bank, who has priority in the new inventory? Bank does. Sellers only do okay if no one else is involved How could Seller have avoided this situation? He could be a PMSI in inventory with a notice and filing ahead of delivery

First Bank has a mortgage on the real property of Debtor Law Firm. Second Bank took a security interest in the built-in bookcases on Debtor's premises. Assume that the bookcases are fixtures and that Second Bank has priority in the bookcases over First Bank and all other creditors. On Debtor's default, can Second Bank repossess the bookcases? A. Yes, but only if it can do so without damaging property in which First Bank has an interest. B. Yes, but it must pay Debtor and First Bank for any damage caused. C. Yes, but it must pay First Bank for any damage caused. D. No, under Article 9, but it may proceed pursuant to the real estate law of the jurisdiction.

C. Yes, but it must pay First Bank for any damage caused.

Bank loaned $2 million to Debtor on July 16. To secure repayment of the loan, Bank obtained a non-purchase-money security interest in Debtor's existing and future inventory under a security agreement executed by Debtor at the time of the loan. Bank filed a proper financing statement in the right place on July 18. Debtor filed a bankruptcy petition on October 1. Debtor had not repaid any of the loan, and its inventory (which turns over every fifteen days) had the following value on the stated dates: July 1 $2.1 million July 16 $1.7 million August 1 $1.6 million August 16 $1.5 million September 1 $1.5 million September 16 $1.6 million October 1 $1.8 million The bankruptcy trustee has attacked Bank's security interest in each item of inventory as a voidable preference and has proven all elements of its case under Bankruptcy Code § 547(b). Under the "floating lien" exception, Bank can preserve its security interest in inventory worth A. $1.5 million B. $1.6 million C. $1.7 million D. $1.8 million

C. $1.7M - this is the value at the time of the loan (loan was good because was filed within 30d of loan)

On January 10, S lends D $10,000 and obtains a security interest in all of D's inventory. As of January 10, D's bank account has a $3,000 balance (not from proceeds). D then makes the following deposits and withdrawals: On January 13, D deposits $9,000 from the sale of a vacant lot. On January 16, D deposits $4,000 from the sale of the inventory. On January 18, D withdraws $6,000 from the bank account for rent, payroll, and other expenses. What is the extent of S's security interest in D's bank account under § 9-315(b)? A. $1,000. B. $3,000. C. $4,000. D. $7,000.

C. $4,000. (Lowest intermediate balance rule)

Earlier this year, Farmer Smith sold garlic, rosemary, and other spices on credit to Pasta Company. The spices had a value of $1,000. Farmer Smith took and perfected a security interest in the spices by filing his financing statement before delivering the spices to Pasta Company. During the same month, Farmer Jones sold tomatoes on credit to Pasta Company. The tomatoes had a value of $2,000. Farmer Jones took a security interest in the tomatoes and perfected it by filing a financing statement after delivering the tomatoes to Pasta Company, but before the tomatoes became subject to any processing. Pasta Company used the spices and tomatoes to create several bottles of a popular pasta sauce used at several restaurants. Later, Pasta Company defaulted on its obligations to Farmer Smith and Farmer Jones when Smith's unpaid debt was $800 and Jones's unpaid debt was $1,200. A liquidator sold the bottles of pasta sauce for $1,500. The liquidator should distribute A. $800 to Farmer Smith if he filed first, and the remaining $700 to Farmer Jones. B. $1,200 to Farmer Jones if he filed first, and the remaining $300 to Farmer Smith. C. $500 to Farmer Smith and $1,000 to Farmer Jones. D. $600 to Farmer Smith and $900 to Farmer Jones. How would your analysis change if the liquidator sold the bottles of pasta sauce for $2,100?

C. $500 to Farmer Smith and $1,000 to Farmer Jones. How would your analysis change if the liquidator sold the bottles of pasta sauce for $2,100? Answer: Smith = $800; Jones = $1,200; Pasta Co. = $100

ZinnMark Fashions operates several retail clothing stores. On May 1, Bank entered into a binding commitment to make advances to ZinnMark Fashions in an aggregate amount not to exceed $2 million. On that date, ZinnMark Fashions executed a security agreement in which it granted to Bank a security interest in all of its inventory, accounts receivable, and equipment. The security agreement included an after-acquired property clause and a future advance clause. Bank filed a proper financing statement with the appropriate official on May 8. Pursuant to its binding commitment, Bank made the following advances to ZinnMark Fashions (none of which have been repaid): DATE AMOUNT 5/8 $300,000 7/12 $200,000 8/3 $400,000 8/22 $100,000 9/9 $300,000 On July 1, the IRS assessed a $700,000 tax lien against ZinnMark Fashions. The IRS filed a tax lien notice with the appropriate officials on August 1. Bank discovered the tax lien notice on August 21. Assuming that the type and value of collateral are adequate, the IRS lien will be subject to Bank's security interest that secures debt of A. $1,300,000 B. $1,000,000 C. $900,000 D. $500,000

