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CPA Regulation Reg Quiz

CPA Regulation Reg Quiz: Determine Priority Of Security Interests

Practice Determine Priority Of Security Interests in CPA Regulation Reg with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

Question 1 / 20

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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?

Select an answer to continue

What this quiz covers

This quiz focuses on Determine Priority Of Security Interests, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Regulation Reg.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

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?

  1. Bank Secured, because a filed inventory security interest continues in collateral after sale to any buyer.
  2. Buyer Y, because a buyer in the ordinary course takes free of a security interest created by the seller, even if perfected. (correct answer)
  3. Bank Secured, because Buyer Y must search the filing records to take free of any security interest.
  4. Buyer Y, because any buyer of goods takes free of security interests if the secured party did not repossess before the sale.

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.

Question 2

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?

  1. Lender X, because it obtained a security interest first and attachment governs priority.
  2. Lender Y, because it was first to file or perfect among competing perfected security interests. (correct answer)
  3. Lender X, because filing after attachment gives retroactive perfection to the attachment date for accounts.
  4. Lender Y, because accounts are treated as inventory for priority purposes and later lenders prevail.

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.

Question 3

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?

  1. Bank Secured, because a perfected security interest in inventory continues in the goods after sale to any buyer.
  2. Buyer Q, because a buyer in the ordinary course takes free of a security interest created by the seller. (correct answer)
  3. Bank Secured, because Buyer Q is not protected unless the secured party expressly authorized the sale in the security agreement.
  4. Buyer Q, because any retail buyer takes free of security interests only if the secured party failed to file.

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.

Question 4

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?

  1. Lender One, because it attached first and attachment controls priority among secured parties.
  2. Lender Two, because it was first to file or perfect among competing perfected security interests. (correct answer)
  3. Lender One, because accounts are perfected automatically at attachment and filing dates are irrelevant.
  4. Lender Two, because filing before attachment is invalid and therefore Lender One is the only perfected creditor.

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.

Question 5

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?

  1. Vendor, because purchase money security interests in equipment have priority even if perfected more than 20 days after the debtor receives possession.
  2. Bank A, because Vendor failed to perfect within the 20-day period for purchase money superpriority in equipment. (correct answer)
  3. Vendor, because its purchase money status makes filing unnecessary to be perfected against a prior filed lender.
  4. Vendor, because its security interest attached on September 15 and attachment controls priority over earlier filings.

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.

Question 6

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?

  1. Seller, because purchase money security interests always have priority over earlier filings regardless of when perfected.
  2. Bank A, because Seller failed to perfect within 20 days after OfficeMart received possession of the copier. (correct answer)
  3. Seller, because filing after 20 days still relates back to the date of attachment for purchase money security interests.
  4. 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.

Question 7

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?

  1. Lender A, because it attached first and therefore has priority over later lenders.
  2. Lender B, because a perfected security interest has priority over an unperfected security interest. (correct answer)
  3. Lender A, because filing is not required to perfect an equipment security interest against other secured parties.
  4. 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.

Question 8

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?

  1. Creditor One, because it is the first secured party to attach and attachment determines priority.
  2. Creditor Two, because it was first to file or perfect among competing perfected security interests. (correct answer)
  3. Creditor One, because its later filing relates back to the attachment date for accounts.
  4. Creditor Two, because accounts are treated as proceeds and therefore the later lender prevails.

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.

Question 9

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?

  1. Supplier, because it filed the day after delivery and therefore has purchase money superpriority in inventory.
  2. Bank Senior, because Supplier did not satisfy the requirement that notice be received before the debtor receives possession for inventory purchase money superpriority. (correct answer)
  3. Supplier, because purchase money security interests in inventory are automatically perfected upon attachment and do not require notice.
  4. Supplier, because Bank Senior’s earlier filing is limited to existing inventory and cannot cover later-acquired inventory.

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.

Question 10

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?

