INTRO TO SECURED TRANSACTIONS AND TYPES OF GOODS

Question 1

Collateral

Intro to Secured Transaction and Types of Goods – Terminology

Answer 1

Collateral: the property subject to a security interest or agricultural lien.

Question 2

Debtor

Intro to Secured Transaction and Types of Goods – Terminology

Answer 2

Debtor: a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor.

Question 3

Obligor

Intro to Secured Transaction and Types of Goods – Terminology

Answer 3

Obligor: a person that, with respect to an obligation secured by a security interest in or an agricultural lien on the collateral, owes payment or other performance of the obligation.

Question 4

Secured Party

Intro to Secured Transaction and Types of Goods – Terminology

Answer 4

Secured Party: a person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding.

Question 5

Security Agreement

Intro to Secured Transaction and Types of Goods – Terminology

Answer 5

Security Agreement: an agreement that creates or provides for a security interest

Question 6

Scope of Article 9

Intro to Secured Transaction and Types of Goods – Terminology

Answer 6

Applies to a transaction, regardless of its form, that creates a security interests in personal property or fixtures by contract

Question 7

Types of Collateral

Intro to Secured Transaction and Types of Goods – Terminology

Answer 7

Goods, Instruments, Documents, Chattel Papers, Deposit Accounts, Commercial Tort Claims, “Intangibles,” Investment Property

Question 8

Types of Goods

Intro to Secured Transaction and Types of Goods – Terminology

Answer 8

Consumer Goods, Farm Products, Inventory, Equipment

Question 9

Definition of Goods

Intro to Secured Transaction and Types of Goods – Terminology

Answer 9

All things that are movable when a security interest attaches, including:

• Fixtures
• Standing timber that is to be cut and removed under a conveyance or contract for sale
• The unborn young of animals
• Crops grown, growing, or to be grown, even if the crops are produced on trees, vines, or bushes
• Manufactured homes
• Computer programs under certain conditions

Question 10

Definition of Consumer Goods

Intro to Secured Transaction and Types of Goods – Terminology

Answer 10

Goods that are used or bought for use primarily for personal, family, or household purposes

Question 11

Definition of Farm Products

Intro to Secured Transaction and Types of Goods – Terminology

Answer 11

Goods, other than standing timber, with which the debtor is engaged in a farming operation and which are:

• Crops grown, growing, or to be grown, including: crops produced on trees, vines and bushes; and aquatic goods produced in aquacultural operations
• Livestock, born or unborn
• Supplies used or produced in a farming operation or
• Products of crops or livestock in their unmanufactured states

Question 12

Definition of Farming Operation

Intro to Secured Transaction and Types of Goods – Terminology

Answer 12

Raising, cultivating, propagating, fattening, grazing, or any other farming, livestock, or aquacultural operation

Question 13

Definition of Inventory

Intro to Secured Transaction and Types of Goods – Terminology

Answer 13

Goods, other than farm products, which

• Are leased by a person as lessor;
• Are held by a person for sale or lease or to be furnished under a contract of service;
• Are furnished by a person under a contract of service; or
• Consist of raw materials, work in process, or materials used or consumed in a business

Question 14

Definition of Equipment

Intro to Secured Transaction and Types of Goods – Terminology

Answer 14

Goods other than inventory, farm products, or consumer goods (catchall category)

Question 15

Distinguishing between when goods are inventory or equipment with businesses
Intro to Secured Transaction and Types of Goods – Terminology

Answer 15

Goods used in a business are equipment if they have fixed assets or have as identifiable units a relatively long period of use. They are inventory, even though not held for sale or lease, if they are used up or consumed in a short period of time in producing a product or providing a service.

Question 16

Obligor definition

Answer 16

The person who owes money

Question 17

Debtor definition

Answer 17

The person who owns (or has rights in) the collateral

Question 18

Secured creditor definition

Answer 18

The person money is owed money to, in whose favor there is a security interest

Question 19

Security agreement definition

Answer 19

An agreement between debtor and secured party that creates the security interest – has to have language that creates security interest

Security agreement is just a contract where the debtor grants SI to the creditor

Question 20

Security Interest definition

Answer 20

Security interest – interest in personal property or fixtures which secures payment or performance of an obligation

It is a contingent property interest in the debtor’s collateral that the debtor grants to the creditor. When the contingency (default) occurs, then that contingent property interest springs to life and the creditor has rights in the property

