Texas Bar Exam - Secured Transactions Test Questions with Answers

Leathers borrows 50K from First Bank. Leathers signed an agreement granting First Bank a security interest in "all of Leather's inventory, whether now owned or hereafter acquired." First Bank filed financing statement with SoS, listing itself as creditor, Leathers as debtor, and "inventory" as collateral. Leathers then sold a new leather jacket to Jane. Sale was a regular retail sale. Jane had no knowledge of relationship between Leathers and First Bank. - Jane has superior claim. Superior claim exists because she qualifies as a buyer in the ordinary course of business from Leathers and prevails even over a prior creditor, even when they have a valid security agreement that is properly perfected (by filing with SoS). - Buyer in ordinary course of business req'ts: (i) purchased in good faith (ii) did not know that she violated the security agreement (iii) purchased a non-farm product good (not a crop or livestock) (iv) purchased from a seller in the business of selling the type of good purchased (v) security interest created by person who sold the good (vi) creditor was not perfected by possession. Leathers borrows 50K from First Bank. Leathers signed an agreement granting First Bank a security interest in "all of Leather's inventory, whether now owned or hereafter acquired." First Bank filed financing statement with SoS, listing itself as creditor, Leathers as debtor, and "inventory" as collateral. Leathers traded a paid of used motorcycle boots to Kip in exchange for a used computer, which Leathers no uses for business. Leathers has not paid rent to Landlord and Landlord obtains a judgment against Leathers and also a judgment lien against all of Leather's business inventory. Who has superior claim to the computer? - First Bank has superior claim to the computer. - First properly perfected its interest in the inventory by filing a financing statement with TX SoS. The security interest attached to the computer as proceeds of inventory even through the computer is classified as equipment and Leathers did not give First Bank an interest in equipment in the security agreement. First retains perfection in the computer even though the financing statement does not include equipment because a security interest in the proceeds would be perfected by filing a financing statement in the same place as the original collateral. - A secured creditor who is perfected before the lien attaches prevails. (First's perfection was continuous from April 5 and LL's lien did not attach until May 28). Leathers borrows 50K from First Bank. Leathers signed an agreement granting First Bank a security interest in "all of Leather's inventory, whether now owned or hereafter acquired." First Bank filed financing statement with SoS, listing itself as creditor, Leathers as debtor, and "inventory" as collateral. Leathers bought 50 new motorcycle helmets on credit from Seller. Leathers agreed to pay Seller in full within 15 days. The written sales agreement stated that Seller retained title to the helmets until Leathers had paid seller. Seller did not file a financing statement with any governmental authority. None of the helmets have been sold. Leathers has not paid rent to Landlord and Landlord obtains a judgment against Leathers and also a judgment lien against all of Leather's business inventory. First Bank has a superior claim. - First has a perfected security interest in the helmets. The security agreement expressly covers after-acquired inventory. Helmets acquired are inventory because Leather's intends to sell them to customers in his business.