Definitions

Question 1

What is a secured transaction?

Answer 1

A transaction intended to create a security interest in personal property or fixtures.

Question 2

What is a security agreement?

Answer 2

Agreement between the debtor and the secured party that creates the security interest.

Question 3

What is a purchase money security interest?

Answer 3

A special type of security interest that is created when a creditor extends value to the debtor for the purpose of enabling the debtor to acquire rights in the collateral.

Question 4

What is a seller-financed PMSI?

Answer 4

The secured party sells the goods to the debtor on credit and retains a security interest in the goods sold.

Question 5

What is a financer-financed PMSI?

Answer 5

1. The creditor loans the funds to the debtor to enable the debtor to buy specific collateral,
2. Those funds are used by the debtor to acquire the specific collateral, and
3. The creditor takes a security interest in that collateral.

Question 6

What is an after-acquired property clause?

Answer 6

A clause that allows a secured party to obtain a security interest in property that the debtor will obtain in the future.

Question 7

What is a future advance clause?

Answer 7

A clause that allows the secured party to make future loans to the debtor and secure them in the present security agreement.

Question 8

What is attachment?

Answer 8

Gives the secured party a security interest in the collateral against the debtor.

A creditor is not secured until attachment.

Question 9

What is perfection?

Answer 9

Grants a secured party rights against another claimant to a debtor’s collateral.

Question 10

What is a financing statement?

Answer 10

Document used to give the public notice of the security interest.

Question 11

What is the applicable law of secured transactions?

Answer 11

Article 9 of the Uniform Commercial Code.

Question 12

What are the categories of tangible collateral?

Answer 12

1. Consumer goods
2. Equipment
3. Farm products
4. Inventory

Question 13

How is the category of tangible collateral determined?

Answer 13

It depends on how the debtor is using the collateral.

Question 14

Define consumer goods

Answer 14

Goods used or bought primarily for personal, family, or household purposes.

Question 15

Define equipment

Answer 15

Goods that are used or bought for use in a business.

This is also the catch-all category for all goods that are not consumer goods/inventory/farm products.

Question 16

Define farm products

Answer 16

Crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states if they are in the possession of a debtor engaged in farming operations.

Question 17

Define inventory

Answer 17

1. Goods held for sale or lease
2. Goods that are to be furnished under service contracts, and
3. Materials used or consumed in a business in a short period of time.

Question 18

What are the categories of intangible collateral?

Answer 18

1. Instruments
2. Documents
3. Chattel paper
4. Investment property
5. Accounts
6. Deposit accounts
7. Commercial tort claims
8. General intangibles

Question 19

How is the category of intangible collateral determined?

Answer 19

Depends on the nature of the collateral (not its use).

Question 20

Define instruments

Answer 20

Pieces of paper representing the right to be paid (e.g., promissory notes, drafts, and certificates of deposit)

Question 21

Define documents

Answer 21

Document that represents the right to receive goods.

Question 22

Define chattel paper

Answer 22

A record which evidences both (1) a monetary obligation, and (2) a security interest in or a lease of specific goods (e.g., promissory note & security agreement together).

Question 23

Define investment property

Answer 23

Items like stocks, bonds, mutual funds, and brokerage accounts containing such items.

Question 24

Define accounts

Answer 24

A right to payment for property sold or services rendered (e.g., account receivable).

Question 25

Define deposit accounts

Answer 25

An account maintained with a bank.

Question 26

Define commercial tort claims

Answer 26

A tort claim where:

1. The claimant is an organization, or
2. The claimant is an individual, the claim arose out of the claimant’s business/profession, and the claim does not include damages for personal injury or death.

Question 27

Define general intangibles

Answer 27

Any personal property not coming within the scope of the other intangible definitions.

Includes patent/trademark rights, copyrights, and good will.

Question 28

How to distinguish a lease from a security interest?

Answer 28

A lease is actually a security interest if:

1. A commitment to make payments for a term exists; AND
2. Either:
   a) The original term is equal to (or greater) than the remaining economic life of the goods;
   b) Lessee must renew the lease for the remaining economic life of the goods or buy the goods at the end of the lease.
   c) Lessee has an option to renew the lease for the remaining economic life of the goods or buy the goods for no additional consideration.

Question 29

Define proceeds

Answer 29

1. Acquired upon the sale, lease, or other disposition of collateral;
2. Collected/distributed on account of collateral;
3. Rights arising out of collateral;
4. Claims arising out of the loss, nonconformity, defect, or interference with the use of collateral; or
5. Insurance payable by loss of collateral.