C. $900,000 It was within 45d, but they had knowledge and should have made advances with knowledge

Grappino Corporation ("GC"), chartered under Delaware law, owns and operates three wineries and related vineyards in the Sonoma Valley, north of San Francisco. Bay Area Bank holds a mortgage on the real estate and "all fixtures now or hereafter affixed thereto." The mortgage (which is not a construction mortgage) was filed in the local property records in January. On July 8, GC purchased four storage tanks on credit from BAMCO, with BAMCO retaining an enforceable security interest in the tanks. BAMCO delivered and installed the tanks (each a "fixture" under applicable law) on August 5. In November, GC defaulted on his obligations to Bay Area Bank and BAMCO. The two creditors are disputing whose property interest in the storage tanks enjoys priority. Now that GC is in default, BAMCO wants to enforce its rights and remedies. Which statement is true? A. Because the tanks are fixtures, BAMCO's rights and remedies are provided by real estate law, rather than Article 9. B. Because the tanks are fixtures, BAMCO cannot remove the tanks (absent GC's consent). C. BAMCO can remove the tanks, but only if its security interest in the tanks enjoys priority over the claim asserted by Bay Area Bank. D. BAMCO cannot remove the tanks if GC has paid off more than 60% of the purchase-money debt associated with the tanks.

C. BAMCO can remove the tanks, but only if its security interest in the tanks enjoys priority over the claim asserted by Bay Area Bank.

Jim's Friendly Car Dealership, Inc. ("Dealer") executed a security agreement granting Finance Company a security interest in "all of Dealer's present and after-acquired inventory." A proper financing statement evidencing this security interest was filed in the proper place. The financing statement listed the collateral as "all of Dealer's present and after-acquired inventory, accounts, instruments, and general intangibles." On June 1, Dealer sold a car to Joe Customer and Customer gave Dealer a check for the down-payment, a tangible note for the balance of the purchase price, and a tangible security agreement granting a security interest in the car to secure payment of the indebtedness evidenced by the note. At all relevant times Dealer retained possession of the check, the note and the security agreement, all of which are identifiable. On June 5, which of the following is true regarding the check? A. Finance Company has no security interest in the check. B. Finance Company has a security interest in the check, but the security interest is not perfected. C. Finance Company has a perfected security interest in the check. D. The check is not "cash proceeds."

C. Finance Company has a perfected security interest in the check (automatic perfection in 20d grace period)

Grappino Corporation ("GC"), chartered under Delaware law, owns and operates three wineries and related vineyards in the Sonoma Valley, north of San Francisco. Bay Area Bank holds a mortgage on the real estate and "all fixtures now or hereafter affixed thereto." The mortgage (which is not a construction mortgage) was filed in the local property records in January. On July 8, GC purchased four storage tanks on credit from BAMCO, with BAMCO retaining an enforceable security interest in the tanks. BAMCO delivered and installed the tanks (each a "fixture" under applicable law) on August 5. In November, GC defaulted on his obligations to Bay Area Bank and BAMCO. The two creditors are disputing whose property interest in the storage tanks enjoys priority. Which statement is true? A. BAMCO has perfected its security interest in the tanks if it filed a standard financing statement with the central filing office in California on July 8. B. BAMCO will win the priority dispute with Bay Area Bank if BAMCO filed a standard financing statement on July 20. C. BAMCO will win the priority dispute with Bay Area Bank if BAMCO filed a fixture filing on August 23. D. BAMCO's security interest in the tanks is automatically perfected because BAMCO is a purchase-money creditor. Would your answer change if the dispute was between BAMCO and a lien creditor who levied on the real property and fixtures on August 25?

C. BAMCO will win the priority dispute with Bay Area Bank if BAMCO filed a fixture filing on August 23. The fixture filing must be within 20d from the installation of the fixture Would your answer change...? No. (A, B, OR C would win over (judicial) lien creditor)

On January 15, D buys an item of equipment from Creditor 1 on credit and grants Creditor 1 a security interest in his equipment. Creditor 1 delivers the equipment on January 18. Creditor 1, however, delays filing a financing statement until January 27. Meanwhile on January 22, D borrows from Creditor 2, which obtains a security interest in the same equipment. Creditor 2 perfects by filing a financing statement on January 22. Which security interest has priority in this item of equipment? A. Creditor 1, because it was first to file or perfect. B. Creditor 2, because it was first to file or perfect. C. Creditor 1, because it has a PMSI that has obtained a super-priority. D. Creditor 2, because Creditor 1 did not timely file to obtain a super-priority.

