UCC Article 9 Secured Transaction Rules - CPA Reg

1. Under UCC Article 9, what is a 'fixture filing' and when is it required?
   Answer: A fixture filing is a financing statement filed in the real property records of the county where the fixtures are located; it is used to perfect a security interest in goods that have become (or are to become) fixtures, and it allows the secured party to have priority over real estate interests such as mortgagees in the fixtures. Fixtures are goods that have been attached to real property in such a way that a real property interest may arise. Under UCC Section 9-501(a)(1)(B) and 9-502(b), to perfect a security interest in fixtures, a secured party must file a 'fixture filing' - a financing statement that is filed in the office where a mortgage on the related real property would be filed (typically the county recorder or register of deeds). The fixture filing includes the legal description of the real property. This allows the secured party to take priority over conflicting real property interests (such as prior mortgagees who acquire an interest in the fixtures). Answer A is incorrect because fixture filing is about where to file, not whether to take possession. Answer B is incorrect because the SEC is not involved in Article 9 filings. Answer C is incorrect because accounts receivable are perfected by a regular filing, not a fixture filing.
2. No filing on a PMSI in consumer goods; a consumer sells for value to a buyer for consumer use with no knowledge.
   Answer: Is cut off by consumer buyer A PMSI in consumer goods is perfected automatically without filing, but that perfection doesn't protect against a later consumer buyer who buys for value and has no knowledge of the security interest. That buyer takes the goods free, cutting off the secured party's interest. The tempting 'stays perfected' answer confuses perfection with priority; perfection alone does not defeat this buyer.
3. Under UCC Article 9, how long is a filed financing statement effective, and what must the secured party do to maintain perfection?
   Answer: A financing statement is effective for five years from the date of filing; before expiration, the secured party must file a continuation statement to maintain perfection for an additional five-year period. Under UCC Section 9-515, a financing statement is effective for five years from the date of filing. To continue perfection beyond five years, the secured party must file a continuation statement within the six-month period before the expiration. A timely continuation statement extends perfection for another five years from the original expiration date. If the secured party fails to file a continuation statement, perfection lapses and the security interest becomes unperfected. Answer A is incorrect because a five-year renewal is available. Answer C is incorrect because the filing's effectiveness is based on time, not debt repayment. Answer D is incorrect because termination statements are filed after the debt is paid to clear the record.
4. Under UCC Article 9, certain security interests are automatically perfected without filing or taking possession. Which of the following is an example of automatic perfection?
   Answer: A purchase money security interest (PMSI) in consumer goods is automatically perfected upon attachment without any filing requirement. Under UCC Section 9-309(1), a PMSI in consumer goods is automatically perfected upon attachment without any filing or possession requirement. Consumer goods are goods used or bought for use primarily for personal, family, or household purposes. The rationale is that it would be impractical to require all retail installment sales of consumer goods to be filed. However, this automatic perfection does not protect against a subsequent buyer of consumer goods without knowledge of the security interest. Answer B is incorrect because attachment alone does not perfect most security interests. Answer C is incorrect because security interests in accounts receivable must generally be perfected by filing. Answer D is incorrect because the identity of the secured party does not affect perfection requirements.
5. A perfected inventory lender's debtor sells in ordinary course under loan terms; buyer knows of the lien.
   Answer: Free despite knowing lien A buyer in ordinary course of business takes inventory free of a perfected security interest created by the seller, even if the buyer knows the lien exists. Because the sale complies with the loan terms, knowledge of the lien alone does not subject the goods. The tempting error is treating notice of the lien as enough; it isn't unless the buyer knows the sale violates the lender's terms.
6. Bank perfects its equipment PMSI 25 days after delivery. Prior perfected blanket lien exists.
   Answer: Perfected; prior lien wins For an equipment PMSI, perfection comes from filing, but priority over an earlier blanket lien depends on filing within 20 days after delivery. At 25 days, the PMSI is perfected yet subordinate to the prior perfected lien. The tempting wrong answer treats the missed 20-day deadline as making the PMSI unperfected; it doesn't - it just costs priority.