  1. Creditor B, because it is the most recent lender and therefore has priority in the collateral.
  2. Creditor A, because it was first to file or perfect among competing perfected security interests. (correct answer)
  3. Creditor B, because its security interest attached later and therefore is deemed to cover the forklift more specifically.
  4. 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.

Question 11

On November 1, 20X1, Retailer (debtor) granted Bank Senior a security interest in all inventory and perfected by filing on November 1. On November 20, 20X1, Retailer purchased additional inventory from Supplier on credit; Supplier took a purchase money security interest, Retailer received possession on November 20, Supplier filed on November 21, but Supplier did not send any authenticated notice to Bank Senior before Retailer received possession. Retailer defaulted on December 5, 20X1. Under Uniform Commercial Code Article 9, which secured party has priority in the November 20 inventory?

  1. Supplier, because a purchase money security interest in inventory has automatic superpriority if filed within 20 days after delivery.
  2. Bank Senior, because Supplier failed to satisfy the additional notice requirement for purchase money superpriority in inventory. (correct answer)
  3. Supplier, because its security interest attached at delivery and attachment defeats earlier filings.
  4. Supplier, because Bank Senior’s after-acquired inventory clause is ineffective against later suppliers.

Explanation: This question tests inventory PMSI superpriority requirements under UCC 9-324(b). The key facts are Bank Senior's filing on November 1, Supplier's filing on November 21 after possession on November 20, and no notice sent. Bank Senior has priority because Supplier failed the notice requirement and to perfect at possession per UCC 9-324(b). Choice A is incorrect as no automatic superpriority without notice and timely perfection; choice C errs because attachment does not defeat prior filings. Choice D is wrong since after-acquired clauses are valid under 9-204. Ensure notice and perfection compliance for inventory PMSIs. Document notice delivery to support superpriority claims.

Question 12

On January 2, 20X2, Bookstore (debtor) granted Bank A a security interest in all inventory and perfected by filing on January 2. On February 1, 20X2, Bookstore sold books from inventory to Buyer Z, a good-faith purchaser buying from Bookstore’s retail shelves in the ordinary course, and Buyer Z took possession at purchase. After Bookstore defaulted on February 10, Bank A claimed the books from Buyer Z. Under Uniform Commercial Code Article 9, under these facts, who holds the superior claim to the books?

  1. Bank A, because a perfected security interest in inventory is enforceable against all subsequent buyers.
  2. Buyer Z, because a buyer in the ordinary course takes free of a security interest created by the seller. (correct answer)
  3. Bank A, because Buyer Z must obtain a release from Bank A to take free of the security interest.
  4. Buyer Z, because any buyer of goods takes free of a security interest if the buyer pays cash.

Explanation: This question tests BIOCOB protections against perfected inventory interests under UCC 9-320(a). The key facts are Bank A's filing on January 2 and Buyer Z's good-faith ordinary course purchase on February 1. Buyer Z has priority because UCC 9-320(a) frees BIOCOBs from seller-created security interests, even perfected. Choice A is incorrect as interests do not continue against BIOCOBs; choice C errs because no release is needed. Choice D is wrong since cash payment is irrelevant to the rule. Evaluate if the buyer's actions fit ordinary course definitions. Lenders should assess debtor sales practices for risk exposure.

Question 13

On July 1, 20X1, Studio LLC (debtor) granted Creditor A a security interest in its existing and after-acquired equipment; the interest attached on July 1, but Creditor A did not file. On July 10, 20X1, Studio granted Creditor B a security interest in the same equipment; the interest attached on July 10 and Creditor B filed on July 11. Studio defaulted on August 1, 20X1. Under Uniform Commercial Code Article 9, under these facts, who holds the superior claim to the equipment?

  1. Creditor A, because it obtained the first security agreement and therefore has priority.
  2. Creditor B, because a perfected security interest has priority over an unperfected security interest. (correct answer)
  3. Creditor A, because equipment security interests are perfected automatically upon attachment.
  4. Creditor B, because Studio’s later grant of a security interest extinguished Creditor A’s interest.