C. Creditor 1, because it has a PMSI that has obtained a super-priority. Creditor 1 has a perfected PMSI in equipment and is within 20d of debtor taking position

Creditor has a perfected security interest in ABC's computer. ABC takes the computer to ER Computers for repair. When ABC does not pay ER, ER says it is going to hold on to the computer under a state statute that provides for the following "mechanic's lien": "Every person who, while lawfully in possession of an article of personal property, renders any service to the owner or lawful claimant of the article by labor or skill employed for the making, repairing, protection, improvement, safekeeping, carriage, towing, or storage of the article or tows or stores that article as directed under authority of law has a special lien on it. The lien is dependent on possession and is for the compensation, if any, that is due to the person from the owner or lawful claimant for the service and for material, if any, furnished in connection with the service. The lien hereby created shall not take precedence over perfected security interests under the Uniform Commercial Code-Secured Transactions." While ER is holding the computer, ABC defaults as to Creditor. Who has priority as between Creditor and ER? A. Creditor, because Article 9 provides that secured creditors have priority over creditors with liens arising by operation of law. B. ER, because Article 9 provides that creditors with liens arising by operation of law have priority over secured creditors unless then lien statute provides otherwise, and here it is silent. C. Creditor, because Article 9 provides that liens arising by operation of law have priority unless the lien statute provides otherwise, and here it provides otherwise. D. ER, because public policy favors the creditor with a lien arising by operation of law, whose efforts made the collateral more valuable to the secured party.

C. Creditor, because Article 9 provides that liens arising by operation of law have priority unless the lien statute provides otherwise, and here it provides otherwise. Here there is an explicit clause in the statute that creates statutory lien subservience to UCC: "The lien hereby created shall not take precedence over perfected security interests under the Uniform Commercial Code-Secured Transactions"

On February 2, CreditorOne lends D $2,000 and obtains a security interest in D's existing equipment. On March 2, D seeks a loan from CreditorTwo. CreditorTwo asks D if he has granted anyone a security interest, and D responds, "Yes. I granted CreditorOne a security interest in equipment." CreditorTwo nevertheless lends D $2,000 and obtains a security interest in the same equipment. CreditorTwo files a financing statement on March 3. CreditorOne files its financing statement on April 2. Whose claim has priority? A. CreditorOne, because its security interest was first to attach. B. CreditorOne, because CreditorTwo had actual knowledge of the security interest of CreditorOne. C. CreditorTwo, because it was first to file or perfect. D. Both have a claim that is prorated according to the amount of the debt.

C. CreditorTwo, because it was first to file or perfect. When both are a perfected party, first to file or perfect wins.

Dealer sold a car on credit to Tim last year. To secure repayment of the purchase price, Dealer timely perfected a security interest in the car. Tim recently failed to make his monthly car payment to Dealer, triggering a default. Dealer wants to repossess the car without judicial process. In other words, Dealer wants to engage in a "self-help" repossession. Which statement is true? A. Dealer cannot engage in self-help repossession if the car is a consumer good B. Dealer cannot engage in self-help repossession unless Tim's past-due payments, and any accrued and unpaid interest thereon, exceed $2,000 C. Dealer can engage in self-help repossession, but it must avoid breaching the peace while doing so D. Dealer can engage in self-help repossession, but it must timely send an authenticated notice to Tim of Dealer's intent to do so

C. Dealer can engage in self-help repossession, but it must avoid breaching the peace while doing so

On June 1, Dealer sold a freezer on credit to Restaurant Corp. Under terms of the contract executed by both parties on that date, Dealer retained an enforceable security interest in the freezer to secure repayment of the purchase price. Dealer delivered the freezer to Restaurant on June 10. Dealer filed a proper financing statement with the appropriate official on June 18. Unbeknownst to Dealer, Restaurant had filed a Chapter 7 bankruptcy petition on June 12. Which statement is true? A. Dealer's interest in the freezer was automatically perfected as a purchase-money security interest. B. The freezer may be "exempt property" in the bankruptcy and thus is not subject to Dealer's security interest. C. Dealer did not violate the automatic stay by filing a post-petition financing statement. D. By filing its petition under Chapter 7, Restaurant is seeking reorganization.

C. Dealer did not violate the automatic stay by filing a post-petition financing statement which was within the 30d bankruptcy grace period

Jim's Friendly Car Dealership, Inc. ("Dealer") executed a security agreement granting Finance Company a security interest in "all of Dealer's present and after-acquired inventory." A proper financing statement evidencing this security interest was filed in the proper place. The financing statement listed the collateral as "all of Dealer's present and after-acquired inventory, accounts, instruments, and general intangibles." On June 1, Dealer sold a car to Joe Customer and Customer gave Dealer a check for the down-payment, a tangible note for the balance of the purchase price, and a tangible security agreement granting a security interest in the car to secure payment of the indebtedness evidenced by the note. At all relevant times Dealer retained possession of the check, the note and the security agreement, all of which are identifiable. On June 25, which of the following is true with respect to the check? A. Finance Company has no security interest in the check. B. Finance Company has a security interest in the check, but the security interest is not perfected. C. Finance Company has a perfected security interest in the check. D. Whether Finance Company has a perfected security interest in the check depends on whether it is a holder in due course.

C. Finance Company has a perfected security interest in the check.

An automobile dealership in this state has a Quonset hut-type building that it uses to store vehicles. The building is made of corrugated metal pieces bolted to a wooden framework. Is this building a fixture? A. Yes, under the Article 9 definition. B. No, under the Article 9 definition. C. It depends on the property law of the state. D. It depends on whether the automobile dealership considers it to be a fixture.

