Debtor-Creditor: Secured Transactions

Question 1

Under Article 9 of the Uniform Commercial Code (Secured Transactions), which of the following must occur before a security interest “attaches” to the collateral?

Answer 1

1. Debtor has rights in the collateral.
2. Creditor has given value.
3. Security agreement has been executed.
   - -These are the three elements to perfection of a security interest, plus filing seals the deal.

Question 2

security interest

Answer 2

voluntary lien on personal property

Question 3

judgment lien

Answer 3

involuntary lien on personal property

Question 4

Can a security interest ever be oral or inferred?

Answer 4

Yes, when an item is pawned at a pawn shop.

Question 5

perfection of a security interest

Answer 5

protects a lender (the first lender) against persons who might make a claim to the same property

Question 6

Is recordation required for attachment of a security interest?

Answer 6

No, but it is usu. the means by which a security interest is perfected.

Question 7

Are items bought in the ordinary course from inventory released from a security interest?

Answer 7

1. A buyer in the ordinary course from inventory takes free and clear of any security interest, even if s/he knows of its existence (unless s/he is aware that the purchase is in violation of the security agreement).
2. In other words, such items do not affect the buyer’s ownership interests.

Question 8

If collateral which is subject to a filed financing statement is moved from one jurisdiction to another, how does this affect the secured creditor?

Answer 8

The secured creditor can retain priority if s/he files a financing statement in the new jurisdiction w/in 4 months of the move.

Question 9

Is retention of collateral in full satisfaction of claims permitted?

Answer 9

1. Against individuals, no.
2. Against non-individuals, yes. A creditor may retain collateral in partial satisfaction of a debt (with respect to non-individual debtors) but only with explicit consent of the debtor.

Question 10

Who must a creditor notify in the case of a sale?

Answer 10

All junior lienholders on record.

Question 11

Is repossession done during the night when no employees of the debtor are present permissible?

Answer 11

Yes, b/c there is no breach of peace.

Question 12

A secured party can purchase collateral:

Answer 12

1. At a public disposition; 2. OR, at a private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations.

Question 13

Can a creditor obtain judgment before proceeding against collateral?

Answer 13

Yes.

Question 14

The creditor must distribute excess proceeds from the sale of collateral to…

Answer 14

Junior security interests, with any remainder to the debtor.

Question 15

Can a new security interest (B) take priority over an already perfected security interest (A)?

Answer 15

1. B’s security interest can take priority with respect to new inventory over the perfected security interest of A if A is notified prior to the arrival of the new inventory.
2. In this case, A’s security interest is not automatically perfected.

Question 16

Is a financing statement using tort claims as collateral valid?

Answer 16

Yes, since commercial tort claims (an intangible) may be the subject of a financing statement under recent revisions to article 9 of the UCC.

Question 17

When does a purchase-money security interest lose its priority over non-purchase-money security interests?

Answer 17

When the collateral is not actually purchased with the funds loaned in the purchase-money transaction.

Question 18

Does a secured creditor always have a secured interest in collateral proceeds even if they are not mentioned in the security agreement or financing statement?

Answer 18

By virtue of UCC Article 9, section 9-203(f), even if not mentioned in the security agreement or financing statement, a secured creditor has a security interest in proceeds of the collateral which includes, among other things, sale or lease proceeds, insurance proceeds, and replacement collateral.

Question 19

How is a financing statement that used an incorrect name for the debtor treated?

Answer 19

The UCC provides that if a computer search under the debtor’’s correct name locates the financing statement with the debtor’’s incorrect name, the financing statement is effective.

Question 20

In the event of liquidation, which party gets priority claims?

Answer 20

The bank that loaned the money.

Question 21

perfection of a purchase -money security interest

Answer 21

A purchase-money security interest in consumer goods, but not one in business goods, is automatically perfected.

Question 22

financing statement filed with a bank =

Answer 22

perfection non-purchase money security interest in cash from sales + items listed in security and financing agreements

Question 23

filing w/state BMV =

Answer 23

perfected security interest in company vehicle

Question 24

filing among real estate records =

Answer 24

perfected security interest in company real estate

Question 25

Does a security interest attach to noninventory?

Answer 25

No.

Question 26

Must collateral be described in the financing statement?

Answer 26

To have a security interest, the creditor must adequately describe the collateral in the financing statement, though general descriptions are sufficient.

Question 27

Can a lease qualify as a negotiable instrument?

Answer 27

No, b/c it contains promises in addition to the promise to pay money.

Question 28

Can a secured creditor add or delete collateral covered by a financing statement?

Answer 28

1. Yes, by filing an amendment.

2. But an amendment does not extend the period of effectiveness of the financing statement.

Question 29

How long is a financing statement effective?

Answer 29

for a period of five years after the date of filing.

Question 30

When can a continuation statement be filed?

Answer 30

A continuation statement may be filed only within six months before the expiration of the five year period of effectiveness of the financing statement.

Question 31

What type of security interests does UCC Article 9 cover?

Answer 31

UCC Article 9-313 covers priorities of security interests in fixtures.

Question 32

fixtures

Answer 32

Goods are “fixtures” when they become so related to particular real estate that an interest in them arises under real estate law.

Question 33

fixture filing

Answer 33

1. The filing in the office where a real estate mortgage would be filed. 2. Under UCC Article 9-313, a security interest may be created in goods which are fixtures or may continue in goods which become fixtures.

Question 34

Does a security interest exists under UCC Article 9-313 in ordinary building materials incorporated into an improvement on land?

Answer 34

No, just for fixtures and/or goods that may become fixtures.

Question 35

Can the right to an accounting of the proceeds of a sale of collateral be waived?

Answer 35

No.

Question 36

Must collateral foreclosed upon be sold in an auction?

Answer 36

1. No, it may be disposed of in any commercially reasonable manner, including a private sale. 2. Auctions are common, but are not mandatory.

Question 37

artisan’s lien

Answer 37

1. occurs when one party improves personal property for another and then retains possession of that property until payment is made.
2. Without this type of lien, the party doing the work might have trouble forcing payment to be made.

Question 38

Which party has priority claim?

Answer 38

1. Purchase-money security interest.
2. Security interest perfected by financing statement.
3. Attached security interest.

Question 39

How must financing statements be filed?

Answer 39

Financing statements may be submitted in writing or electronically in most jurisdictions.