Determine Priority Of Security Interests
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CPA Regulation (REG) › Determine Priority Of Security Interests
On August 1, 20X1, ElectronicsStore (debtor) granted Bank Secured a security interest in all inventory and perfected by filing on August 1. On September 5, 20X1, ElectronicsStore sold a television from inventory to Buyer Y, who purchased in good faith from ElectronicsStore’s showroom as part of its ordinary retail operations. After default on September 20, Bank Secured sought to repossess the television from Buyer Y. Under Uniform Commercial Code Article 9, who holds the superior claim to the television?
Bank Secured, because Buyer Y must search the filing records to take free of any security interest.
Buyer Y, because a buyer in the ordinary course takes free of a security interest created by the seller, even if perfected.
Buyer Y, because any buyer of goods takes free of security interests if the secured party did not repossess before the sale.
Bank Secured, because a filed inventory security interest continues in collateral after sale to any buyer.
Explanation
This question tests the protections for a buyer in the ordinary course of business (BIOCOB) under UCC 9-320(a). The key facts are Bank Secured's perfected inventory interest and Buyer Y's good-faith ordinary course purchase on September 5 with possession. Buyer Y has priority because UCC 9-320(a) allows a BIOCOB to take free of the seller-created security interest, even if perfected. Choice A is incorrect as the interest does not continue against a BIOCOB per 9-320(a); choice C errs because buyers need not search records for protection. Choice D is wrong since the rule is specific to ordinary course buyers, not all buyers. Confirm BIOCOB status by reviewing the transaction's alignment with the seller's business practices. Lenders should include monitoring provisions in agreements to mitigate losses from authorized sales.
On October 1, 20X1, ServiceCo (debtor) granted Lender X a security interest in its accounts receivable; the interest attached on October 1 and Lender X filed on October 10. On October 5, 20X1, ServiceCo granted Lender Y a security interest in the same accounts; the interest attached on October 5 and Lender Y filed on October 6. ServiceCo defaulted on November 1, 20X1. Under Uniform Commercial Code Article 9, which creditor has priority in the accounts receivable?
Lender Y, because accounts are treated as inventory for priority purposes and later lenders prevail.
Lender Y, because it was first to file or perfect among competing perfected security interests.
Lender X, because it obtained a security interest first and attachment governs priority.
Lender X, because filing after attachment gives retroactive perfection to the attachment date for accounts.
Explanation
This question tests the first-to-file rule for perfected security interests in accounts under UCC 9-322(a)(1). The key facts are Lender X's filing on October 10 and Lender Y's earlier filing on October 6. Lender Y has priority because UCC 9-322(a)(1) ranks by filing order, favoring Y's earlier date. Choice A is incorrect as attachment does not control per 9-322; choice C errs because no retroactive perfection applies. Choice D is wrong since accounts follow standard priority rules, not inventory treatment. Compare filing dates for accounts priority disputes. File early to gain advantage in factoring arrangements.
On June 1, 20X2, FurnitureStore (debtor) granted Bank Secured a security interest in all inventory and perfected by filing on June 1. On June 20, 20X2, FurnitureStore sold a sofa from inventory to Buyer Q, who purchased in good faith from the showroom as part of FurnitureStore’s ordinary retail business and took possession immediately. After default on July 5, Bank Secured asserted a claim to the sofa. Under Uniform Commercial Code Article 9, under these facts, who holds the superior claim to the sofa?
Bank Secured, because a perfected security interest in inventory continues in the goods after sale to any buyer.
Bank Secured, because Buyer Q is not protected unless the secured party expressly authorized the sale in the security agreement.
Buyer Q, because any retail buyer takes free of security interests only if the secured party failed to file.
Buyer Q, because a buyer in the ordinary course takes free of a security interest created by the seller.
Explanation
This question tests BIOCOB rights under UCC 9-320(a). The key facts are Bank Secured's filing on June 1 and Buyer Q's ordinary course purchase on June 20. Buyer Q has priority because UCC 9-320(a) protects BIOCOBs from seller-created interests. Choice A is incorrect as interests end against BIOCOBs; choice C errs because authorization is not required. Choice D is wrong since filing is irrelevant for BIOCOB. Assess ordinary course criteria. Monitor for unauthorized sales risks.
On August 1, 20X2, ConsultingCo (debtor) granted Lender One a security interest in its accounts receivable; the interest attached on August 1, and Lender One filed on August 5. On August 3, 20X2, ConsultingCo granted Lender Two a security interest in the same accounts; the interest attached on August 3, and Lender Two filed on August 4. ConsultingCo defaulted on September 10, 20X2. Under Uniform Commercial Code Article 9, which creditor has priority in the accounts receivable?