C. It depends on the property law of the state. Art 9 doesn't have a definition for "fixture"

Eight months ago, Sandra bought a dining room suite on credit from Friendly Furniture for everyday use in her home. To secure repayment of the purchase price, Friendly Furniture retained a security interest in the furniture. Friendly Furniture never filed a financing statement, but its security agreement expressly prohibited Sandra from disposing of the furniture or using it as collateral to secure any other debt. Two months ago, and without the permission of Friendly Furniture, Sandra sold the dining room suite. Friendly Furniture discovered the sale and has sued the buyer for conversion of its collateral. Friendly Furniture will... A. Lose the lawsuit because its security interest in the furniture was never perfected. B. Lose the lawsuit if the sale generated cash proceeds that remain identifiable. C. Lose the lawsuit if the buyer was a good faith purchaser, with no knowledge of Friendly Furniture's interest, who is using the dining room suite as a consumer good. D. Win the lawsuit. Assume that Friendly Furniture timely filed a financing statement against Sandra and the dining room suite at the time of her purchase. How would your analysis change under these revised facts?

C. Lose the lawsuit if the buyer was a good faith purchaser, with no knowledge of Friendly Furniture's interest, who is using the dining room suite as a consumer good. Consumer-to-consumer of consumer goods (Garage Sale Exception) How would your analysis change under these revised facts? Friendly could repossess

Debtor grants Creditor a security interest in Debtor's shares in Cisco Systems. Debtor does not have the certificates, but Debtor's ownership is recorded with its broker. What is the best way for Creditor to perfect its security interest? A. File a financing statement. B. Take possession of the shares. C. Make an agreement among the debtor, the secured party, and the broker regarding the secured party's control of the shares. D. Make an agreement among the debtor, the secured party, and Cisco Systems regarding the secured party's control of the shares.

C. Make an agreement among the debtor, the secured party, and the broker regarding the secured party's control of the shares.

Wholesaler Dealers, Inc. ("Wholesaler") sells merchandise to Retailer Department Store ("Retailer") on open account, resulting in an account of $1,500 due January 15. Wholesaler sells the account to Factor Finance Co. ("Factor") for $1,350. The account is a significant part of the outstanding accounts of Wholesaler and Factor frequently purchases accounts from Wholesaler. No financing statement is filed. If Wholesaler goes bankrupt on January 10, the account will belong to: A. Retailer. B. Wholesaler. C. The bankruptcy trustee. D. Factor.

C. The bankruptcy trustee since this would be an unperfected security interest

Meredith, an astronaut, borrowed $8,000 from Knight Finance and used the funds to purchase a chess set for personal use and display in her home. Meredith authenticated a security agreement, granting to Knight Finance an enforceable security interest in the chess set. Knight Finance did not file any financing statement. Two weeks later (and without the knowledge or consent of Knight Finance), Meredith sold the chess set to a merchant (for its inventory) for $10,000. Meredith promptly deposited the $10,000 into her checking account at Bishop Bank. Three days later, Meredith drew a check on this account for $12,000 to purchase a rare comic book. Six weeks have passed since Meredith sold the chess set to the collector. Knight Finance has discovered the unauthorized sale. Evidence reveals that Meredith's checking account had a $5,000 balance immediately before she deposited the $10,000. Following the deposit, the account balance has been as low as $0 and as high as $18,000. The current balance is $13,000. The merchant still holds the chess set, and Meredith still owns the rare comic book. And Meredith filed a bankruptcy petition this morning. In a priority dispute with the bankruptcy trustee (who will stipulate that the facts raise no voidable preferences), Knight Finance can assert a superior interest in A. The chess set, the comic book, and up to $10,000 in Meredith's checking account. B. The chess set and the comic book, but not any part of Meredith's checking account. C. The chess set, but not the comic book or any part of Meredith's checking account. D. Neither the chess set, the comic book, nor any part of Meredith's checking account.

C. The chess set, but not the comic book or any part of Meredith's checking account. The Chess set is automatic (PMSI) but the comic book loses on "Same Office Rule" because PMSI is not filed and the bank account fell to $0

Debtor was in default under a security agreement, and the agreement listed a small tractor as the collateral. At night, the tractor was kept on an open lot surrounded by a chain-link fence on debtor's property. The fence had a gate secured by a chain with a lock on it. The Repo Man went to the property in the middle of the night, when no one was present, cut the chain with the bolt cutters, opened the gate, and removed the tractor without incident. Is a court likely to consider this repossession to involve a "breach of the peace"? A. Yes, because Repo Man had to enter debtor's property. B. Yes, because Repo Man had to open a closed gate. C. Yes, because Repo Man had to cut through a chain to open the gate. D. No, because there was no potential for violence since no one was present

C. Yes, because Repo Man had to cut through a chain to open the gate.

Susan borrows $5,000 from Friendly Bank on January 1. She also signs a valid security agreement granting Friendly a security interest in her existing television set. She uses the loan funds to take a trip to Bermuda. Friendly Bank does not file a financing statement. Susan defaults on her loan on May 1, and Friendly accelerates the debt. Friendly sends one of its collection agents to Susan's house on May 15 to repossess the television set. Susan allows the person to come into her home to take the set. She does not object to the repossession in any way. The next day, on May 16, Friendly sells the television to one of its tellers for $2,500, which is the fair market value of the used set. On May 17, Susan files a Chapter 7 bankruptcy petition. Susan's trustee in bankruptcy demands the Friendly Bank give the trustee the $2,500 proceeds of the sale. Friendly Bank... A. can keep the $2.500. B. must pay the trustee the $2,500 because the trustee has the status of a lien creditor under state law. C. must pay the trustee the $2,500 because Friendly's repossession of the television set was a preference. D. must pay the trustee the $2,500 because it breached the peace by entering Susan's house to repossess the set.

