MODULE 26 SECURED TRANSACTIONS
are easily negotiated to other holders who can become hold-
ers in due course. Answer (a) is incorrect because a holder'
can become a holder in due course even if a security agree-
ment is filed. Answer (c) is incorrect because perfecting by
attachment requires a purchase money security interest in
consumer goods. Answer (d) is incorrect because this can-
not even accomplish perfection until it is filed.
C.6. Automatic Perfection
233
12. (b) Since West purchased the computer for personal
use and the computer itself was the collateral for the security
agreement, the fact pattern involves a purchase money secu-
rity interest in consumer goods. Therefore, once attachment
took place, perfection was automatic. Answer (c) is in cor- .
reet because since the computer was a consumer good, per-
fection was automatic upon attachment Answer (d) is in-
correct because filing a financing statement is not required
for perfecting a purchase money security interest in con-
s ng possession, not ownership, by the secured party is 17. (d) A purchase money security interest in noninven-
u a way to perfect In any event, Grey Corp. did not retain tory goods has a special rule. Since it was perfected within
m either ownership or possession since they sold and delivered twenty days after the debtor got possession of the collateral,
e the computer to West. it has priority over all of the others. Answers (a) and (b) are
r incorrect because unperfected security interests have a lower
13. (a) Automatic perfection (perfection by attachment) priority than perfected security interests. Answer (c) is in-
g takes place in the case of a purchase money security interest correct because although this security interest was perfected
o (PMSI) in consumer goods only. Answers (b), (c), and (d) before the purchase money security interest, the latter has.
o are incorrect because they include PMSI in inventory or priority if perfected within twenty days of the debtor taking
d equipment which do not qualify for automatic perfection. possession of the collateraL
s 14. (c) Mars holds a purchase money security interest in
. 18. (a) Since security interest I was perfected first when
the goods sold, which allowed the buyers of these goods to the financing agreement was filed on Aprill, it has the first
A secure the credit for their purchase. When a purchase
n priority. Security interest II was perfected on April 10 when
money security interest is in consumer goods, the secured the creditor took possession of the collateral. It has the sec-
s party (Mars) obtains perfection when attachment takes place
w ond priority. Security interest III has the third priority since
without the need to file a financing statement or take posses- it was perfected last on April 15.
e sion or control of the collateraL Answers (a), (b), and (d)
r are incorrect because in those cases the goods comprise in- 19. (d) The party perfected by filing a security interest
ventory, not consumer goods. in inventory on April 1,2001. Slhe would therefore have
( priority over a judgment lien creditor who filed later on
a E. Priorities
April 15,2001. Answer (a) is incorrect because the me-
) chanic's lien was filed on March 15 before the perfection of
15. (d) Buyers in the ordinary course of business take
goods free of any security interest whether perfected or not the security interest Therefore, the mechanic's lien has
i priority over the perfected security interest Answer (b) is
The buyer can be, but need not be, a consumer. Answer (a)
s incorrect because the holder of the purchase money security
is incorrect because a merchant who purchases consumer
goods for resale may not be buying in the ordinary course of interest in after-acquired property filed and perfected before
i Aprill. Answer (c) is incorrect because a purchaser in the
business. Answer (b) is incorrect because the merchant who
n ordinary course of business is free of other security interests
buys the consumer goods for use in hislher business may not
c even if they are perfected before s/he purchases the inven-
be buying in the ordinary course of business. Answer (c) is
o tory.
incorrect because although a consumer can take goods free
r
of a security interest when buying from another consumer, 20. (d) Lean, McCoy, and Norsome all purchased the
r
this requires certain facts along with a purchase money secu- furniture in the ordinary course of business. As such, all
e
rity interest in consumer goods. There are no facts in the three parties take free of the security interest even if it was
c
question to show this. perfected. This is true whether they purchased the furniture
t
b 16. (c) In general, a purchase money security interest in for consumer or business use and whether they knew of the
e noninventory has priority over nonpurchase money security security agreement or not
c interests if it was perfected within 20 days after the debtor 21. (d) Abby had a perfected security agreement be-
a received the collateraL Item Ill, therefore, has the first pri- cause of the purchase money security interest in consumer
u ority because the purchase money security interest was per- goods. This, however, is not effective against a good-faith
s fected on April 20, 2001, which was within twenty days of purchaser for value who buys from a consumer for consumer
e the attachment Item I has priority over Item IT because the use as in the case of Gram ", Perfection by filing is, however,
security interest in Item I was perfected, while the security effective in such a case but only if the filing is done before
r interest in Item II was not Gram purchases the sofa. Answer (a) is incorrect because
e the attachment of the written security interest makes it en-
t forceable against Rand, not Gram. Answer (b) is incorrect
a because the filing of the financing statement took place after
i Gram bought the sofa. Answer (c) is incorrect because,
n although Abby did accomplish automatic perfection by way
i of the PMSI in consumer goods, this type of perfection was
n not effective against Gram because he was a good-faith pur-
g chaser for value who bought it from a consumer (Rand) for
consumer use.
o
r 22. (c) MJC obtained a security interest in the computer
purchased by Wine and perfected it by filing. Even though
o when Jacobs later purchased it for consumer use he was
b unaware of MJC's security interest, MJC still has priority.
t This is true because the filing is constructive notice to all
a subsequent parties. MJC has priority and may repossess the
i computer even if Jacobs was unaware of the filed security
n interest The filing gives MJC priority over Jacob despite
i his intended use for family. Jacobs is not personally liable