7. Under UCC Article 9, what is 'perfection' of a security interest and why is it important?
   Answer: Perfection makes the security interest enforceable against third parties (such as other creditors, lien creditors, and a bankruptcy trustee) by putting the world on notice of the secured party's interest; it establishes priority over competing claims. Perfection under UCC Article 9 is the process by which a secured party makes its security interest effective against third parties. An attached security interest is enforceable against the debtor, but without perfection, the secured party may lose to competing creditors, lien creditors, or a bankruptcy trustee. Perfection methods include filing a financing statement, taking possession of collateral, or taking control of certain types of collateral. Perfection establishes priority in case of the debtor's default, bankruptcy, or competing claims. Answer A incorrectly conflates perfection with attachment (which makes the interest enforceable against the debtor). Answer C is incorrect because perfection requires additional steps beyond signing. Answer D is incorrect because there is no dollar threshold.
8. Under UCC Section 9-307, where must a financing statement be filed to perfect a security interest in most goods owned by a debtor that is a registered organization (such as a corporation or LLC)?
   Answer: In the state where the debtor is organized (incorporated or formed), regardless of where the collateral is located. Under UCC Section 9-307(e), a registered organization (such as a corporation, LLC, or limited partnership) is located in the state under whose law it is organized. Therefore, financing statements for collateral owned by a registered organization must be filed in that state's central filing office, regardless of where the collateral is physically located. This single-state filing rule simplifies perfection for lenders dealing with corporations that have assets in multiple states. Answer A is incorrect because the debtor's location, not collateral location, determines where to file for registered organizations. Answer C is incorrect because the secured party's location is irrelevant. Answer D is incorrect because a single filing in the state of organization suffices.
9. Under UCC Article 9, which of the following types of collateral may be perfected by possession?
   Answer: Tangible collateral such as goods, instruments (promissory notes), negotiable documents, and certificated securities may be perfected by the secured party taking possession of the collateral. Under UCC Section 9-313, a security interest in tangible collateral may be perfected by possession. Types of collateral that can be perfected by possession include: goods, instruments (including promissory notes), negotiable documents of title, and certificated securities. For some collateral types (such as instruments), possession is actually a preferred method over filing because of the priority rules. Answer B is incorrect because Article 9 does not apply to real estate mortgages. Answer C is incorrect because electronic chattel paper is perfected by control, not possession; deposit accounts are also perfected by control. Answer D is incorrect because accounts receivable and general intangibles are intangible property that cannot be possessed; they are typically perfected by filing.
10. Under UCC Article 9, what is a 'security agreement' and what must it contain to be effective?
    Answer: A security agreement is an authenticated agreement that creates or provides for a security interest; it must contain a description of the collateral sufficient to reasonably identify it. Under UCC Section 9-203, the security agreement is the contract between the debtor and secured party that creates the security interest. To be effective, it must be: (1) authenticated by the debtor (signed or electronic authentication); and (2) contain a description of the collateral. The description must reasonably identify the collateral - specific descriptions ('the 2023 John Deere tractor') or generic descriptions ('all inventory') may be sufficient depending on the collateral type. Answer A confuses the security agreement with a financing statement (they are different documents). Answer B is incorrect because a promissory note alone does not create a security interest in collateral. Answer D is incorrect because notarization and county recording are not required for an Article 9 security agreement.
11. Under UCC Article 9, what is a 'floating lien' and what types of collateral does it typically cover?
    Answer: A floating lien is a security interest that covers a changing pool of assets (such as inventory, accounts receivable, or proceeds), with new assets automatically becoming subject to the lien as they are acquired by the debtor through after-acquired property clauses. A floating lien is a security interest that covers a constantly changing pool of collateral - typically inventory, accounts receivable, and proceeds. Under UCC Section 9-204, a security agreement may include an after-acquired property clause, covering collateral acquired after the security agreement is signed. As new inventory is purchased or new accounts are generated, they automatically become subject to the security interest. One financing statement covers all such after-acquired collateral. Answer A is incorrect because a floating lien covers after-acquired property. Answer C describes real estate fluctuations, not a UCC concept. Answer D is incorrect because one financing statement suffices for a floating lien.
12. Under UCC Section 9-324, what additional requirement applies to a PMSI in inventory (as compared to a PMSI in other goods) to obtain super-priority?