Explanation: This question tests priority between a perfected and an unperfected security interest under UCC Article 9. The key facts are Creditor A's attachment on July 1 without filing, rendering it unperfected, and Creditor B's perfection by filing on July 11. Creditor B has priority because UCC 9-322(a)(2) subordinates an unperfected security interest to a conflicting perfected one. Choice A is incorrect as obtaining the first agreement does not confer priority without perfection per UCC 9-322; choice C errs because equipment interests generally require filing for perfection under UCC 9-310(a). Choice D is wrong since later grants do not extinguish prior interests under UCC 9-201. Always assess perfection methods when evaluating competing claims to apply the correct priority rules. Professionals should emphasize filing requirements to clients to protect against subordination.

Question 14

On June 5, 20X1, Contractor (debtor) granted Lender One a security interest in a bulldozer; the interest attached on June 5, and Lender One filed on June 30. On June 20, 20X1, Contractor granted Lender Two a security interest in the same bulldozer; the interest attached on June 20, and Lender Two filed on June 21. Contractor defaulted on July 10, 20X1. Under Uniform Commercial Code Article 9, which creditor has priority in the bulldozer?

  1. Lender One, because it was the first secured party to attach and attachment governs priority for equipment.
  2. Lender Two, because it was first to file or perfect among competing perfected security interests. (correct answer)
  3. Lender One, because its filing relates back to the date of attachment and therefore is deemed perfected first.
  4. Lender Two, because filing before default is the only factor and the later filer is always junior.

Explanation: This question tests the first-to-file-or-perfect rule for conflicting perfected security interests under UCC 9-322(a)(1). The key facts are Lender One's filing on June 30 and Lender Two's earlier filing on June 21, with both perfected. Lender Two has priority because UCC 9-322(a)(1) determines ranking by the order of filing, giving Two the superior position due to its earlier date. Choice A is incorrect as attachment does not govern priority among perfected interests per UCC 9-322; choice C errs because filing does not relate back for priority purposes. Choice D is wrong since the first filer prevails, not the later one, under 9-322(a)(1). To resolve such disputes, identify the earliest filing date among perfected competitors. Secured creditors should prioritize early filing to establish dominance in priority contests.

Question 15

On March 1, 20X1, DesignCo (debtor) granted Lender Alpha a security interest in its accounts receivable; the interest attached on March 1, and Alpha filed a financing statement on March 15. On March 10, 20X1, DesignCo granted Factor Beta a security interest in the same accounts; the interest attached on March 10, and Beta filed on March 12. DesignCo defaulted on April 1, 20X1. Under Uniform Commercial Code Article 9, which creditor has priority in the accounts receivable?

  1. Lender Alpha, because its security interest attached first and attachment controls priority in accounts.
  2. Factor Beta, because it was first to file or perfect among competing perfected security interests. (correct answer)
  3. Lender Alpha, because accounts are perfected automatically upon attachment.
  4. Factor Beta, because a factor is treated as a buyer in the ordinary course of accounts and takes free of prior claims.

Explanation: This question tests the first-to-file-or-perfect rule for conflicting perfected security interests under UCC 9-322(a)(1). The key facts are Lender Alpha's filing on March 15 and Factor Beta's earlier filing on March 12, with both interests perfected. Factor Beta has priority because UCC 9-322(a)(1) ranks perfected interests by the order of filing, and Beta's earlier filing date establishes superiority. Choice A is incorrect as attachment does not determine priority among perfected interests per UCC 9-322; choice C errs because accounts require filing for perfection against third parties under UCC 9-310(a). Choice D is wrong since factors are not treated as buyers in ordinary course for accounts under UCC 9-320. In analyzing priority for accounts receivable, compare filing dates to apply the first-to-file rule effectively. Secured parties should file financing statements immediately to secure the earliest priority date in competitive scenarios.

