Article 9 of the UCC applicability

Question 1

Article 9 applicability and scope.

Answer 1

Article 9 of the UCC applies to any transactions intended to create a security interest in personal property or fixtures (Not mortgages or real property).

A security interest gives a a creditor the right to sell a debtor’s party in order to satisfy a debt.

Question 2

Define the the different types of collateral

Answer 2

1. Goods
2. Consumer Goods
3. Inventory
4. Equipment:
5. Farm Products
6. Accounts.

Question 3

Define Goods for the purpose of Art. 9 UCC

Answer 3

Goods are all things that are moveable when a security interest attaches.

Question 4

Define Consumer goods for the purpose of Art.9 of the UCC

Answer 4

Consumer goods are goods that are used (bought) mainly for personal, family or household purposes.

Question 5

Define Inventory for the purpose of Article 9 of the UCC

Answer 5

Inventory includes goods that are kept by a person for a sale or a lease to be furnished under a contract of service; or raw material, work in process or materials used or consumed in a business. (Not farm products)

Question 6

Define Equipment for the purpose of Article 9 of the UCC.

Answer 6

Goods other than inventory, farm products or consumer goods. (computers in a business)

Question 7

Define Farm product

Answer 7

Crops, livestock, supplies produced in a farming operation or products or crops or livestock in their unmanufactured state in possession of debtor who is engaged in a farming operation.

Question 8

What is attachment

Answer 8

Attachment is when a security interest in created. Once a security interest attaches, it becomes enforceable.

Question 9

What is required for a valid attachments

Answer 9

1. value must be given by the secured party to the debtors (e.g a loan )
2. the debtor must have rights in collaterals and
3. there must be a binding security agreement which requires (AID ) authentication, intent to create a security agreement and a description of the collateral.

Question 10

Can the Security agreement cover after-acquired property?

Answer 10

General rule is that a security agreement can cover after-acquired property and does not need to specifically reference it to be effective. (does not apply to consumer goods)

Question 11

What is perfection

Answer 11

Once a security interest attaches, it is enforceable. Perfection of the interest only enhances the secured party’s rights to the property serving as collateral.

Question 12

What are the different types in which a security can be perfected

Answer 12

Perfection can occur by filing a financial statement. It can be automatic in some cases (PMSI in consumer goods)
Or, an interest can be perfected by possession or control.

If the Security Interest does not attach, then it CANNOT be attached no matter what a creditor does.

Question 13

Financial filing statement

Answer 13

Primary method of perfection. The filing of a financing statement or the security agreement with the state by an authorized party. Minor errors will not invalidate .

Question 14

What should a filing statement contain.

Answer 14

1. Debtor’s name
2. Secured Party’s name
3. Adequate description of the collateral.
4. Filing fee.

Question 15

Would taking possession be a valid perfection.

Answer 15

Yes, A secured party may perfect a security interest in negotiable douments, goods instrument or money by taking mere possession of such items.

Question 16

What is automatic perfection

Answer 16

The following security interest are perfected automatically when they attach:

1. Purchase -money security interest in consumer goods.

And

2. An assignment of accounts that does not transfer a significant part of the assignor’s outstanding accounts.

Question 17

Priority of Perfected vs. Unperfected

Answer 17

Generally, a perfected security interest has priority over a conflicting unperfected security interest in the same collateral

Question 18

Priority of multiple perfected creditors.

Answer 18

Between multiple perfected creditors, the first to file obtains priority.
Some collateral is not subject to state filing system or cannot be filed. In these instances, the first to perfect obtain priority.

Generally, knowledge of a prior unperfected interest will not prevent a potential secured party from filing first to obtain priority.

Question 19

Priority of lien creditors

Answer 19

Same status as perfected secured creditors. If a party becomes a lien creditor before a secured party perfects, the lien creditor will enjoy priority.

Question 20

Exception to priority : A buyer in the ordinary course of business.

What is the security interest ?