    Answer: A PMSI in inventory must be perfected before the debtor receives the inventory AND the PMSI holder must send an authenticated notification to prior secured parties with a conflicting interest in the same inventory before the debtor receives the inventory. Under UCC Section 9-324(b), a PMSI in inventory achieves super-priority only if: (1) the PMSI is perfected before the debtor receives possession of the inventory; AND (2) the PMSI holder gives authenticated notification to any holder of a conflicting security interest in the same inventory before the debtor receives possession. The notification must state that the PMSI holder has or expects to acquire a PMSI in described inventory. This requirement protects existing accounts receivable lenders who rely on inventory as collateral - they are warned about new inventory financing. Answer B describes the rule for non-inventory goods, not inventory. Answer C is incorrect because additional requirements apply. Answer D is incorrect because no court order is required.
13. Under UCC Section 9-320, a buyer in the ordinary course of business (BOCB) takes goods free of a security interest created by the seller. Which of the following correctly describes a BOCB?
    Answer: A person who buys goods in good faith, without knowledge that the sale violates a third party's security interest, from a seller who deals in goods of that kind in the ordinary course of the seller's business. Under UCC Section 9-320(a), a buyer in the ordinary course of business takes free of a security interest created by the seller, even if the security interest is perfected and the buyer knows of its existence, as long as the buyer does not know that the purchase violates the security agreement. A BOCB must: (1) buy from a seller who is in the business of selling goods of that kind; (2) buy in good faith; and (3) not know that the sale violates the security interest. This rule protects retail customers who buy from merchants (protecting the normal flow of commerce). Answer A is incorrect because cash payment alone is insufficient. Answer B is incorrect because bankruptcy auctions are not in the ordinary course. Answer C is incorrect because the seller must be the debtor who created the security interest.
14. Under UCC Article 9, when collateral is sold, what happens to the security interest, and what are 'proceeds'?
    Answer: The security interest continues in whatever the debtor receives from the disposition of collateral (proceeds); the security interest in proceeds is automatically perfected for 20 days; after 20 days, perfection continues without a new filing if (1) the filed financing statement covers the original collateral and the proceeds are collateral that can be perfected by filing in the same office, or (2) the proceeds are identifiable cash proceeds. Under UCC Section 9-315, when collateral is disposed of, the security interest continues in identifiable proceeds. Proceeds include whatever is received upon the sale, exchange, collection, or other disposition of collateral - cash, checks, accounts, other property. Under Section 9-315(d), the security interest in proceeds is automatically perfected for 20 days. After 20 days, perfection continues without a new filing if: (1) a filed financing statement covers the original collateral and the proceeds are collateral in which a security interest may be perfected by filing in the same office; or (2) the proceeds are identifiable cash proceeds. Answer A is incorrect because the interest continues in proceeds. Answer B too narrowly limits proceeds to cash. Answer D describes what happens to a buyer who takes free of the security interest under Section 9-320, which is a different rule.
15. Under UCC Article 9, the primary method of perfection for most types of collateral is filing a financing statement. Which of the following correctly describes what information must be included in a financing statement?
    Answer: The financing statement must include the debtor's name (accurate and complete), the secured party's name, and a description of the collateral. Under UCC Section 9-502, a financing statement is sufficient if it: (1) provides the name of the debtor (accurate and complete - errors in the debtor's name can make the financing statement ineffective); (2) provides the name of the secured party or their representative; and (3) indicates the collateral covered by the financing statement. The collateral description in the financing statement may be broader than in the security agreement (e.g., 'all assets' is acceptable in a financing statement but may not be in some security agreements). Answer A is incorrect because the financing statement need not contain the security agreement. Answer B is incorrect because the financing statement may use a broader description than the security agreement. Answer D is incorrect because only the debtor's signature (authentication) is needed for the security agreement; the financing statement requires authorization from the debtor but not necessarily their signature on the statement.
16. Under UCC Section 9-317, an unperfected security interest is subordinate to which of the following competing interests?
