FL Secured Transactions

Question 1

In order for a UCC Article 9 security interest to be created, there must be __________.

Answer 1

a consensual security agreement

Question 2

List the methods of perfecting a security interest in collateral

Answer 2

Filing, control, possession, and automatic perfection

Question 3

List the types of collateral that can be perfected by possession

Answer 3

goods, negotiable documents, tangible chattel paper, instruments, money.

Question 4

As a general rule, the buyer of collateral subject to a perfected security interest takes the collateral __________.

Answer 4

subject to the security interest, unless the secured party authorizes the sale free and clear of the security interest.

Question 5

Rights of unsecured creditors

Answer 5

1. An unsecured creditor does not have a claim to particular property owned by the debtor.
2. An unsecured creditor can obtain rights in the property of the debtor by obtaining a security interest or a lien in the property.
3. An unsecured creditor with a judicial lien can levy or execute on the particular property of the debtor, making the unsecured creditor a lien creditor.

Question 6

After collateral is sold or otherwise disposed of, the secured party has an automatically perfected security interest in the proceeds for __________ days.

Answer 6

20

Question 7

Determining whether a lease is a secured transaction

Answer 7

1. Leases are only covered under Article 9 when the transaction, although in the form of a lease, is in economic reality or substance, a secured transaction.
2. A transaction in the form of a lease is more likely to be treated as creating a security interest if the lessor does not get something of value back at the end of the lease.
3. The determination of whether a lease is actually a secured transaction is made on a case-by-case basis.

Question 8

Priority rules for PMSI (Purchase Money Secured Interests)

Answer 8

1. A PMSI in goods other than inventory will prevail over all other security interests in the collateral if the secured party perfects within 20 days of the debtor receiving possession of the collateral.
2. If there are two or more competing PMSIs, the first to file or perfect rule generally governs priority.
3. A PMSI in consumer goods takes priority over all other security interests, no matter when they are perfected.

Question 9

What are the requirements in order for a buyer of collateral to take the collateral free of an unperfected security interest for which the secured party has not authorized the sale free and clear of the security interest?

Answer 9

1. The buyer must give value for the collateral.
2. The buyer must purchase the collateral without knowledge of the existing security interest.
3. The buyer must receive delivery of the collateral.

Question 10

What sources do we turn to in order to determine whether a default has occurred?

Answer 10

The parties’ security agreement and contract law

Question 11

What is a security interest?

Answer 11

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

Question 12

Who are the parties to a secured transaction?

Answer 12

1. Secured Party: The person who has the SI created under the security agreement.
2. Obligor: The person who is obligated to pay or perform under the security agreement.
3. Debtor: The person who has interest, other than the SI or other lien, in the collateral at issue (typically the owner of the collateral).
   Note that in most cases, the obligor and the debtor are the same person.

Question 13

What are the four main types of property are considered collateral subject to the security interest?

Answer 13

1. Farm Products
2. Inventory
3. Consumer Goods
4. Equipment

Question 14

List the other types of collateral other than the 4 main ones (typically intangible goods)

Answer 14

Chattel paper, documents, instruments, investment property, accounts, commercial tort claims, deposit accounts, letter-of-credit rights, and other general intangibles (miscellaneous/other)

Question 15

Requirements of attachment

Answer 15

1. VALUE must be given by the secured party (e.g. line of credit or money)
2. the debtor has RIGHTS in the collateral
3. the debtor has authenticated a SECURITY AGREEMENT that describes the collateral
4. The secured party has POSSESSION or CONTROL of the collateral

Question 16

Security Agreement

Answer 16

1. Must satisfy the Statute of Frauds
2. Authenticated record
3. Possession and/or Control of collateral

Question 17

General rule and exceptions to the security interests of after-acquired collateral

Answer 17

General Rule: The SI may cover collateral owned when the security is granted and also collateral that the debtor acquires after the SI is given
Exceptions: An after-acquired clause is not effective for consumer goods, unless the debtor acquires them within 10 days after the secured party gives value, or a commercial tort claim

Question 18

Rights and Duties of the Secured Party arising from possession or control of the collateral

Answer 18

1. Duty of care
2. Duty to keep collateral identifiable
3. Duty to relinquish control or possession of collateral
4. Right to charge for reasonable maintenance expenses

Question 19

When does a PMSI in goods exist?

Answer 19

A PMSI (Purchase Money Security Interest) exists when a SECURED PARTY gave value to the debtor and the DEBTOR used the value to incur an obligation that enabled the debtor to acquired good; OR:
A secured party sold goods to the debtor, and the debtor incurred an obligation to pay the secured party all or part of the purchase price

Question 20

What is an accession?

Answer 20

Goods that are physically united with other goods such that the identity of the original goods is NOT lost (opposite of commingled goods)

Question 21

What are commingled goods?

Answer 21

Goods that are physically united with other goods such that their identity is lost in a product or mass (opposite of an accession)

Question 22

List the methods of perfection

Answer 22

Filing, control, possession, and automatic perfection

Question 23

Filing as a method of perfection

Answer 23

gives interested parties NOTICE of the existence of the SI. Filing is a method of perfection for any SI except a deposit account, money, or letter-of-credit rights

Question 24

Requirements of a financing statement

Answer 24

1. The debtor’s name
2. The secured party’s name
3. Description of the collateral at issue

Question 25

Buyer in the Ordinary Course of Business (BOCB)

Answer 25

1. buys goods (not farm products) by giving value
2. in the ordinary course
3. from a seller in the business of selling goods of that kind
4. in good faith
5. without actual knowledge that the sale violates another’s rights in the goods
   As a result, BOCB takes free of any SI in goods given by buyer’s seller

Question 26

Priorities among secured parties

Answer 26

1. Perfected SI vs. Perfected SI: The 1st to file or perfect has priority
2. Perfected SI vs. Unperfected SI: A perfected SI has priority over an unperfected SI
3. Unperfected SI vs. Unperfected SI: The 1st to attach has priority
   (first in time, first in right)

Question 27

Who has priority? PMSI vs non-PMSI:

Answer 27

PMSI has priority

Question 28

Who has priority? PMSI in goods other than the inventory or livestock vs. Any SI:

Answer 28

A PMSI has priority if perfected before or within 20 days after the debtor receives possession of collateral

Question 29

Who has priority? PMSI in livestock vs. Any SI:

Answer 29

A PMSI has priority if perfected by the time the debtor receives possession of the collateral, and the purchase-money secured party sends an authenticated notice of the PMSI to the holder of any conflicting SI before the debtor receives possession of the collateral (notification is required only when the SI was perfected by filing).

Question 30

Who has priority? Perfected PMSI vs. Perfected PMSI>

Answer 30

The first to file or perfect has priority. Exception: A seller with a PMSI has priority over a lender with PMSI

Question 31

May a secured party retain the collateral from the debtor upon default in full satisfaction of the customer debtor’s obligation?

Answer 31

In a consumer transaction, the creditor may retain the collateral in full satisfaction of the debtor’s obligation if the debtor has not paid at least 60% of the cash price in the case of a purchase money security interest (or 60 percent of the obligation secured in the case of a non-purchase money security interest). In order to do so, the creditor must send the consumer a NOTICE of the creditor’s proposal to take such action. If the consumer does not respond to the proposal within 20 days after the proposal is sent (or consents in an authenticated writing), the creditor may retain the collateral in full satisfaction of the consumer’s obligation.

Question 32

Method of perfecting a bank savings account

Answer 32

secured party may perfect its security interest by taking control of the account.

Question 33

Method of perfecting a security interest in stocks

Answer 33

Secured party may perfect its security interest by either taking control of the stock or filing a finance statement with the secretary of state

Question 34

A secured party may accept collateral in full satisfaction of an obligation secured by the collateral when:

Answer 34

1. The debtor consents, after default, to the acceptance in an authenticated record; or
2. The debtor does not object to the secured party’s proposal to accept the collateral within 20 days after the proposal is sent.