C. must pay the trustee the $2,500 because Friendly's repossession of the television set was a preference. Bank was in line to get nothing, so they improved their possession

Zeina borrows $10,000 from Alaska Federal Credit Union (AFCU) to purchase a used car. Zeina granted AFCU a security interest in the car and used the $10,000 loan to purchase the car. Later, when Zeina left the U.S. for a 2-year teaching position in Saudi Arabia, she put the car into storage with JKL Wholesale & Storage (JKL). After one year in Saudi Arabia, Zeina stopped paying her storage rental fee and defaulted on the loan with AFCU. Assume that under state law, a common law possessory lien arises in favor of someone who provides storage services for which it is not paid. Which of the following is most likely to be true? A) AFCU's purchase-money security interest in the car is automatically perfected and thus has priority over JKL's lien. B) If Zeina also granted JKL a security interest in any personal property stored on the premises to secure unpaid storage fees, this security interest would displace JKL's possessory lien and JKL could no longer assert that possessory lien. C) If AFCU has the sheriff levy on the car before JKL obtains a judgment for the unpaid storage fees, AFCU will have first priority over JKL as to proceeds from the sale of the car, as the "first in time" lien creditor. D) If AFCU demands that JKL turn over possession of the car, JKL can properly refuse because JKL's lien has priority over AFCU's security interest.

D) If AFCU demands that JKL turn over possession of the car, JKL can properly refuse because JKL's lien has priority over AFCU's security interest. Possession is the key

Farmer Brown buys a "Model A irrigation system" and finances $100,000 of the purchase price with First Bank, giving the bank a perfected security interest in the irrigation system. Two years later, Brown trades his Model A system to Farmer Smith for a cheaper Model B system and $10,000 in cash. Brown buys a used Toyota with $5,000 of the cash and puts the rest into his bank account, which had no other money in it. Farmer Brown defaults on his payments to First Bank. Which of the following property secures the debt? I. The Model A system. II. The Model B system. III. The Toyota. IV. The cash in the bank. A. I only. B. I and II only. C. I, II, and IV only. D. I, II, III, and IV.

D. All of it - the security interest continues following sale as it is not BIOC or garage sale

On April 20, Needless Markup Department Store obtained a judgment against Danny Debtor on the overdue, unsecured charge account that he maintained with the store. Debtor was a sole proprietor. On May 1, Debtor borrowed $2,000 from Friendly Finance Company with a computer he used in his business to serve as collateral for the loan. Friendly insisted on taking possession of the computer to secure payment of the loan, and Debtor agreed (he had another computer he could use). On that same day, Debtor delivered the computer to Friendly and Friendly gave Debtor $2,000. On May 3, the levying officer demanded that Friendly Finance turn over Debtor's computer pursuant to a writ of execution that was issued on May 3 to enforce Needless Markup's judgment. In a contest between Needless Markup and Friendly Finance, who has priority over the computer? A. Needless Markup, provided that it lacked notice of Friendly Finance's security interest at the time of the levy. B. Needless Markup, regardless of notice of Friendly Finance's security interest. C. Friendly Finance, provided it lacked notice of Needless Markup's judgment against Debtor. D. Friendly Finance, regardless of notice of Needless Markup's judgment against Debtor.

D. Friendly Finance, regardless of notice of Needless Markup's judgment against Debtor. Doesn't matter what they know - perfected against judicial lien creditor wins

Bank has loaned unsecured money to Retailer, which still owes $700,000. Bank becomes nervous that Retailer is on the verge of bankruptcy, and sends a "notice of security interest" to Retailer, claiming a security interest in all inventory and equipment of Retailer. Retailer does not respond. Bank files a financing statement in the state's central filing office. When Retailer goes bankrupt, Bank A. Has a perfected security interest in the inventory but not the equipment. B. Has a perfected security interest in the equipment but not the inventory. C. Has a perfected security interest in both the equipment and the inventory. D. Has no security interest in either the equipment or the inventory.

D. Has no security interest in either the equipment or the inventory. Notice of a financing statement does not make a security agreement

Redbird Bank has a perfected security interest in the current and after-acquired inventory of Dealer, a merchant that sells baseball cards, autographed sporting goods, and other sports memorabilia. The security agreement permits Dealer to sell its goods to customers who pay with cash, a debit card, a credit card, or a check. Credit sales (excluding credit card transactions) are prohibited. Last week, Mickey bought two autographed baseballs from Dealer (which he intends to add to his collection that he displays at his law office). At Mickey's request, Dealer allowed him to pay by executing a negotiable, unsecured promissory note for the purchase price, payable in ninety days. After Redbird Bank discovered the transactions and its terms, it sued Mickey for conversion. Mickey responded by invoking the protection afforded by section 9-320(a) to buyers in the ordinary course of business. Mickey cannot be a buyer in the ordinary course of business... A. Because the sale violated Redbird Bank's security agreement. B. Because the baseballs are not inventory in Mickey's hands. C. If Mickey had actual knowledge of Redbird Bank's filing. D. If negotiable, unsecured promissory notes are not typical forms of payment for Dealer or the sports memorabilia industry.

