Creation & Enforcement of Security Interest

Question 1

To which transactions does article 9 UCC apply?

Answer 1

All consensual security interest in personalty (goods) and fixtures

Question 2

How can a creditor attach?

Answer 2

Value

A contract

Rights in the collateral

Question 3

Once attached how does a creditor attain perfection?

Answer 3

By putting the world on record notice of its existence (fighting)

Protection means publicity and this itself protects

Question 4

When more than one creditor has a stake in the same collateral, what are the rules of priority?

Answer 4

Generally, first in time first and right.

The first to perfect usually takes first and the second to perfect take second.

Question 5

If a debtor defaults on the debt obligation what happens?

Answer 5

The lender has statutory and judicial remedies and article 9.

Question 6

For the purposes of collateral what counts as consumer goods?

Answer 6

Items used for personal or familial purposes, such as a home dining room set, a blender, oven, refrigerator, car.

Question 7

For the purposes of assessing collateral, what counts as equipment?

Answer 7

Item is used in business.

Question 8

For the purposes of assessing collateral, what counts as inventory?

Answer 8

Good held for sale or lease (e.g. clothing stock in a warehouse).

Question 9

For the purposes of assessing collateral, what counts as farm products?

Answer 9

Crops, livestock and supplies used in farming operations.

Question 10

For the purposes of assessing collateral, what counts as fixtures?

Answer 10

Items are next to Realty, such as light fixtures, sprinkler systems, furnaces.

Question 11

What are the different types of interest?

Answer 11

INSTRUMENTS (pieces of paper that represent the right to be paid money, such as promissory notes draft certificates of deposit).

DOCUMENTS (Representing the right to receive goods, such as bills of lading).

CHATTEL PAPERS (A record evidence in both mandatory obligation under security interest)

Question 12

Once a creditor attaches, what does that mean?

Answer 12

That their security interest is enforcible.

Question 13

To attach you require what?

Answer 13

1. VALUE given by creditor
2. A CONTRACT — parties must (i) agree to it; and (ii) evidence the security agreement

                            OR

Possession by creditor

                            OR 

If Debtor in possession, you need a WRITING authenticated by them, which reasonably identifies the collateral.

                           AND

3. Debtor must have RIGHTS in the collateral.

Question 14

Are after-acquired collateral clauses enforcible?

Answer 14

Yes

But NOT for consumer goods or commercial tort contracts

Question 15

How come a credit to attain perfection?

Answer 15

• Either by properly attaching and then taking POSSESSION of the collateral.
• Automatic perfection for PMSIs in CONSUMER GOODS
• File FINANCING STATEMENT in public record.

Question 16

What are the requirements when it comes to filing a financing statement (notice)?

Answer 16

Must provide enough information for third-party to make follow-up enquiries

Must contain creditors name and address

Must contain debtors name and address

Description of the collateral (generic ok)

Question 17

If the financing statement contains a mistake in the debtor’s name and or address what is the result?

Answer 17

Minor errors will not invalidate the financing statement, but must not contain any seriously misleading errors, meaning it must be discoverable in a search of the debtor.

Question 18

Where do you file the financing statement?

Answer 18

In a state where the debtor is located (individuals = state of resident; organisation = state under his laws it is organised)

Question 19

For which type of collateral do you need to file locally, in the county where the Realty is located, rather then the location of the debtor?

Answer 19

For timber, minerals, or fixtures

Question 20

For how long is the financing statement effective?

Answer 20

Five years

Question 21

To continue the effectiveness of a financing statement what must be credited to?

Answer 21

File a continuation statement six months before the lapse of the financing statement with the authority of the secured party (you don’t need debtors consent)