Applicability and Definitions

Question 1

When is a loan unsecured?

Answer 1

When it is supported only by the borrower’s promise to pay

Question 2

When is a loan secured?

Answer 2

When the creditor takes an interest in the borrower’s personal property to secure the loan

Question 3

What is the person called that gives a creditor a security interest?

Answer 3

Debtor

Question 4

What is a creditor called in a secured transaction?

Answer 4

Secured party

Question 5

Are the debtor and borrower always the same person?

Answer 5

No. A third party can grant a creditor a security interest to secure the loan to the borrower

Question 6

What type of relationships does Article 9 govern?

Answer 6

Only those involving secured transactions

Question 7

What are the five types of Article 9 transactions?

Answer 7

(1) Transactions that create a security interest in personal property by contract
(2) Agricultural lien
(3) Sale of accounts, chattel paper, payment intangibles, or promissory notes
(4) Consignment
(5) Security interest under Article 2

Question 8

When determining whether a transaction creates a security interest, will the court look to objective or subjective factors?

Answer 8

Objective

Question 9

What is a security interest?

Answer 9

An interest in personal property or fixtures that secures payment or performance of an obligation

Question 10

What law governs the sale of accounts receivable?

Answer 10

Article 9

Question 11

What is consignment?

Answer 11

A transaction in which a person delivers goods to a merchant for the purpose of sale

Question 12

When is Article 9 relevant to consignment?

Answer 12

When a creditor takes a security interest in the consignee’s inventory to secure a loan

Question 13

When a consignment is an Article 9 transaction, what happens if the consignor does not obtain priority over the creditor?

Answer 13

The creditor may foreclose on the property if the consignee defaults

Question 14

What four types of transactions are not considered consignments under Article 9?

Answer 14

(1) Consignee does not deal in goods of the kind that are consigned
(2) Consignee is generally known to be selling the goods of others
(3) Consigned goods are worth less than $1,000
(4) Goods were consumer goods prior to consignment

Question 15

What are consumer goods?

Answer 15

Goods that are bought for personal, family, or household purposes

Question 16

What factors do courts consider when determining whether a relationship is a lease or a sale with a security interest in the goods sold?

Answer 16

(1) Whether lessee can terminate during the lease term
(2) Whether lessor has right of reversion

Question 17

What is the right of reversion under Article 9?

Answer 17

Whether the lessor is entitled to return of something of value at the end of a lease term

Question 18

What is a purchase money security interest?

Answer 18

A security interest that is taken by either:
(1) A seller of goods in the goods sold to the debtor on credit
(2) A lender who takes an interest in the goods that the loan enabled the debtor to buy

Question 19

What are the four types of collateral?

Answer 19

(1) Goods
(2) Fixtures
(3) Intangible property
(4) Quasi-intangible property

Question 20

What are goods under Article 9?

Answer 20

Tangible items that are movable when the security interest attaches

Question 21

What is a fixture?

Answer 21

A good that has become so related to particular real property that an interest in them arises under real property law