Question 16

On June 1, 20X1, AutoParts Inc. (debtor) granted FinanceCo a security interest in all inventory and perfected by filing that same day. On July 10, 20X1, AutoParts sold brake pads from its inventory to Customer X, a retail buyer purchasing in good faith in the ordinary course of AutoParts’ business, and Customer X took possession immediately. After AutoParts defaulted on July 20, FinanceCo asserted a claim to the brake pads in Customer X’s possession. Under Uniform Commercial Code Article 9, under these facts, who holds the superior claim to the brake pads?

  1. FinanceCo, because a perfected security interest in inventory continues in the collateral notwithstanding sale.
  2. Customer X, because a buyer in the ordinary course takes free of a security interest created by the seller, even if perfected. (correct answer)
  3. FinanceCo, because buyers take subject to security interests unless the secured party authorized the sale in writing.
  4. Customer X, because any consumer buyer takes free of all security interests regardless of the seller’s status.

Explanation: This question tests the rights of a buyer in the ordinary course of business (BIOCOB) against a perfected security interest in inventory under UCC 9-320(a). The key facts are FinanceCo's perfected interest in AutoParts' inventory and Customer X's good-faith purchase in the ordinary course on July 10 with immediate possession. Customer X has priority because UCC 9-320(a) allows a BIOCOB to take free of a security interest created by the seller, even if perfected, provided the buyer does not know the sale violates the security agreement. Choice A is incorrect as a security interest does not continue against a BIOCOB under UCC 9-320(a); choice C errs because authorization is not required for BIOCOB protection. Choice D is wrong since the rule applies specifically to ordinary course buyers, not all consumers, per UCC 1-201(b)(9). To assess buyer protections, confirm if the purchase qualifies as in the ordinary course to cut off the seller-created security interest. Secured lenders should monitor inventory debtors closely, as BIOCOB sales can extinguish their interests without recourse.

Question 17

On May 1, 20X1, Builder LLC (debtor) granted Lender A a security interest in a specific excavator (equipment) to secure a term loan; the interest attached on May 1, but Lender A did not file a financing statement. On May 20, 20X1, Builder granted Lender B a security interest in the same excavator; it attached on May 20 and Lender B filed on May 21. Builder defaulted on June 15, 20X1. Under Uniform Commercial Code Article 9, who holds the superior claim to the excavator?

  1. Lender A, because it was the first secured party to attach, and attachment alone establishes priority.
  2. Lender B, because a perfected security interest has priority over an unperfected security interest. (correct answer)
  3. Lender A, because filing is optional for equipment collateral once a security agreement is signed.
  4. Lender B, because Builder’s later grant of a security interest cuts off Lender A’s rights.

Explanation: This question tests priority between a perfected and an unperfected security interest under UCC Article 9. The key facts are Lender A's attachment on May 1 without filing, leaving it unperfected, and Lender B's perfection by filing on May 21 after attachment on May 20. Lender B has priority because UCC 9-322(a)(2) provides that a perfected security interest has priority over a conflicting unperfected security interest. Choice A is incorrect as attachment alone does not establish priority over a later-perfected interest per UCC 9-322; choice C errs because filing is required to perfect most equipment interests against third parties under UCC 9-310(a). Choice D is wrong since a debtor's later grant does not cut off a prior attached interest under UCC 9-201. In priority disputes, always determine perfection status first, as perfected interests generally subordinate unperfected ones. Professionals should advise filing promptly to avoid subordination risks in secured transactions.

Question 18

On November 1, 20X2, DealerCo (debtor) granted Bank A a security interest in all inventory and perfected by filing on November 1. On November 30, 20X2, DealerCo sold goods from inventory to Buyer M, who purchased in good faith as part of DealerCo’s ordinary business and took possession immediately. After DealerCo defaulted on December 10, Bank A claimed the goods from Buyer M. Under Uniform Commercial Code Article 9, which party holds the superior claim to the goods?

  1. Bank A, because a perfected security interest in inventory continues in the goods after sale and is enforceable against Buyer M.
  2. Buyer M, because a buyer in the ordinary course takes free of a security interest created by the seller, even if perfected. (correct answer)
  3. Bank A, because Buyer M is protected only if Bank A authorized the sale in a separate written release.
  4. Buyer M, because any buyer takes free of a perfected security interest if the buyer pays full value.