Answer 20

A buyer in the ordinary course of business generally takes free of any security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.

Shelter rule apply.

Question 21

Consumer to goods exception

Answer 21

A buyer not in the ordinary course of business takes it free of a security interest even though it’s perfected, if he buys without knowledge of the security interest, for value and for his own personal, family or house hold purposes, unless prior to the purchase the secured party has filed a financing statement covering the goods.

The goods must be consumer goods both when the seller has them and buyer buys them for this to apply.

Question 22

Purchase-money security interest priority

Answer 22

Generally a PMIs have priority over prior perfected security interest .

Question 23

What is a PMSI

Answer 23

Purchase money security interest

It’s either a

1 a security interest held by a seller of collateral to secure payment of all or part of the price OR

2 a security interest of a person that gives a value to a debtor so that the debtor may acquire right I. The use of collateral.

Question 24

Unperfected PMSI priority?

Answer 24

An unperfected PMSI in inventory will not have have priority over perfected security interest in same collateral.

A PMSI in non inventory collateral has priority over a conflicting security interest in the same collateral if the PMSI is perfected at the time the debtor receives possession of the collateral of the PMSI is perfected at the time the debtor receives possession of the collateral or within 20 days thereafter

Question 25

Rights of the secured party to foreclose on its collateral

Answer 25

Default And resale

Question 26

Default of payment rights of the secured party

Answer 26

If the a default occurs the lender can demand payment or use self help to reclaim the goods as long as it does not breach the peace

Question 27

What is a breach of the peace

Answer 27

There are several factors to examine to determine if the lender has breached the peace.

Did the repossession took place at debtor’s premises and whether the debtor objected. Some courts also look at whether trickery was used. Some courts say a slight objection is a breach of the peace.

Question 28

Resale of collateral by secured party

Answer 28

The secure party may sell or dispose of the collateral in a commercially reasonable way.

The security interest is discharged when this occurs.

But the debtor is liable for any deficiencies.

The obligation owed to the disposing secured party and junior liens are paid off.

Question 29

Rights of the debtor to protection of collateral

Answer 29

1. Sale must be commercially reasonable
2. Must receive written notification of the sale.
   - timeliness
   - content of notification

Question 30

What does the written notification of the sale contain in a no consumer transaction

Answer 30

The notification of the disposition should describe the debtor and the secured party

Question 31

Who is a buyer in the ordinary course of business

Answer 31

A buyer generally takes free.
1. In good faith and without knowledge that the sale to him is in violation of the security interest of a third party.

2. Buys in the ordinary course from a person in the business of selling goods of that kind.

Question 32

Who is a buyer not in the ordinary course of business

Answer 32

A buyer is not in the ordicary course of business takes collateral subject to a perfected interest. Generally, he does not take subject to an unperfected interest if he gives value and does not know about the interest.

Question 33

Consumer to consumer goods exception (garage sale )

Answer 33

A buyer of consumer goods takes goods free of security interest even if perfected uf

Question 34

Remedies available if the debtor does not follow proper process for its collateral

Answer 34

Damages
Sale
Rebuttable presumption

Question 35

What damages are available

Answer 35

(Includes consequential damages, but debtor has a duty to mitigate)

If the collateral constitutes consumer goods, statutory damages are awarded.

Question 36

Sale

Answer 36

A court can order a sale.

Question 37

Rebuttable presumption for non consumer transactions

Answer 37

If there is a failure to comply with these requirements and the secured party fails to show that the sale was commercially reasonable, then there is a rebuttable presumption that the collateral is worth the amount of debtor’s deficiency is nothing.

Question 38

Rebuttable presumption for consumer transactions.

Answer 38

There are two approaches the court follow: the absolute bar rule (the creditors non compliance bars recovery of deficiency) or the rebuttable presumption rule .

Question 39

Debtor’s right to redeem.

Answer 39

The debtor can redeem prior to the disposition of the collatertal by paying everything due and owing to the creditor.