D. If negotiable, unsecured promissory notes are not typical forms of payment for Dealer or the sports memorabilia industry. If unsecured promissory notes are not ordinary, then not a BIOC NOTE: remember that the fact that BIOC knows of a sec agreement is not at issue - one has to know it's a violation of the sec agreement (for other exceptions, knowledge of sec agreement kills exception)

On January 15, L obtains a $40,000 judgment against D Co. On February 2, S lends D Co. $20,000 and obtains a non-purchase money security interest in D Co.'s office equipment. On February 5, L tries to collect her $40,000 judgment against D Co. by having the sheriff levy on D Co.'s office equipment. S perfects its security interest by filing on February 7. Which party has priority? A. S, because a security interest always has priority over an execution lien. B. S, because a secured creditor with a PMSI has 20 days after the debtor receives delivery of the collateral to file. C. L, because an execution lien always has priority over a security interest D. L, because S's security interest was unperfected at the time of execution. Would your answer change if S had a PMSI in the office equipment, which was delivered to D Co. on February 2?

D. L, because S's security interest was unperfected at the time of execution. With an unperfected secured party v. a judicial lien creditor, the judicial lien creditor (including bankruptcy trustee) prevails Would your answer change if S had a PMSI in the office equipment, which was delivered to D Co. on February 2? Yes, due to the 20-d PMSI grace period If the secured creditor has a PMSI in the collateral and the security interest is unperfected at the time the judicial lien takes effect, the secured creditor will prevail over the lien creditor if it files a financing statement within 20 days (30 days in Tennessee) after the debtor receives delivery of the collateral.

ZinnMark is a Delaware corporation that operates three retail stores in Seattle, from which it sells and leases computers, photocopiers, and other office equipment to commercial and consumer customers. ZinnMark's current and after-acquired inventory is subject to a perfected security interest held by MegaBank. The security agreement prohibits asset dispositions, other than those in the ordinary course of ZinnMark's business. Two months ago, ZinnMark engaged in a routine cash sale of three photocopiers to a Seattle law firm (structured as a limited liability company organized under Washington law) for an aggregate sales price of $30,000. In a priority dispute between MegaBank and the law firm over the three photocopiers... A. MegaBank will lose because it never filed a financing statement in Washington, the state in which the law firm is located. B. MegaBank will win if the law firm had knowledge, before it purchased the photocopiers, of MegaBank's security interest. C. MegaBank will win if the law firm had knowledge, before it took possession of the photocopiers, of MegaBank's filing in Delaware. D. MegaBank will lose.

D. MegaBank will lose because the law firm is a BIOC

Millie lends Arthur, her next-door neighbor, $25,000. He gives her possession of his diamond ring as collateral for the loan. Which statement is true? A. Millie has no valid security interest in the ring because the parties did not enter into a written security agreement. B. Millie has no valid security interest in the ring because she has not filed a financing statement. C. Millie has an attached, unperfected security interest in the ring. D. Millie has an attached, perfected security interest in the ring.

D. Millie has an attached, perfected security interest in the ring.

Debtor financed his purchase of a truck with Bank. Debtor signed a security agreement granting Bank a security interest in the truck. Debtor also signed an installment note providing for 48 monthly payments, with each payment due on the first of the month. The security agreement expressly states that failure to make a payment on time is an event of default. Debtor almost never made a payment on time. Bank sent Debtor letters complaining about the late payments, but it accepted them. Debtor is now late again in making a payment, and Bank has had enough. Can Bank treat Debtor as being in default and repossess Debtor's truck? A. Yes, because Article 9 provides that failure to pay on time is an event of default. B. Yes, because the agreement provides that failure to pay on time is an event of default. C. No, because it is unconscionable to repossess property merely because of late payment. D. No, because Bank has waived its right to insist on strict performance of the contract.

D. No, because Bank has waived its right to insist on strict performance of the contract - even with letters, they accepted each time

Debtor is in default under its security agreement. Creditor hired a Repo Man to repossess the collateral, a car. The Repo Man saw the car parked in Debtor's driveway at 4 a.m.; no lights were on in the house. Using a key obtained by Creditor, the Repo Man entered the car, backed it out of the driveway, and was driving down the street when Debtor came running out of the house waving his arms. The Repo Man sped away leaving behind Debtor, who thought his car had been stolen. However, when he called the police, Debtor was told that the Repo Man had notified them that a repossession was in progress. Would a judge likely conclude there was a breach of the peace? A. Yes, because the Repo Man had to walk onto Debtor's property to get the car. B. Yes, because Debtor appeared on the scene during the repossession. C. Yes, because both A and B are breaches of the peace. D. No, because neither A nor B are breaches of the peace.

