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Secured Transactions

Exam 1
30 minutes

Fact Pattern

D is a business selling new and used pianos. On January 1, D borrowed $500,000 from B, a bank. To secure the obligation to repay the loan, D signed an agreement granting B a security interest in “all the inventory and accounts of D, whether now owned or later acquired.” 

On February 1, B filed a financing statement in the appropriate state office. The financing statement listed D as the debtor and B as the creditor, and it identified “all personal property” as the collateral. 

Shortly afterward, D entered the following transactions: 

On February 10, D sold a new piano to C, a consumer. The sale occurred in C’s store during normal business hours. C paid slightly under fair market value for the piano. D gave C this appreciable discount because C paid cash for the piano. At no point during this transaction was C aware of the financial relationship between D and B. 

On March 1, D traded F a used piano for furniture and framed art. D immediately displayed this furniture and framed art in its store, but never offered these items for sale. 

On March 5, D purchased an antique grand piano from S, a seller of restored pianos. The sale was on credit, with S providing this credit. Payment was due in 30 days. D and S signed a written agreement stating, in part, that S retained title to the antique piano until D paid the full purchase price to S. The agreement also stated that S retained a security interest in the piano it sold to D on credit, to secure D’s obligation to pay the purchase price. S never filed a financing statement. 

It is now May 1, and D has defaulted on its payment obligation to B. Also, D has not paid S for the antique piano, which is still on display in D’s store. 

Per the written agreement with D, S claims to still own the antique piano. In the alternative, S claims it holds a purchase-money security interest in the antique piano, which was automatically perfected at the point of sale. Finally, B claims a security interest in the furniture and framed art that D acquired through the trade with F, as well as every piano that D currently owns and has sold since February 1.


Questions

  1. Does B have a perfected security interest in the furniture and framed art that D acquired through the trade with F? Explain.
  2. As between B and C, who has a superior claim to the piano that D sold to C? Explain.
  3. As between B and S, who has a superior claim to the antique piano? Explain.

Question 1

Does B have a perfected security interest in the furniture and framed art that D acquired through the trade with F? Explain.

Question 2

As between B and C, who has a superior claim to the piano that D sold to C? Explain.

Question 3

As between B and S, who has a superior claim to the antique piano? Explain.

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