UCC & Secured Transactions Flashcards

Under UCC Article 9, which of the following is the correct order of priority in a typical dispute over the same collateral?

Answer: Perfected security interest, lien creditor, unperfected security interest

Generally, a perfected security interest defeats a lien creditor (who defeats an unperfected security interest), unless the lien creditor became a lien creditor before perfection.

A buyer of goods in the ordinary course of business takes free of a security interest created by the seller. This rule is known as:

Answer: The buyer in ordinary course of business (BIOCOB) rule

UCC § 9-320 protects buyers in the ordinary course of business from security interests created by their seller, allowing commerce to flow freely without buyers being burdened by the seller's creditors' liens.

Under UCC Article 9, which of the following best defines 'attachment' of a security interest?

Answer: The process by which a security interest becomes enforceable against the debtor with respect to collateral

Attachment occurs when value is given, the debtor has rights in the collateral, and the debtor authenticates a security agreement (or the secured party takes possession), making the interest enforceable against the debtor.

A secured party who fails to file a termination statement within 20 days of the debtor's authenticated demand after the debt is paid is subject to:

Answer: Liability for $500 plus any actual damages suffered by the debtor

Under UCC § 9-625, a secured party who wrongfully fails to file a termination statement is liable to the debtor for a $500 statutory penalty plus any actual loss caused by the failure.

What is a 'dragnet clause' (also called an 'anaconda clause') in a security agreement?

Answer: A clause that extends a security interest to cover all present and future debts the debtor owes to the secured party

A dragnet clause sweeps in all obligations owed by the debtor to the secured party, past, present, and future, securing them all with the same collateral under one security agreement.

Under UCC Article 9, what is the 'automatic perfection' rule that applies to certain purchase money security interests?

Answer: A PMSI in consumer goods is perfected automatically upon attachment without filing

Under UCC § 9-309, a PMSI in consumer goods is automatically perfected upon attachment — no financing statement is required, though filing is still recommended to protect against certain buyers.

Which of the following scenarios describes a 'double debtor' problem under UCC Article 9?

Answer: A situation where a new debtor acquires collateral subject to an existing security interest and the original debtor remains liable

The double debtor problem arises when collateral transfers to a new owner who becomes a new debtor, raising questions about whether the original filing covers the collateral now in the new debtor's hands.