Conviser

Question 1

What is the scope of article 9?

Answer 1

Contractual Security Interests

Sales of Accounts, chattel paper, payment intangibles, and promissory notes.

Commercial Consignments

Agricultural liens

Leases that are intended to serve as security arrangements.

A seller’s retention of title to delivered goods.

Article 9 does not apply to most transfers of interests in land (except for interests in fixtures).

Question 2

Contractual Security Interests

Answer 2

Interests in property or fixtures that secure payment or performance of an obligation.

Question 3

Purchase Money Security Interest

Answer 3

A type of security interest that has priority over other securities.

Seller-Financed PMSI: A seller sells goods to a debtor on credit and retains an interest in those same goods.

Financer-Financed PMSI: A financer gives a debtor money to buy goods and the financer takes an interest in the goods the debtor buys with that money.

Question 4

Types of Collateral

Answer 4

Tangible Collateral or Goods: includes consumer goods, inventory, farm products, and equipment.

Intangible or Semi-Tangible Collateral: Includes instruments, documents, chattel paper, accounts, deposit accounts, investment property, commercial tort claims, and general intangibles.

Proceeds: whatever is received upon the sale, exchange, collection, or disposition of collateral.

Question 5

Instruments

Answer 5

Notes, drafts, and certificates of deposit.

Question 6

Documents

Answer 6

Bills of lading and warehouse reciepts.

Question 7

Chattel Paper

Answer 7

Records evidencing both a monetary obligation and a security interest in goods. Often this is shown via a promissory note and written security agreement.

A creditor is considered to have control over the chattel paper for purposes of collateral when they have the functional equivalent of possession.

Question 8

Accounts

Answer 8

A right to payment for goods or services.

Question 9

Deposit Accounts

Answer 9

Non-consumer bank accounts.

A creditor is considered to have control over the account for purposes of collateral when it is in their name or when there is sufficient documentation to where the bank will comply with the secured party’s orders.

Question 10

Investment Property

Answer 10

Stocks, bonds, mutual funds, etc.

A creditor is considered to have control over investment property for purposes of collateral when they have control over it.

Question 11

Requirements for Attachment

Answer 11

Parties must agree to a security interest. This is proven by a creditor taking possesion of the collateral, the debtors signature on a security agreement, or the creditor taking control (but not possesion) of the collateral.

Value must be given by the secured party.

The debtor must have rights (aka ownership) of the collateral.

Question 12

What is required to sufficiently describe the collateral in the security agreement?

Answer 12

The collateral can be described braodly by catergory or type or specifically such as by serial number. However, supergeneric terms such as “all of the debtors assets” is not sufficient.

Question 13

Rights and Duties of Secured Party in Possesion or Control

Answer 13

A creditor in possesion of collateral must use reasonable care in storing and preserving the collateral. They are entitled to reasonabl expenses for doing so. Risk of loss of the collateral is on the debtor. Any increase in value or profits may be held by the creditor as additional security but must eventually be given to the debtor or applied towards the obligation.

Question 14

After-Acquired Property

Answer 14

A security agreement may create a security interst in property to be acquired in the future. The interest will attach as soon as the debtor buys the property that will serve as collateral. Also, a security interest will attach automatically to prceeds from the disposition of colateral.

This clause does not apply to consumer goods unless the debtor acquires the consumer goods within 10 days of the creditor giving him the money to do so. It also does not apply to any commercial tort claims.

Question 15

Future Advances

Answer 15

A security agreement may also provide that collateral named in the agreement will serve not only as the security for the money provided then, but also for future advances.

Question 16

Methods of Perfection

Answer 16

There are five methods:

Filing
Taking possesion of the collateral
Control over the collateral
Automatic Perfection
Temporary Perfection

Question 17

Perfection by Filing

Answer 17

They must file a financing statement that includes:

The debtors name and address
The secured party’s name and address
An indication of the collateral covered. If real property, it must list the address and the name of the recorded owner.

Question 18

Where do you file a financing statement?

Answer 18

Normally you file it at the office of the secretary of state but for real property you must file it in the local county whereever mortgages and real estate liens are filed.

Question 19

Perfection by Possesion

Answer 19

Does not apply to general intangibles, nonconsumer deposit accounts, nonegotiable documents, electronic chattel paper, and certficate of title goods.

For everything else, the item is perfected as soon as the creditor take spossesion and as long as the item is retained.

Question 20

Perfection by Control

Answer 20

Security interests in investment property, nonconsumer deposit accounts, and electronic chattel may be perfected by control.

A creditor is considered to have control over investment property for purposes of collateral when it is in their name, the bank will answer their commands, etc.

Question 21

Automatic Perfection

Answer 21

A PMSI in CONSUMER GOODS is perfected as soon as it attaches.

A PMSI in motor vehicles requires a notation on the vehicle’s certificate of title to be perfected.

A PMSI in fixtures on real property requires the holder to file with the local government.

A PMSi in inventory or equipment must also be filed.

Question 22

Temporary Perfection

Answer 22

A security interest in proceeds from the original collateral is continuously perfected for 20 days from the debtor’s reciept of the proceeds. This is to give the creditor time to comply with the statutory requirements given the new kind of collateral.

Question 23

Secured Party v. Secured Party

Answer 23

When both secured parties are unperfected, the first to attach has priority.

When one secured party is perfected and the other secured party is not, the perfected party prevails.

When both secured parties are perfected, they rank in priority according to time or filing or perfection, whichever is earlier.

Question 24

Special Priority Rules for Investment Property

Answer 24

Generally, the first to file or perfect rule applies to investment property. However, a security interest that has been perfected by control has priority over every other perfected security interest.

Question 25

Priority Rules for PMSI in Inventory or Livestock

Answer 25

A PMSI in Inventory or Livestock has priority over conflicting security interst in the same inventory (or proceeds from it) if it is perfected at the time the debtor gets possesion of the inventory/livestock and any party who has a security interest in the same inventory is notified of the PMSI before the debtor gets possesion of the inventory/livestock.

Question 26

Priority Rules for PMSI in Goods other than Livestock or Inventory

Answer 26

A PMSI in goods other than inventory or livestock has priority over other security interest in the same goods (or their proceeds) if the interest is perfected before or within 20 days of the debtor recieving the goods.

Question 27

Conflicting PMSIs

Answer 27

A party who has a PMSI as the seller of the collateral has priority over a financer who financed the purchase of the same collateral.

Otherwise, the first secured party to file or perfect prevails.

Question 28

Purchaers of Chattel Paper and Instruments

Answer 28

A BFP of chattel paper or instruments will have priority over a security interst that arises merely as proceeds of invenotry and any other security interest as long as the purchaser did not have notice of the security (aka they are a true BFP).

Question 29

Priority in Proceeds from the Sale or Disposition of Collateral

Answer 29

Filling Collateral: Collateral in which a secured party would normally achieve priority by filing a financng statement.

Non-filing collateral: collateral in which a secured party would normally achieve priority by taking possesion or control, rather than by filing.