Question 21

Collateral definition

Answer 21

Collateral is the property subject to a security interest – property creditor can repossess at default to ensure the debt is paid

Question 22

Two ways to have a PMSI

Answer 22

(1) when you have a seller and they’re selling the debtor collateral on credit AND you see that seller taking a security interest in the item sold (have to have both things) – a seller-financed PMSI (seller effectively is providing the financing for the debtor to buy that item)
(2) – three requirements with this type of PMSI: loan to the debtor that enables the debtor to buy specific collateral AND the creditor takes a security interest in that specific collateral AND the credit/loan proceeds must actually be used to purchase the collateral. If you have all three, it’s a financer-financed PMSI. Some third party lender is providing the debtor with the money to buy an item, taking a security interest in that item, and the debtor is using that money to buy the item.

Question 23

Scope of Article 9

Answer 23

Applies to several things: any transaction, regardless of form, that creates a security interest in personal property or fixtures by contract; agricultural liens; a sale of accounts, chattel paper, payment intangibles, or promissory notes (unless the sale is for the purposes of collection only or part of the sale of a business); certain consignments; secured sales that are disguised as leases.

Question 24

Test for identifying the type of collateral

Answer 24

The test for classifying the collateral: look to see how the debtor is using the collateral. What is it in the hands of the debtor? Debtor-focused test

Question 25

Definition of goods

Answer 25

tangible, moveable, personal property.

Question 26

Types of goods

Answer 26

consumer goods, equipment, farm products, or inventory

Question 27

Consumer goods definition

Answer 27

Consumer goods – goods used or bought for use primarily for personal, family, or household purposes.

Question 28

Equipment definition

Answer 28

Equipment – good used or bought for use primarily in business. Technically, equipment is our default or catchall category of goods. If you look at the statutes, the definition is not what was just said. What it says is anything that doesn’t fit the other three categories. I’m just trying to help you out – what wouldn’t fit in other categories? Goods used primarily for business

Question 29

Farm product definition

Answer 29

Farm product – crops, or livestock, or supplies used or produced in farming operations, or products of crops or livestock in their unmanufactured states IF they’re in the possession of a debtor engaged in the practice of farming operations.

Question 30

Inventory definition

Answer 30

Inventory – a good held by a person who holds them for sale or lease. Also includes goods that are furnished under service contracts. Also includes materials used or consumed in a business in a short period of time. Main part is a good held by the debtor for sale or lease.

Question 31

Non-good categories

Answer 31

Instruments
Documents
Chattel Paper
Investment Property 
Accounts 
Deposit Accounts
Commercial Tort Claims
General Intangibles

Question 32

Instrument definition

Answer 32

Instruments – negotiable instrument (things like checks, notes, drafts)

Question 33

Documents definition

Answer 33

Documents – document which in the regular course of business is treated as evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods that it covers – best example is a warehouse receipt or a bill of lading – special documents give the person possessing it the right to possess the goods. Not any old piece of paper.

Question 34

Chattel Paper definition

Answer 34

Chattel Paper – record or records which evidence both a monetary obligation and a security interest in or a lease of specific goods. When you take two things – monetary obligation and security interest or lease of specific goods and put them together. Promissory note, monetary obligation and security interest all in one. If stored in electronic medium – electronic chattel paper.

Question 35

Investment Property definition

Answer 35

Investment property – includes items such as stocks, bonds, mutual funds, brokerage accounts which would contain such items.

Question 36

Account definition

Answer 36

Account – a right to payment for property sold or services rendered. Not a bank account, it’s an account receivable.

Question 37

Deposit Account Definition

Answer 37

Deposit accounts – this is what Article 9 calls a bank account. An account maintained with a bank. Only applies to non-consumer deposit accounts and accounts that are claimed as proceeds of other collateral. Think like a business bank account.

Question 38

Commercial Tort Claim definition

Answer 38

Commercial tort claim – this is a claim arising in tort with respect to which the claimant is an organization OR when the plaintiff is an individual and that claim arose in the claimants business or profession and doesn’t include damages for injury or death

Question 39

General Intangible definition

Answer 39

General intangible – any personal property that doesn’t come within the scope of the other definitions. This is the catchall for intangibles. Best example is intellectual property-type stuff (patents, copyrights, trademarks, licenses).