Chapter 30 - Secured Transactions

Question 1

Secured Transaction

Answer 1

1) A transaction in which the payment of a debt is guaranteed by personal property owned by the debtor

Question 2

Secured interest

Answer 2

1) an interest in personal property or fixtures which secures payment or performance of an obligation
2) repossession rights – car, laptop, etc

Question 3

Secured Party

Answer 3

1) person or party that hold interest in secured property

2) secured creditor

Question 4

Debtor

Answer 4

1) has obligation to to the secured party

Question 5

Security Agreement

Answer 5

1) debtor gives secured interest to the secured party

Question 6

Collateral

Answer 6

1) property that is subject to secured interest

2) may include goods, indispensable paper, and intangibles

Question 7

Creation of Secured Interests

Answer 7

Secured party must gain a security interest in the collateral of the debtor, three steps:
1) two parties create a security agreement and either a) there is a record of the security agreement (usually written describing collateral signed by debtor) or b) the secured party/creditor is in possession of the collateral
2) Secured Party must give value to get the security agreement
3) the debtor has a right in or to the collateral
All conditions met, Secured party’s rights ATTACH to the collateral

Question 8

Written Agreement - Security Agreement

Answer 8

1) Must be signed by debtor
2) Must describe collateral – must be accurate and detailed enough as to reasonably identify the collateral
3) If not accurate and detailed creditor may lose rights in collateral i.e. proceeds vs accounts receivable

Question 9

Attachment

Answer 9

1) Occurs when a security agreement is completed

2) Creditor becomes a secured party with an interest in the collateral

Question 10

Purchase-Money Security Interest (PMSI)

Answer 10

1) Formed when a debtor uses money borrowed from the creditor to purchase the collateral
UCC –> PMSI exists when:
a) security interest is retained or taken by seller of the collateral to secure part or all of the purchase price
OR
b)security interest is retained or taken by a person who gives something of value to the debtor so that the debtor can gaine rights to or use the collateral

Question 11

Default

Answer 11

1) failing to make payments, violating the agreement

2) can lead to repo

Question 12

Perfected Security Interest

Answer 12

1) legal protection of claim to collateral
2) A series of legal steps a secured party takes to protect its rights in the collateral from other creditors that wish to have their debts settled by the same collateral
3) First to perfect = first to have debts settled (in full)
4) Methods
- perfection by filing
- automatic perfection
- perfection by possession
- perfection of interests in Motor Vehicles

Question 13

Perfection by Filing (to state agency)

Answer 13

1) Chattel Paper: writing that indicates the debtor’s monetary obligation as well as a secured interest
2) Documents of Title: papers that demonstrate the owner’s possession of the goods
3) Accounts: Rights to Payments for goods sold or leased
4) General Intangibles: Trademarks, copyrights, patents
5) Equipment
6) Farm Products
7) Inventory: goods for sale or lease
8) fixtures (attached to real estate)
File a FINANCING STATEMENT to perfect via filing
9) Good for five years (for consumer goods)

Question 14

Financing Statement

Answer 14

1) most common way to perfect security interest by filing with state agency
2) Lists: name and addresses of those involved, description of collateral, a signature of the debtor
3) names and addresses = important bc people may wish to contact the parties
4) financing statement must be filed under the name of the debtor whether debtor is individual, an unincorporated business association, or a corporation
5) if incorrect name = likely no perfection
6)

Question 15

Perfection by Possession

Answer 15

1) Debtor Substituting collateral to hold while paying off a loan = PLEDGE (transfer of collateral to a secured party for the purpose of perfection)
2) Advantages
- secured party does not need to file financing statement no written security agreement needed
- little chance anoter creditor will loan money to debtor on collateral already possessed
- if default, creditor already has possession of collateral so no repo difficutiess
3) Disadvantages
- impractical because debtor can benefit from use of collateral
4) Must be perfected through possession = writings that serve as evidence of rights to payments of money (certificates of deposits, stocks and bonds)

Question 16

Automatic Perfection

Answer 16

1) Occurs when a creditor sells a CONSUMER GOOD on a credit basis or extends a loan to to debtor for purchase
2) PMSI’s in consumer goods

Question 17

Perfection of Movable Collateral

Answer 17

1) Collateral that moves to another state must be “reperfected” after four months

Question 18

Perfection of security interests in automobiles and boats

Answer 18

1) Perfected by noting the interest on the certificate of title

Question 19

Scope of Security Interest

Answer 19

1) After Acquired Property: A creditor has a security interest in property acquired by the debtor after the security agreement is made if a clause to this effect is included in the agreement
2) Proceeds: A creditor automatically has rights to proceeds from the sale of collateral for ten days

Question 20

Termination Statement

Answer 20

1) an amendment to a financing statement saying the debtor has no obligation to the secured party

Question 21

Priority Disputes

Answer 21

1) Two or more parties claim rights to the same collateral
2) Secured vs Unsecured –> when an individual with a secured interest is disputing wit an unsecured, secured wins
3) Secured vs Secured –> two individuals with secured disputing, first to perfect wins
4) PMSI conflicts –> Always have rights to collateral, regardless of when agreement was perfected
5) Secured Party vs Buyer –> if debtor sells collateral, creditor may dipute with buyer
- Buyers in the ordinary course of business: if a person buys collateral without knowing its collateral in ordinary course of business, she has rights to collateral
- Buyers of Consumer Goods: As long as the consumer foes not know that the product is secured, buyer is free of security interest
- Buyers of Chattel paper and Instruments - IF buyer purchases chattel paper and instruments, free from security interest

Question 22

Default

Answer 22

1) debtor fails to pay back loan
2) remedies
- take possession of collateral
- Dispostion of collateral (sell)
- Retention of Collateral (keep collateral as payment)
- Proceeding to judgement = sueing