Secured Transactions Bar Practice Exam

A Purchase Money Security Interest (PMSI) allows a creditor to have a super-priority status over inventory proceeds, which can provide significant leverage in a secured transaction. For a PMSI creditor to assert this super-priority, the critical factor is timing and the nature of the transaction related to the inventory.

The correct answer is that the PMSI creditor can assert super-priority over inventory proceeds before the inventory is sold on credit. This means that the PMSI must be perfected by the time the goods are acquired through the loan or credit arrangement, allowing the creditor to have priority when it comes to the proceeds of that inventory. This super-priority is particularly important as it enables the PMSI creditor to have a stronger claim against the proceeds derived from the sale of the inventory, compared to other general creditors.

In contrast, other scenarios, such as a requirement for full payment of the inventory, notifying all other secured creditors, or the repossession of inventory, are not necessary conditions for establishing the PMSI super-priority. The essence of the PMSI is its contingent status based on the timing of the transaction rather than dependent on additional actions post-sale or payment requirements.