D. No, because neither A nor B are breaches of the peace (and Creditor was already in possession at the time of the Debtor putting up a resistance)

John loaned Mary $1,000 payable on October 1 and took a security interest (by written security agreement) in Mary's tickets to Red Sox games at Fenway Park. On October 2, Mary had not paid John, so he visited her office. She was not there, but she was expected back momentarily, so the receptionist, who knew John, allowed him to wait in Mary's office. On her desk, John spotted tickets to the World Series games at Fenway Park. He grabbed the tickets and left a note for Mary that said, "Ha Ha! I took the tickets. John." What is Mary's best claim against John? A. Mary was not in default. B. John did not give Mary notice before he took the tickets. C. John's taking of the tickets from Mary's office was a breach of the peace. D. None of the above is a good defense.

D. None of the above is a good defense.

Unless there are special circumstances, when the secured creditor sells the collateral under Article 9, the debtor is entitled to: A. Notice of the time and place of a public sale or a private sale. B. Notice of the time and place of a public sale but no notice of a private sale. C. Notice of the time and place of a private sale but no notice of a public sale. D. Notice of the time and place of a public sale and notice of the time after which a private sale is to be made.

D. Notice of the time and place of a public sale and notice of the time after which a private sale is to be made.

Dealer sends its agent (Repo Company) to Tim's house in the early morning hours to seize the car. Repo Company finds the car locked, and parked on Tim's driveway. Repo Company notices a set of golf clubs in the back seat and correctly assumes that the clubs are not part of Dealer's collateral. Which statement is true? A. Repo Company cannot repossess Tim's car while it is parked on private property. B. Repo Company cannot repossess Tim's car because its contents include personal items that are not part of Dealer's collateral. C. Repo Company can repossess the car and can refuse to return the golf clubs until Tim pays all past-due amounts on the car note. D. Repo Company can repossess the car but must make the golf clubs available to Tim as soon as reasonably possible following the completion of the repossession.

D. Repo Company can repossess the car but must make the golf clubs available to Tim as soon as reasonably possible following the completion of the repossession.

Van, a world renowned professional piano player, wanted to buy a new piano but did not have the $10,000 purchase price. He borrowed the money from his neighbor, Rocky, granting Rocky a security interest in the new piano. Rocky did not take any additional steps to perfect his security interest. Which of the following statements is most accurate? A. Rocky has a purchase money security interest only if Fingers bought the piano for use as a consumer good. B. Rocky is perfected. C. Rocky is perfected only if the loaned funds were actually used to buy the new piano. D. Rocky is perfected only if Fingers bought the piano for use as a consumer good and the loaned funds were actually used to buy the new piano.

D. Rocky is perfected only if Fingers bought the piano for use as a consumer good and the loaned funds were actually used to buy the new piano. Rocky is acting as a lender. But must be purchase-money AND money has to be used to purchase the new piano since Van is a professional and it may be equipment

Molly, a resident of Minneapolis, has hired Quality Contractors to install granite countertops and new cabinets and lighting in the kitchen of her vacation home in Phoenix. Quality Contractors is financing the remodeling on a secured basis. The countertops, cabinets, and lights will serve as collateral. Once installed, all of these items will be "fixtures" under local law. Quality Contractors... A. Has no reason to file a fixture filing because a PMSI is automatically perfected in the consumer goods. B. Has no reason to file a fixture filing because Article 9 excludes from its scope a security interest in residential fixtures. C. Should file a fixture filing in the appropriate Minnesota county. D. Should file a fixture filing in the appropriate Arizona county.

D. Should file a fixture filing in the appropriate Arizona county (the county where the fixture is located)

Sally bought a car for her personal use. She financed it with Drive Bank, giving it a valid and perfected security interest in the car to secure the deferred portion of the purchase price. Sally signed the note for the car, and the car is titled in Sally's name only. Sally then files a bankruptcy petition. Drive Bank may... A. Repossess the car so long as it complies with Article 9. B. Telephone Sally to demand payment. C. Commence a state court action for replevin on the car. D. Take none of these actions.

D. Take none of these actions.

Z stole an 1898D Liberty Head $5 Coin from W. On his way home, Z unknowingly dropped it on the ground. Fortune smiled on Y that day, because Y found it on his way home from work. A few days later, X loaned $500 to Y, who needed to paint his house. X created a security agreement, which contained this description of collateral: "goods, documents, instruments, general intangibles, chattel paper, accounts or contract rights" now owned, possessed or hereafter acquired by debtor. Unfortunately for X, Y never signed the agreement, so it wasn't authenticated. However, Y did hand over his new coin to X, which he recently had appraised and found to be worth about $300. Y's fortune did not hold up, as Y subsequently defaulted on his loan to X. At a later court proceeding, Y denied that X had an enforceable security interest. Which of the following is true? A. X does not have a valid security interest in the coin because Y never authenticated the agreement. B. X does not have a valid security interest in the coin because an old coin is "money" and does not fit within the categories in the security agreement's collateral description. C. X has a valid security interest in Y's interest in the coin. D. X does not have a valid security interest in the coin because Y had no power to transfer rights in the collateral.