    Answer: A person who becomes a lien creditor (such as a judgment creditor who levies on the collateral) before the security interest is perfected, and a trustee in bankruptcy. Under UCC Section 9-317(a), an unperfected security interest is subordinate to: (1) a person who becomes a lien creditor before the interest is perfected (such as a judgment creditor who obtains a levy, or a bankruptcy trustee using strong-arm powers under 11 U.S.C. Section 544); and (2) under certain conditions, buyers of collateral who give value without knowledge of the security interest. This rule creates strong incentives to promptly perfect security interests. Answer A is incorrect because knowledge of an unperfected interest does not protect it against lien creditors. Answer C is incorrect because the unperfected interest also loses to lien creditors, not just other secured parties. Answer D is incorrect because the amount of value is irrelevant to this priority rule.
17. Under UCC Section 9-322, the general priority rule for competing perfected security interests in the same collateral is which of the following?
    Answer: The first to file or perfect has priority (the 'first in time, first in right' rule); priority dates from the earlier of the time of filing or the time of perfection. Under UCC Section 9-322(a)(1), if conflicting security interests are perfected, the security interest that is first to file or perfect has priority. The priority date is the earlier of: (1) the time of filing, or (2) the time of perfection. This 'first in time, first in right' rule encourages creditors to file promptly. A creditor who files a financing statement before the security interest attaches still gets priority from the date of filing (race to file). Answer A is incorrect because dollar amount does not determine priority. Answer B reverses the correct rule; first to file wins, not last to perfect. Answer D is incorrect because priority is not shared.
18. Under UCC Article 9, how is a security interest in investment property (such as shares of stock) perfected?
    Answer: A security interest in investment property may be perfected by filing a financing statement or by the secured party taking control of the investment property; control is the superior method and defeats a security interest perfected only by filing. Under UCC Sections 9-312 and 9-314, a security interest in investment property may be perfected by: (1) filing a financing statement; or (2) taking control (which for certificated securities means taking possession with proper endorsement; for uncertificated securities means registering the secured party's interest; for securities accounts means an agreement with the securities intermediary). Control is the superior method - under Section 9-328, a security interest perfected by control has priority over one perfected only by filing. Answer B is incorrect because investment property is not automatically perfected. Answer C is incorrect because SEC filing is not an Article 9 perfection method. Answer D is partially correct (delivery is one form of control for certificated securities) but delivery alone without proper endorsement may be insufficient for control.
19. Under UCC Article 9, a purchase money security interest (PMSI) has special priority rules. Which of the following correctly identifies a PMSI?
    Answer: A PMSI arises when a seller retains a security interest in goods sold to the buyer to secure the purchase price, or when a lender advances funds specifically to enable the debtor to purchase identifiable collateral that serves as the collateral. Under UCC Section 9-103, a PMSI is a security interest in goods or software that: (1) is retained by the seller of the goods or software (seller PMSI); or (2) is taken by a person who advances funds specifically to enable the debtor to acquire rights in the collateral, and the funds are in fact so used (enabling loan PMSI). PMSIs have special super-priority status that can defeat prior perfected security interests in the same collateral, subject to timing requirements. Answer B is incorrect because PMSI status depends on the source of funds, not the timing of filing. Answer C is incorrect because PMSIs have super-priority only under specific conditions (timely perfection and notification). Answer D is incorrect because Article 9 governs personal property, not real estate.
20. Under UCC Section 9-620, what is 'strict foreclosure' (also called 'acceptance of collateral in full or partial satisfaction of a debt')?
    Answer: Strict foreclosure is an alternative to sale in which the secured party keeps the collateral in full (or partial) satisfaction of the debt; the debtor and other parties must receive authenticated notice and may object within 20 days; the secured party may not use strict foreclosure for consumer goods if objection is received. Under UCC Section 9-620, a secured party may accept collateral in full or partial satisfaction of the secured obligation (strict foreclosure) as an alternative to selling it. The secured party must send an authenticated proposal to the debtor and other parties. If no objection is received within 20 days after the proposal is sent, the secured party may retain the collateral in satisfaction of the debt. For consumer goods, if the debtor objects or if the secured party has already collected 60% of the price, the secured party must sell. Answer A describes a judicial proceeding, not Article 9 strict foreclosure. Answer B is incorrect because strict foreclosure is an Article 9 remedy, not limited to bankruptcy. Answer C describes market value concerns, not strict foreclosure.

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