Basics

Question 1

What is the statutory scheme of secured transactions?

Answer 1

Involves credit transactions. Typically one party (the debor) buys something on credit from another party (the creditor or secured party) but does not pay immediately. To ensure payment, the creditor takes a security interest on specific personal property (the collateral) of the debtor, which allows the creditor to take the property if the debtor fails to fulfill the credit obligation.

Question 2

What is the scope of article 9?

Answer 2

Art. 9 applies to the following transactions:

1. Contractual Security Interests - interests in personal property or fixtures that secure payment or performance.
2. Sales of accounts, chattel paper, payment intangibles, and promissory notes;
3. Commercial consignments - of goods worth a total of $1,000 or more to person who (a) deal in goods of that kind; (b) are not auctioneers, and (c) are not generally known by their creditors to be substantially engaged in selling the goods of others;
4. Agricultural liens - nonpossessory liens on famr products that are created by statute statute in favor of person providng goods, services, or rental land to farmers;
5. Leases that are intended to serve as security arraignments.
6. A seller’s retention of title to delivered goods.

Question 3

What does Art. 9 not apply to?

Answer 3

Does not apply to transfers of land.

Question 4

What is a PMSI or A purchase money security interest?

Answer 4

A special type of security interest in goods. A person who holds a PMSI has priority over other security interests in the same goods if certain requirements are met.

Question 5

How can a PMSI arise?

Answer 5

In two ways:

1. The creditor sells the goods to the debtor on credit, retaining a security interest in the goods for the purchase price; or
2. The creditor advances the debtor the funds used to buy the goods, and the creditor takes a security interest in the goods.

Question 6

What is the Dual Status Rule?

Answer 6

A security interest in non-consumer goods (i.e. goods that were not bought or used for personal, family or household purposes) does not lose its status as a PMSI if:
1. the security interest also is secured by property that was not purchased with the loan money or credit;
2. The collateral also secures advances that were not made for the purchase of the collateral;
or 3. the PMSI has been refinanced, consolidated.

Question 7

What are the tangible or goods types of collateral?

Answer 7

The category into which tangible collateral is placed depends on the primary use to which the debtor puts the property:

1. Consumer goods - goods bought or used for personal, family or household purposes;
2. Inventory - Goods held for sale or lease and good consumed by a business;
3. Farm Products - goods used or produced in farming that are in the possession of or used by a farmer; and
4. Equipment - goods that are not consumer goods, inventory, or farm products.

Question 8

What are the Intangible or Semi-tangible types of collateral?

Answer 8

The category into which intangible or semi-tangible collateral is placed depends on the nature of the collateral:

1. Instruments - notes, drafts, and certificates of deposits;
2. Documents - bills of lading and warehouse receipts;
3. Chattel Paper - records evidencing both a monetary obligation and a security interest in or lease of goods, such as a promissory note;
4. Accounts - rights to payment for goods or services;
5. Deposit Accounts - savings accounts, passbook accounts;
6. Investment Property - stocks, bonds, mutual funds, brokerage accounts;
7. Commercial Tort Claims - Tort claims filed by organizations and tort claims filed by individuals that arose out of the individuals’ business and do not involve personal injury;
8. General intangibles - intangibles not fitting into any other category, such as copyrights and goodwill.

Question 9

What are proceeds?

Answer 9

Whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds.