Essay Writing Workshop

Question 1

Secured Transaction

Answer 1

A secured transaction under UCC Article 9 involves a loan or purchase that is secured by collateral.

Question 2

Security Interest

Answer 2

A security interest is an interest in personal property or fixtures that secures payment or performance of an obligation.

Question 3

Secured Party

Answer 3

A secured party is the person in whose favor a security interest is created under the security agreement.

Question 4

Obligor

Answer 4

An obligor is the person who must pay (or otherwise perform) with respect to the obligation that is secured by a security interest in the collateral.

Question 5

Debtor

Answer 5

A debtor is a person who has an interest, other than a security interest or other lien, in the collateral, such as the sole owner of the collateral.

Question 6

Collateral

Answer 6

Property subject to a security interest.

Question 7

Tangible Collateral: Goods

Answer 7

“Goods” encompass anything that is “moveable at the time that a security interest attaches.”

Question 8

Consumer goods

Answer 8

“Consumer goods” are those acquired primarily for personal, family, or household purposes.

Question 9

Farm products

Answer 9

“Farm products” are goods that are crops or livestock and include supplies that are used or produced in farming.

Question 10

Inventory

Answer 10

“Inventory” includes goods, other than farm products, that are held for sale or lease; are furnished under a service contract; or consist of raw materials, works in process, or materials used or consumed in a business.

Question 11

Equipment

Answer 11

“Equipment,” a catchall class, consists of goods that are not consumer goods, farm products, or inventory.

Question 12

Accounts

(Intangible Collateral)

Answer 12

“Accounts” include the right to payment for goods sold, property licensed, or services rendered.

Question 13

Deposit account

(Intangible Collateral)

Answer 13

Includes a savings, passbook, time, or demand account maintained with a bank.

Question 14

Leases

Answer 14

“A transaction in the form of a lease creates a security interest if the lease payments must be made for the full term of the lease and are not subject to termination and the lessee has an option to become the owner of the goods for nominal consideration at the conclusion of the lease agreement.”

Question 15

Consignments

Answer 15

Treated as a PMSI if:
1. A person must deliver goods to a merchant for the merchant to sell;
2. The merchant must:
(a) Deal in goods of that kind,
(b) Not operate under the name of the consignor,
(c) Not be generally known by its creditors to be substantially engaged in selling the goods of others, and
(d) Not be an auctioneer;
3. WIth respect to each delivery, the value of the goods must be at least $1,000 at the time of delivery; and
4. The goods must not be consumer goods immediately before the delivery.

Question 16

Attachment

Answer 16

• Value has been given by the secured party;
• The debtor has rights in the collateral; and
• The debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.

Question 17

Value Given

Answer 17

• By providing consideration sufficient to support a simple contract;
• By extending credit, either immediately or under a binding commitment to do so;
• By accepting delivery under a preexisting contract

Question 18

Debtor’s Rights in Collateral

Answer 18

A security interest attaches only to the rights that the debtor has.

Question 19

After-acquired collateral

Answer 19

A security interest may apply not only to the collateral that the debtor owns at the time the security is granted, but also to collateral that the debtor acquires in the future.

Exception: An after-acquired clause is not effective if the collateral is consumer goods, unless the debtor acquires them within 10 days after the secured party gives value.

Question 20

Proceeds from Collateral

Answer 20

A security interest in collateral automatically attaches to identifiable proceeds from the sale, exchange, or other disposition of the collateral.

Question 21

Accessions

Answer 21

Accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost. A security interest is not lost due to it becoming an accession.

Question 22

Security Agreement requirements

Answer 22

• It must be in a record, such as a written or typed document;
• Contain a description of the collateral; and
• Be authenticated by the debtor.

Question 23

Purchase Money Security Interest

Answer 23

A PMSI gives lenders a security interest in goods that have been purchased with funds borrowed from them or purchased on credit from them. It may only exist in goods (including fixtures) and software.

Question 24

Perfection of a Security Interest

Answer 24

“Perfection” is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties. A security interest is “perfected” upon attachment of that interest and compliance with one of the methods of perfection.

Question 25

Methods of Perfection

Answer 25

• Filing of a financing statement
• Possession of the collateral
• Control over the collateral
• Automatic perfection
• Statute

Question 26

Financing Statement requirements

Answer 26

• The debtor’s name;
• The name of the secured party or a representative; and
• The collateral covered by the financing statement.

Question 27

Timing of the Financing Statement

Answer 27

It will be effective on the date of filing for five years and another five years if you file a continuation statement within six months of expiration.

Question 28

Error in the debtor’s name

Answer 28

A financing statement that fails to accurately contain the debtor’s name may be “seriously misleading” and not effective to perfect.

Exception: When a standard search of the filing office under the debtor’s correct name would disclose the financing statement, the erroneous name does not make the financing statement seriously misleading and it will be valid.

Question 29

Control over the Collateral

Answer 29

A secured party may perfect in investment property, deposit accounts, letter of credit rights, electronic chattel paper, or electronic documents by taking control of the collateral.

Question 30

PMSI in consumer goods

(Automatic Perfection)

Answer 30

A PMSI in consumer goods is automatically perfected upon attachment.

Question 31

Proceeds of sale of collateral

Answer 31

If a security interest in collateral is perfected, and then the collateral is sold for cash proceeds, the secured party will have a perfected security interest in the proceeds.

Question 32

Timing of Perfection

Answer 32

A security interest is perfected upon (i) attachment and (ii) compliance with one of the methods of perfection.

Question 33

General Creditor

(priority)

Answer 33

A secured party will always prevail over a general creditor.

Question 34

Judicial Lien Creditor

(priority)

Answer 34

A perfected security interest has priority over a judicial lien creditor, but the judicial lien creditor has priority over an unperfected security interest.

Question 35

Transferee versus secured party with a security interest

(priority)

Answer 35

If the transferee is not a buyer, the security interest continues in collateral unless the secured party authorized the transfer free of the security interest. In other words, the secured party still has a security interest in the collateral.

Question 36

Buyer versus secured party with an unperfected security interest

(priority)

Answer 36

Takes free of if:

• Gives value, and,
• Receives delivery of the collateral;
• Without knowledge of the existing security interest

Question 37

Buyer versus secured party with a perfected security interest

Answer 37

Generally takes the collateral subject to that perfected interest, unless the secured party has authorized its sale free of.

Question 38

Buyers in the Ordinary Course of Business

Answer 38

Takes free of, if:
* Buys goods (not including farm products);
* In the ordinary course of business;
* From a merchant who is in the business of selling goods of that kind;
* In good faith; and
* Without knowledge that the sale violates the rights of another in the same goods.

Question 39

Consumer Buyer

“garage sale rule”

Answer 39

Takes free of, if:
* Buys consumer goods for value;
* For his own personal, family, or household use;
* From a consumer seller; and
* Without knowledge of the security interest.

Special Problem:
* If a PMSI is not filed, consumer takes free of.
* If PMSI is filed, consumer loses.

Question 40

Perfected security interest versus perfected security interest

Answer 40

The first to either file a financial statement or perfect has priority.

Question 41

Perfected security interest versus unperfected security interest

Answer 41

The perfected interest wins

Question 42

Unperfected security interest versus unperfected security interest

Answer 42

The first party to attach their interest wins.

Question 43

PMSI vs PMSI

Answer 43

The first to either file a financing statement or perfect wins.

Question 44

Once a default has occurred, the secured party may:

Answer 44

• Sell the collateral, or
• Retain it in full or partial satisfaction of the obligation

Question 45

Commercially Reasonable Standard for Disposition

Answer 45

All aspects of the disposition of collateral must be conducted in a commercially reasonable manner.

Question 46

Notice of Disposition

Answer 46

The notification is required to be reasonable as to its content, the manner in which it is sent, and its timeliness.