Question 35

A PMSI in inventory or livestock prevails over all other security interests in the same collateral, even if they were previously perfected, if:

Answer 35

1. The PMSI is perfected by the time that the debtor receives possession of the collateral; and
2. The purchase money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interests.

Question 36

Perfected security interest vs. perfected security interest

Answer 36

When there are two or more perfected secured parties with rights in the same collateral, the FIRST TO FILE or perfect has priority. In other words, if both security interests are perfected, priority dates from the time of filing or perfection, whichever occurs first.

Question 37

Perfected security interest vs. unperfected security interest

Answer 37

If only one security interest is perfected and the other is not, the perfected interest takes over the unperfected one.

Question 38

Unperfected security interest vs. unperfected security interest

Answer 38

If neither interest is perfected, then the “first in time, first in right” rule applies with the critical time being the time of attachment.

Question 39

What effect does the secured party’s knowledge of other security interests have on their interest?

Answer 39

A secured party’s knowledge of another security interest in the same collateral does not affect the secured party’s priority.

Question 40

Buyer vs. secured party with an unperfected security interest

Answer 40

A buyer, other than a secured party, of collateral that is goods, tangible chattel paper, tangible documents or a security certificate, takes free of an unperfected security interest in the same collateral if the buyer:

i) Gives value; and
ii) Receives delivery of the collateral;
iii) Without knowledge of the existing security interest

If the collateral is intangible collateral, such as accounts, or a general intangible, such as a copyright, there is no requirement that the buyer receive delivery of the item.

Question 41

Buyer vs. secured party with a perfected security interest

Answer 41

A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest, unless the secured party has authorized its sale free of the security interest.

Question 42

Buyers in the Ordinary Course of Business (BOCB)

Answer 42

A buyer in the ordinary course of business (BOCB) takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. A BOCB is a person who:

i) Buys goods (not including farm products);
ii) In the ordinary course;
iii) From a seller who is in the business of selling goods of that kind;
iv) In good faith; and
v) Without knowledge that the sale violates the rights of another in the same goods.

Question 43

A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase, the secured party has filed a financing statement covering the goods. A consumer buyer is a person who:

Answer 43

i) Buys consumer goods for value;
ii) For his own personal, family, or household use;
iii) From a consumer seller; and
iv) Without knowledge of the security interest.

This is often referred to as the “garage sale” rule, because that type of sale would qualify.

Question 44

The sale of chattel paper can create a security interest in the purchaser. The purchaser of chattel paper has priority over the interest of a secured party who claims the chattel paper merely as proceeds of inventory subject to a security interest provided that:

Answer 44

i) The purchaser gives new value and takes possession or obtains control of the chattel paper;
ii) The purchase is made in good faith and in the ordinary course of the purchaser’s business; and
iii) The chattel paper does not indicate that it has been assigned to an identified assignee other than the purchaser

Question 45

Judicial Lien Creditor

Answer 45

A judicial lien creditor is a creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law. A judicial lien creditor takes the property subject to a perfected security interest, but generally has priority over an unperfected security interest. Even if the security interest is unperfected at the time the judicial lien comes into existence, the secured party will have priority if the only reason why it was unperfected was that the secured party had not yet given value

Question 46

In order for the security interest to be enforceable against the debtor, three conditions must coexist:

Answer 46

i) Value has been given by the secured party;
ii) The debtor has rights in the collateral; and
iii) 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 47

The secured party, or a person acting on behalf of the secured party, must give value for the security interest. Value may be given:

Answer 47

i) By providing CONSIDERATION sufficient to support a simple contract;
ii) By extending CREDIT, either immediately or under a binding commitment to do so (the debtor need not draw upon the credit);
iii) By, as a buyer, accepting DELIVERY under a preexisting contract thereby converting a contingent into a fixed obligation; or
iv) In satisfaction of, or as security for, part or all of a preexisting claim.

Question 48

The most common means by which to evidence the debtor’s assent to the security agreement is by an authenticated record. To satisfy this requirement, the security agreement must:

Answer 48

i) Be in a record;
ii) Contain a description of the collateral; and
iii) Be authenticated by the debtor.