Chapter 20 - Secured Transactions

Question 1

Secured transactions

Answer 1

• UCC article 9

tangibles (inventory, equipment, consumer goods, chattel paper) and intangibles (accounts, negotiable instruments)

Question 2

PMSI (purchase money security interest)

Answer 2

when creditor gives debtor the purchase money or the credit to acquire the collateral.

Question 3

Attachment

Answer 3

• All three must occur: attached when last occurs:
  
  • property owned by debtor (rights)
  • interest is created (1 of 2 ways)
    
    • signed security agreement
      
      • reasonable desctiption of collateral
      • signed by debtor
    • t_ake possession (pledge as collateral)_
  • Give value to the debtor
    
    • line of credit is value when given authority, not when money is distributed.

Question 4

Perfection

Answer 4

• any 1 of following:
  
  • file a financing statement
  • Automatic perfection
    
    • PMSI in consumer goods is automatically perfected without filing or taking possession
      
      • loophole - if debtor sells to another good faith consumer, new purchase takes possession (garage sale rule)
        
        • must file financing statement within 20 days of attachment (retroactive to attachment date)
          
          • also applies to equipment but not inventory
  • Take possession of collateral (pawn broker lending money)

Question 5

Inventory Rule - priority among creditors

Answer 5

• Priority among creditors:
  
  • Inventory rule - buyer of inv.
  • holder of a statutory lien
  • PMSI when attached and perfected simultaneously
  • among other perfections by filing, order of filing (even if not perfected)
  • other perfected interests or judicial liens (court order/garnish wages) in order of perfection
  • order attachment, of no one perfected.

Question 6

Creditor Responsibilites

Answer 6

• use reasonable care to preserve any collateral in their possession
• confirm the unpaid amount of debt when requested by debtor
• file or send the debtor a termination statement releasing the collateral once the debt has been repaid

Question 7

Procedures on default of the debtor

Answer 7

• when defaults:
  
  • creditor has claim to property, but has rights of redemption must terminate
    
    • rights of redemption: allows debtor to repay and pay penalties and other costs.
  • may obtain general judgement against debtor
• If proceeds not sufficient:
  
  • without recourse - lender has not further claim
  • with recourse - debtor will be personally liable for unpaid (called deficient judgment)
• If proceeds exceed claims:
  
  • first applies to expenses of selling good
  • then to the secured creditor
  • excess to other secured creditors
  • debtor will be entitled to remaining
• if debtor has paid at least 60% (consumer goods)
  
  • must dispose of it within 90 days (cannot retain)