D. X does not have a valid security interest in the coin because Y had no power to transfer rights in the collateral. Security agreement requires agreement, value, and debtor's rights in the collateral. Here the debtor had no rights.

R has a non-construction mortgage on D's office building that is properly recorded. S sells D a central air conditioning unit for the office building on credit, takes a security interest in the air conditioning equipment, and immediately makes a fixture filing. Does S's security interest have priority over R's mortgage? A. No, because the general rule is that a mortgage interest has priority over a security interest in fixtures. B. No, because in order to obtain priority, S must file before loaning the money and must notify R. C. Yes, because the general rule is that a security interest in fixtures has priority over a mortgage interest. D. Yes, because the general rule that a mortgage interest has priority over a security interest in fixtures has an exception for a PMSI in fixtures that is timely filed. Would your answer change if R has a construction mortgage and the air conditioning unit was installed prior to completion of the construction project?

D. Yes, because the general rule that a mortgage interest has priority over a security interest in fixtures has an exception for a PMSI in fixtures that is timely filed. Would your answer change...? Yes, because fixture installation is during construction

Part Six of Article 9 provides the secured party with specific rights and remedies following "default." For a definition of that term, the debtor and secured party should consult A. § 1-201 B. § 9-102 C. § 9-601 D. the security agreement

D. the security agreement (not in Art. 9)

Two years ago, Omega Bank loaned $1 million to Allegro Music Company ("AMC"), a Texas corporation that operates two retail stores in Dallas, from which it sells musical instruments, songbooks, and related items. The loan was secured by an enforceable security interest in AMC's inventory, equipment, and accounts. The security agreement included an after-acquired property clause and prohibited AMC from selling any unit of collateral, except for inventory sales to customers who paid with cash, a check, or a debit card. Omega Bank perfected its security interest by filing a financing statement within days after funding the loan. Six months ago, AMC sold a $35,000 harp to Ima (a Dallas resident). Ima executed a promissory note (an industry practice for such an expensive purchase), agreeing to make equal monthly payments for five years. Ima is a professional musician and will use the harp in a studio where she earns her livelihood by giving private lessons. Ima has no knowledge of the business relationship between Omega Bank and AMC. Two months ago, AMC sold some in-house computer equipment to Hewey Dell, an employee (and Dallas resident), for his personal use. Hewey was not aware of the business relationship between Omega Bank and AMC. In a priority dispute between Omega Bank and Ima over the harp... A. Omega Bank wins, because its security interest in the harp survived AMC's disposition of it. B. Omega Bank wins, because Ima is not using the harp as a consumer good. C. Ima wins, because she can invoke the protections afforded to a buyer in the ordinary course of business. D. Ima wins, unless Omega Bank files a new financing statement against her. In a priority dispute between Omega Bank and Hewey over the computer equipment... A. Hewey wins, because he is using the computer equipment as a consumer good. B. Hewey wins, because he is a buyer in the ordinary course of business. C. Omega Bank wins, because AMC's sale of the computer equipment violated the terms of its security agreement. D. Omega Bank wins, because Hewey is AMC's employee.

In a priority dispute between Omega Bank and Ima over the harp... C. Ima wins, because she can invoke the protections afforded to a buyer in the ordinary course of business. In a priority dispute between Omega Bank and Hewey over the computer equipment... C. Omega Bank wins, because AMC's sale of the computer equipment violated the terms of its security agreement.

On November 1, Bank loaned Debtor $5,000 to buy an office computer, making Debtor sign a security agreement. On December 15, Debtor bought the computer with the loan funds. Bank files a financing statement on January 10. Debtor files bankruptcy on January 20. Is this a preference? Would your answer change if the computer was purchased for use in the home?

No, it was perfected within 30d Would your answer change No, automatic perfection with consumer goods

Debtor defaulted on his secured auto loan, so Bank plans to repossess his car. Before Bank can repossess the car, Bank is notified that Debtor has filed bankruptcy. May Bank repossess the car without approval of the bankruptcy court?

No.

Debtor defaulted on his secured auto loan, so Bank repossessed his car and is preparing to sell it. While the car is still in Bank's possession, Bank is notified that Debtor has filed bankruptcy. May Bank sell the car?

No.

ABC, Inc. pledged all of its promissory notes to Bank. When one of the notes came due, ABC asked for it back from Bank so that ABC could present it to the maker for payment. Bank released the note to ABC, relying on the 20-day period of automatic perfection. Instead of presenting the promissory note for payment, ABC sold it to X, who qualifies as a holder in due course. As to that promissory note, who prevails between Bank and X?

X who is a holder in due course (equivalent to BIOC for intangibles)

On January 1, Lender loaned money to Debtor and took a security interest in Debtor's equipment. Due to carelessness, Lender did not file a financing statement until April 1. On June 1, Debtor filed bankruptcy. Is this a preference? Would your answer change if Lender filed its financing statement on January 25?

Yes.... Beyond the 30d window Would your answer... No, it is within the 30d window as a substantially contemporaneous exchange