Lender One, because accounts are perfected automatically at attachment and filing dates are irrelevant.
Lender Two, because it was first to file or perfect among competing perfected security interests.
Lender Two, because filing before attachment is invalid and therefore Lender One is the only perfected creditor.
Lender One, because it attached first and attachment controls priority among secured parties.
Explanation
This question tests the first-to-file rule under UCC 9-322(a)(1) for accounts. The key facts are Lender One's filing on August 5 and Lender Two's earlier filing on August 4. Lender Two has priority because UCC 9-322(a)(1) uses filing order. Choice A is incorrect as attachment is not key; choice C errs because no automatic perfection. Choice D is wrong since pre-attachment filing is valid. Prioritize early filing. Use this rule for accounts conflicts.
On September 1, 20X1, Manufacturer (debtor) granted Bank A a security interest in all equipment and perfected by filing on September 2. On September 15, 20X1, Manufacturer bought a machine from Vendor on credit; Manufacturer signed a security agreement granting Vendor a purchase money security interest, and Manufacturer received possession on September 15. Vendor did not file until October 20. Manufacturer defaulted on November 1, 20X1. Under Uniform Commercial Code Article 9, based on these facts, which security interest prevails in the machine?
Vendor, because its security interest attached on September 15 and attachment controls priority over earlier filings.
Bank A, because Vendor failed to perfect within the 20-day period for purchase money superpriority in equipment.
Vendor, because purchase money security interests in equipment have priority even if perfected more than 20 days after the debtor receives possession.
Vendor, because its purchase money status makes filing unnecessary to be perfected against a prior filed lender.
Explanation
This question tests PMSI priority in equipment against a prior after-acquired clause under UCC 9-324(a). The key facts are Bank A's filing on September 2 and Vendor's filing on October 20, 35 days after possession on September 15. Bank A has priority because Vendor missed the 20-day perfection window, losing superpriority, with Bank A's earlier filing controlling under UCC 9-322(a)(1). Choice A is incorrect as superpriority requires timely perfection within 20 days per 9-324(a); choice C errs because filing is necessary for PMSI perfection. Choice D is wrong since attachment does not override earlier filings under 9-322. Calculate days from possession precisely to evaluate PMSI eligibility. Advise vendors to file within 20 days to secure superpriority benefits.
On April 1, 20X1, OfficeMart (debtor) granted Bank A a security interest in all equipment; the interest attached on April 1 and Bank A filed on April 2. On April 10, 20X1, OfficeMart purchased a copier from Seller on credit; OfficeMart signed a security agreement granting Seller a purchase money security interest in the copier and received possession on April 10. Seller filed on May 5. Under Uniform Commercial Code Article 9, based on these facts, who holds the superior claim to the copier?
Bank A, because Seller failed to perfect within 20 days after OfficeMart received possession of the copier.
Seller, because purchase money security interests always have priority over earlier filings regardless of when perfected.
Seller, because filing after 20 days still relates back to the date of attachment for purchase money security interests.
Bank A, because equipment collateral cannot be subject to a purchase money security interest.
Explanation
This question tests the priority of a purchase money security interest (PMSI) in equipment against a prior perfected interest under UCC 9-324(a). The key facts are Bank A's filing on April 2 and Seller's filing on May 5, which is 25 days after OfficeMart's possession on April 10. Bank A has priority because Seller did not perfect within 20 days after possession, losing PMSI superpriority, and Bank A's earlier filing prevails under UCC 9-322(a)(1). Choice A is incorrect as PMSI priority is not automatic and requires timely perfection per UCC 9-324(a); choice C errs because late filing does not relate back for superpriority. Choice D is wrong since equipment can be subject to PMSIs under UCC 9-103. When assessing PMSI claims, calculate the days from possession to perfection to confirm superpriority eligibility. Professionals should track possession dates meticulously to avoid losing priority advantages.
On May 1, 20X2, Gym LLC (debtor) granted Lender A a security interest in its exercise machines (equipment); the interest attached on May 1, but Lender A did not file. On May 12, 20X2, Gym granted Lender B a security interest in the same machines; the interest attached on May 12 and Lender B filed on May 13. Gym defaulted on June 1, 20X2. Under Uniform Commercial Code Article 9, who holds the superior claim to the exercise machines?
Lender A, because it attached first and therefore has priority over later lenders.
Lender B, because a perfected security interest has priority over an unperfected security interest.
Lender A, because filing is not required to perfect an equipment security interest against other secured parties.
Lender B, because Gym’s later grant of a security interest extinguished Lender A’s interest.
