Basics/Terminology

Question 1

What is a secured transaction?

Answer 1

A secured transaction is a transaction intended to create a security interest in personal property or fixtures. The elements are:

1. A credit transaction, and
2. an agreement that creates a lien in favor of the creditor in the debtor’s personal property to “secure” the debt.

Question 2

What is a credit transaction?

Answer 2

Purchase of an item “on credit” means without actual money, rather a promise to pay back.

Question 3

Debtor

Answer 3

Person who owes payment or performance of the obligation secured.

Question 4

Secured Party

Answer 4

A secured party, AKA Creditor, is a lender, seller, or other person in whose favor there is a security interest.

Question 5

Security Agreement

Answer 5

The agreement between the debtor and creditor that creates a security interest.

Question 6

Security Interest

Answer 6

A contingent interest in personal property or fixture that secures payment or performance of an obligation. The interest is contingent on the debtor defaulting, resulting in the creditors property interest to come to life and gain rights in the debtor’s collateral (property).

Question 7

Collateral

Answer 7

The property subject to a security interest which the secured party can repossess upon default to ensure the debt is paid.

Question 8

Purchase Money Security Interests (PMSI)

Answer 8

Two ways:

Method One:

1. Secured party sells goods to on credit, and
2. creditor retains a security interest in the goods sold.

Method Two:

1. Creditor loans funds to the debtor to allow debtor to purchase a specific collateral
2. Debtor uses those exact funds to purchase the collateral, and
3. Creditor takes a security interest in the collateral.

Question 9

After Acquired Property Clause

Answer 9

A generally valid and permissible clause allowing a secured party to obtain a security interest in debtors present property AND in property debtor will obtain in the future.

Question 10

Future Advance Clause

Answer 10

A clause added to the present security agreement to allow a secured party to have a secured interest in future advances in payment.

Ex: A loan B $100 secured by house, adds Future Advance Clause. Now when A loans B another $100, it will also be secured by the house, house securing a total of $200.

Question 11

Attachment

Answer 11

The legally required method for a secured party to obtain a security interest in the collateral that is effect against the debtor.

Question 12

Perfection

Answer 12

The legally required methods to gives the secured party an interest in the collateral that is effect as against the world (giving other creditors notice of our interest and hopefully gaining priority).

Question 13

Financing Statement

Answer 13

The document generally used to provide public notice of the security interest, and so to perfect the security interest.

Question 14

What are the two broad categories of collateral?

Answer 14

Tangible (goods) and intangible.

Question 15

What are the types of goods (tangible collateral)

Answer 15

1. Consumer Goods
2. Equipment
3. Farm Products
4. Inventory

Question 16

What are Consumer Goods

Answer 16

Goods used or bought primarily for personal, family, or household purposes.

Question 17

What is Equipment (goods)

Answer 17

Goods used or bought for use in a business.

Note: this is a default category. Use this category if it doesn’t seem to fit the other forms.

Question 18

What is Farm Equipment (goods)

Answer 18

Crops, livestock, supplies used to produce in farming operations, or products of crops or livestock (in their remanufactured state, and in possession of debtor).

Question 19

What is inventory (goods)

Answer 19

Goods held for sale or lease, goods that are to be furnished under service contracts, and materials used or consumed in a business in a short period of time.

Note: THink about grocery stores, their inventory should be sold and thus short lived. Office supplies may fall into this category (argument for equipment).

Question 20

True or false: Perfection often hinges on the type of tangible collateral involved.

Answer 20

True.

Question 21

What are the types of intangible Collateral

Answer 21

1. Instruments
2. Documents
3. Chattel Paper
4. Investment Property
5. Accounts
6. Deposit Accounts
7. Commerical Tort Claims
8. General intangibles

Question 22

What are Documents

Answer 22

Papers representing the right to receive goods (order confirmation, or recipet

Question 23

What are instruments

Answer 23

Paper representing the right to be paid money, like promissory notes, drafts (example, checks) and certificates of deposit.

Question 24

What are Chattel Papers

Answer 24

Record(s) evidencing both:

1. A monetary obligation, and
2. A security interest in either a tangible medium (like written on paper) or an intangible medium (electronically stored).

Question 25

Investment Property

Answer 25

Includes items such as stocks, bonds, mutual funds, and brokerage accounts containing such items.

Question 26

Accounts

Answer 26

The right to payment for property sold or services rendered (think accounts receivable in on a balance sheet).

Question 27

Deposit Accounts

Answer 27

An account maintained with a bank.

Note: Article 9 generally only deals with nonconsumer deposit accounts and account monies that are claimed as proceeds of other collateral.

Question 28

Commercial Tort Claims

Answer 28

Can have a security interest in:

(1) a claim where the claimant is an organization, or

(2) the claimant is an individual, the claim arose out of the claimant’s business or profession, and the claim does not include damages for personal injury or death of an individual.

Question 29

General intangibiles

Answer 29

Any perosnla property not coming within the scope of other definitions, such as a patent and trademark, copyright, and goodwill.

Note: Catchall.

Question 30

What transactions does Article 9 apply?

Answer 30

1. Transactions that create a security interest in personal property or fixtures by contract (regardless of form)
2. A sellers retention of title: when a seller retains the title of goods sold to a buyer until they are completely paid for, courts will view the retention as a security interest.
3. Agricultural liens: nonpossessory liens on farm products that are created by state statute in favor of persons providing goods, services, or rental land to farmers (only the perfection and priority of agricultural liens are governed by article 9; creation and enforcement of the liens are governed by state statute).
4. Sales: selling accounts, chattel paper, payment intangibles, and promissory notes.
5. Commerical consignment of goods: For commercial goods worth $1000 or more and to persons who (a) deal in goods of that kind under a name other than consignor’s, (b) are not auctioneers, and (c) are not generally known by their creditors to be substantially engaged in selling the goods of others.
6. Secured sale disguised as a lease: Three factors (a) whether the lease term is equal or greater than the remaining economic life of the goods, (b) whether the lessee is bound to purchase the goods at the end of the lease or to renew the lease for the remaining economic life of the goods, or (c) at the end of the lease, the lessee has the option to purchase the goods or renew the lease for the remaining economic life of the goods for no or nominal consideration.