Explanation: This question examines the rights of a buyer in the ordinary course of business (BIOC) against a perfected security interest in inventory under UCC Article 9-320. The driving facts are that Bank A perfected its security interest in DealerCo's inventory on November 1, but Buyer M purchased the goods in good faith during DealerCo's ordinary business on November 30 and took possession. According to UCC 9-320(a), a BIOC takes free of a security interest created by the seller, even if the interest is perfected and the buyer knows of its existence, so Buyer M has the superior claim. Choice A is incorrect because, under UCC 9-320, a BIOC takes free of the security interest, which does not continue against them after the sale. Choice C is wrong as no separate written authorization is required for a BIOC to prevail, and Choice D is incorrect because protection is specific to BIOC status, not merely paying full value, per UCC definitions in 1-201(b)(9). Professionals should apply the BIOC rule by verifying the buyer's good faith and the seller's ordinary business context. This framework helps in advising clients on risks associated with secured inventory sales and the protections afforded to routine purchasers.

Question 19

On July 1, 20X2, PrinterCo (debtor) granted Bank A a security interest in all equipment and perfected by filing on July 2. On July 15, 20X2, PrinterCo purchased a new printing press from Vendor on credit; PrinterCo signed a security agreement granting Vendor a purchase money security interest and received possession on July 15. Vendor filed on August 10. PrinterCo defaulted on September 1, 20X2. Under Uniform Commercial Code Article 9, based on these facts, which security interest prevails in the printing press?

  1. Vendor, because purchase money security interests in equipment have superpriority even if perfected more than 20 days after the debtor receives possession.
  2. Bank A, because Vendor did not perfect within 20 days after PrinterCo received possession and therefore lacks purchase money superpriority. (correct answer)
  3. Vendor, because purchase money security interests are automatically perfected upon attachment for equipment.
  4. Vendor, because its security interest attached on July 15, which controls priority over Bank A’s earlier filing.

Explanation: This question tests PMSI in equipment priority under UCC 9-324(a). The key facts are Bank A's filing on July 2 and Vendor's filing on August 10, 26 days after possession on July 15. Bank A has priority because Vendor missed the 20-day window, with Bank A's filing prevailing under UCC 9-322(a)(1). Choice A is incorrect as timeliness is required; choice C errs because no automatic perfection. Choice D is wrong since attachment does not control. Verify the 20-day period strictly. File within deadlines for superpriority.

Question 20

On February 1, 20X2, CleanCo (debtor) granted Lender A a security interest in “all equipment, now owned or hereafter acquired”; the interest attached on February 1 and Lender A filed on February 2. On March 1, 20X2, CleanCo purchased a commercial washer from Seller on credit; CleanCo signed a security agreement granting Seller a purchase money security interest and received possession on March 1. Seller filed on March 18. Under Uniform Commercial Code Article 9, which security interest prevails in the washer?

  1. Seller, because a purchase money security interest in equipment has priority if perfected within 20 days after the debtor receives possession. (correct answer)
  2. Lender A, because it filed first and therefore has priority over any later purchase money security interest.
  3. Lender A, because Seller’s filing after attachment makes Seller unperfected as of March 1 and permanently junior.
  4. Seller, because purchase money security interests are automatically perfected for equipment and filing is irrelevant.

Explanation: This question tests PMSI priority in equipment under UCC 9-324(a). The key facts are Lender A's filing on February 2 and Seller's filing on March 18, within 17 days of possession on March 1. Seller has priority because UCC 9-324(a) grants PMSI superpriority if perfected within 20 days after possession. Choice B is incorrect as timely PMSIs defeat prior filings; choice C errs because no permanent juniority from post-attachment filing. Choice D is wrong since PMSIs require perfection, not automatic. Confirm the 20-day window for PMSI advantages. Time filings from possession date carefully.