Explanation
This question tests perfected versus unperfected priority under UCC 9-322(a)(2). The key facts are Lender A's unperfected status without filing and Lender B's perfection on May 13. Lender B has priority because UCC 9-322(a)(2) subordinates unperfected interests to perfected ones. Choice A is incorrect as attachment alone is insufficient; choice C errs because filing is needed for equipment. Choice D is wrong since later grants do not extinguish priors. Check perfection first in disputes. Insist on filing for protection.
On March 5, 20X2, MediaCo (debtor) granted Creditor One a security interest in its accounts receivable; the interest attached on March 5, and Creditor One filed on March 20. On March 10, 20X2, MediaCo granted Creditor Two a security interest in the same accounts; the interest attached on March 10, and Creditor Two filed on March 15. MediaCo defaulted on April 30, 20X2. Under Uniform Commercial Code Article 9, which creditor has priority in the accounts receivable?
Creditor One, because its later filing relates back to the attachment date for accounts.
Creditor Two, because accounts are treated as proceeds and therefore the later lender prevails.
Creditor Two, because it was first to file or perfect among competing perfected security interests.
Creditor One, because it is the first secured party to attach and attachment determines priority.
Explanation
This question tests the first-to-file rule for accounts under UCC 9-322(a)(1). The key facts are Creditor One's filing on March 20 and Creditor Two's earlier filing on March 15. Creditor Two has priority because UCC 9-322(a)(1) prioritizes by filing order. Choice A is incorrect as attachment is not determinative; choice C errs because no relation back applies. Choice D is wrong since accounts are not proceeds for this rule. Use filing dates for priority ranking. File promptly in accounts financing.
On September 1, 20X2, RetailChain (debtor) granted Bank Senior a security interest in all inventory and perfected by filing on September 1. On September 18, 20X2, RetailChain purchased additional inventory from Supplier on credit; Supplier took a purchase money security interest, RetailChain received possession on September 18, Supplier filed on September 19, but Supplier’s authenticated notice to Bank Senior was received on September 25 (after RetailChain received possession). RetailChain defaulted on October 10, 20X2. Under Uniform Commercial Code Article 9, which secured party has priority in the September 18 inventory?
Supplier, because it filed the day after delivery and therefore has purchase money superpriority in inventory.
Bank Senior, because Supplier did not satisfy the requirement that notice be received before the debtor receives possession for inventory purchase money superpriority.
Supplier, because Bank Senior’s earlier filing is limited to existing inventory and cannot cover later-acquired inventory.
Supplier, because purchase money security interests in inventory are automatically perfected upon attachment and do not require notice.
Explanation
This question tests inventory PMSI requirements under UCC 9-324(b). The key facts are Bank Senior's filing on September 1, Supplier's filing on September 19 after possession on September 18, and notice received on September 25 after possession. Bank Senior has priority because notice was not received before possession as required by UCC 9-324(b), and perfection was late. Choice A is incorrect as filing alone is insufficient without timely notice; choice C errs because no automatic perfection. Choice D is wrong since after-acquired clauses apply. Ensure pre-possession notice and perfection. Document compliance thoroughly.
On October 10, 20X2, TransportCo (debtor) granted Creditor A a security interest in a forklift (equipment); the interest attached on October 10, and Creditor A filed on October 11. On October 15, 20X2, TransportCo granted Creditor B a security interest in the same forklift; the interest attached on October 15, and Creditor B filed on October 20. TransportCo defaulted on November 1, 20X2. Under Uniform Commercial Code Article 9, under these facts, who holds the superior claim to the forklift?
Creditor A, because it was first to file or perfect among competing perfected security interests.
Creditor B, because its security interest attached later and therefore is deemed to cover the forklift more specifically.
Creditor B, because it is the most recent lender and therefore has priority in the collateral.
Creditor A, because attachment alone establishes priority and filing is irrelevant once both have security agreements.
Explanation
This question tests the priority rules for conflicting perfected security interests under Uniform Commercial Code (UCC) Article 9-322. The key facts are that Creditor A's security interest attached on October 10 and was perfected by filing on October 11, while Creditor B's attached on October 15 and was perfected by filing on October 20, making Creditor A the first to file and perfect. Under UCC 9-322(a)(1), among competing perfected security interests, priority is given to the one that is first in time to file or perfect, so Creditor A has the superior claim. Choice A is incorrect because UCC priority is based on the first-to-file-or-perfect rule, not on being the most recent lender. Choice C is wrong as later attachment does not confer specificity or priority under UCC rules, and Choice D is incorrect because attachment alone does not establish priority; perfection by filing is required for the priority determination under UCC 9-322. A transferable framework for professionals is to always evaluate the dates of filing and perfection when assessing priority among secured creditors. This decision rule emphasizes the importance of prompt filing to protect a creditor's position in potential disputes over collateral.