Chapter 30: Secured Transactions

Question 1

Secured transaction

Answer 1

when debtor agrees to pay back creditor by pledging property as collateral

Question 2

Secured party

Answer 2

any creditor who has a security interest in the debtor’s collateral

Question 3

security interest

Answer 3

interest in the collateral

Question 4

security agreement

Answer 4

agreement that creates or provides a security interest in collateral; evidence of the security interest.

Question 5

Financing statement

Answer 5

instrument filed to give public notice to third parties of secured party’s security interest.

Question 6

attachment

Answer 6

When the security interest (collateral) becomes enforceable against the debtor

Question 7

perfection

Answer 7

Legal process by which a secured party protects its security interest in the collateral against claims of third parties who want the same collateral.

Question 8

Requirements for creation of a security interest

Answer 8

1) Unless creditor has possession of the collateral, there must be a written or authenticated security agreement that clearly describes the collateral and is signed by the debtor
2) Secured party must give debtor something of value
3) Debtor must have rights in the collateral

Question 9

What must be filed to obtain perfection of a security interest?

Answer 9

Financing statement

Question 10

Requirements of a financing statement

Answer 10

1) signature of debtor
2) names of debtor and secured party
3) description of the collateral

Question 11

Where is a financing statement filed?

Answer 11

where the debtor is located (state).
Exception: if the collateral is timber or items to be extracted from land, must be filed in county where collateral is located.

Question 12

How long is a financing statement effective

Answer 12

5 years from date of filing, can be renewed with a continuation statement within 6 months of expiration.

Question 13

Perfection without filing

Answer 13

1) when creditor has possession of collateral
2) when security interest is applied upon attachment. PMSI; automatic at time of credit sale

Question 14

PMSI

Answer 14

When a person buys goods for personal use and seller agrees to extend credit to the buyer for part or all of the goods.

Question 15

PMSI exception

Answer 15

Cars, trailers, mobile homes, and farm tractors, to be perfected, the secured party must file a certificate of title with state office.

Question 16

Proceeds

Answer 16

cash or property received when collateral is sold. A security interest in collateral simultaneously and automatically guarantees the same interest in the proceeds.

Question 17

After acquired property

Answer 17

bank loans 50k, bank gets security interest in inventory and proceeds. If I use the 50k to buy more inventory, bank automatically gets security interest in the new inventory.

Question 18

Future advances

Answer 18

debtor can arrange to have a continuing line of credit with bank to borrow funds when needed

Question 19

Floating lien

Answer 19

When debtor borrows money to buy raw materials to create a product, bank gets security interest in the created product.

Question 20

Resolving priority disputes basic rule

Answer 20

If multiple creditors have perfected interest in the same collateral, whoever perfected first has priority.

Question 21

Exceptions to the basic rule regarding resolving priority disputes

Answer 21

1) Buyers in the ordinary course of business
2) Buyer buys consumer goods from another consumer
3) perfected PMSI in non-inventory collateral
4) Perfected PMSI in inventory

Question 22

Buyers in the ordinary course of business (BIOCB)

Answer 22

A person who in good faith buys goods from a merchant. BIOCB will have priority to the goods it purchases, over a secured party, even if security interest is perfected and if the buyer knows of its existence. Does not apply to gifts, non-inventory, non-merchant.

Question 23

Buyer buys consumer goods from another consumer

Answer 23

Buyer takes goods from the debtor free of PMSI if:
1)Buyer does not have knowledge of security interest
2) gives value for the collateral
3) purchases for personal use
4) secured party didn’t file a financing statement.

Question 24

Perfected PMSI in non-inventory collateral

Answer 24

Has priority over other secured creditors if the perfected PMSI is done within 20 days after debtor takes possession of collateral.

Question 25

Perfected PMSI in inventory

Answer 25

has priority over a conflicting security interest in the same inventory. To maintain priority, PMSI secured party must give written notice to non-PMSI party before debtor takes possession of inventory.

Question 26

Termination statement

Answer 26

when debt is paid, secured party must send to the debtor or file a termination statement.
1) if consumer goods, termination is required
2) if non-consumer goods, not required unless debtor requests.

Question 27

Obtaining collateral after default

Answer 27

1) Secured party can take peaceful possession of collateral without having to file a lawsuit.
2) Can file a lawsuit, obtain a judgement, have judgement enforced by execution and levy

Question 28

peaceful possession

Answer 28

secured party cannot enter debtor’s home, garage, or place of business without permission

Question 29

Execution

Answer 29

Implementation of court’s decree or judgement

Question 30

Levy

Answer 30

Legal process of obtaining property through seizure and sale of non-exempt property.

Question 31

Retaining collateral rules

Answer 31

1) can retain unless it consists of consumer goods, and debtor has paid 60% or more
2) secured party must notify debtor of its proposal to retain
3) if collateral is non-consumer goods, secured party must notify other junior lienholders who hold security interest.
4) if secured party receives written objection within 20 days of notice, must sell collateral.

Question 32

Selling collateral rules

Answer 32

1) must be in a reasonable manner
2) secured party must notify debtor of upcoming sale
3) notification not required if collateral is perishable, rapidly depreciable, or is sold on a recognized market.

Question 33

Order of where proceeds go

Answer 33

1) reasonable expenses incurred by secured party
2) balance of debt owed to secured party
3) junior lienholders who gave written notification
4) surplus to debtor

Question 34

deficiency judgement

Answer 34

If after sale of collateral, debt isn’t covered, secured party can sue debtor for remainder.