MEE themis

Question 1

Secured transaction under (UCC) Article 9

Answer 1

It involves loan or purchase secured by collateral. The relationship typically involves two
parties, a debtor and a creditor.

Debtor gives creditor a security interest in debtor’s
specific property (collateral) to assure the debtor will perform (repay the loan, pay the
purchase price).

Question 2

Security interest

Answer 2

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

Question 3

Secured party

Answer 3

the person in whose favor a security interest is created
under the security agreement. Usually, the secured party is the person who has loaned
money or extended credit to the obligor. ex) a bank that loans $ to a business is a typical secured party.

Question 4

Obligor

Answer 4

person who must pay (or otherwise perform) with respect to the obligation that’s secured by a security interest in the collateral. ex) a business that receives a loan from the bank is a typical obligor.

Question 5

Debtor

Answer 5

a person who has an interest, other than a security interest or other lien, in collateral, such as the sole owner of the collateral. Although the debtor is usually
also the obligor, the debtor need not be.

Question 6

Collateral

Answer 6

Property subject to a security interest. The characterization of
collateral can affect the validity of a security interest, the way in which a security interest can be
perfected, and the rights of a 3P in the collateral, such as a buyer of collateral.

Question 7

Tangible Collateral: Goods

Answer 7

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

Question 8

Consumer goods

Answer 8

those goods acquired primarily for personal, family, or household purposes.

Question 9

Farm products

Answer 9

goods that are crops or livestock and include supplies that are used or produced in farming. To be considered farm products, the obligor must be engaged in a farming operation.

Question 10

Inventory

Answer 10

includes goods, other than farm products, that are held for sale
or lease; are furnished under a service K; or consist of raw materials, works in
process, or materials used or consumed in a business. Usually refers to goods consumed in a business

Question 11

Equipment

Answer 11

catchall class, consists of goods that are not consumer
goods, farm products, or inventory. Refers to goods that are used or bought
for use primarily in a business, such as employees’ desks or machinery used in
manufacturing.

Question 12

Intangible Collateral

Answer 12

Accounts: right to payment for goods sold, property licensed, or
services rendered. Also right to payment for the issuance of an insurance policy, the use of a credit card, or winning a lottery.

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

Question 13

General rule for eligible transactions

Answer 13

Article 9 governs a transaction that creates, by agreement, a security interest in personal property or a fixture. A lease, consignment, agricultural lien, and even a purchase of personal property may be subject to Article 9.

Question 14

Leases

Answer 14

covered under Article 9 when the transaction, although in the form of a lease, is
in economic reality or substance a secured transaction. It is generally determined on a case‐
by‐case basis.

Question 15

Rules for if a lease can create a security interest

Answer 15

If
1) lease payments are made for the full term of the lease and are not subject to termination and
2) lessee has an option to become the owner of the goods for nominal (a small amount of $) consideration at the conclusion of the lease agreement.”

Question 16

Attachement

Answer 16

a security interest that is enforceable against the debtor with respect to the collateral has “attached” to the collateral. To be enforceable against the debtor:

Value: given by secured party
Control: secured party/debtor has possession of collateral under authenticated sec agreement
Rights: debtor has rights

Question 17

Value

Answer 17

Secured party must give value for the security interest. Value may be given:
o By providing consideration sufficient to support a simple K;
o By extending credit, either immediately or under a binding commitment to do so;
o By, as a buyer, accepting delivery under a preexisting K, thereby converting a contingent obligation into a fixed obligation; or
o In satisfaction of, or as security for, part or all of a preexisting claim.

Question 18

Debtors rights in collateral

Answer 18

For the security interest to attach to the collateral, the debtor
generally must have rights in the collateral. A security interest attaches only to the rights that the debtor has. A debtor’s limited rights in collateral are sufficient for a security interest to attach.

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.

Question 20

Exception to after-acquired collateral rule

Answer 20

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 21

Proceeds from collateral

Answer 21

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

Question 22

Accessions

Answer 22

goods that are physically united with other goods in a way that the identity of OG goods isn’t lost, such as computer memory in a
computer, or car tires . A security interest that is created in collateral that becomes an accession is not lost due to the collateral becoming an accession

Question 23

Security Agreement or Possession/Control of Collateral

Answer 23

Debtor has authenticated a security agreement that describes the collateral, or the
secured party has control of the collateral pursuant to a security agreement.

Agreement must:
 be in a record, such as a written or typed doc,
 Contain a description of the collateral (such as “all of debtor’s equipment”; and
 Be authenticated (typically signed) by the debtor.

Question 24

PMSI

Answer 24

gives lenders a security
interest in goods that have been purchased with funds borrowed from them or purchased
on credit from them. Aubject to special rules with respect to perfection and priority A PMSI may exist only with respect to two types of collateral—
goods (including fixtures) and software.

Question 25

. A PMSI in goods exists when:

Answer 25

• A secured party gave value (e.g., made a loan) to debtor and debtor uses loan to acquire rights in or use of collateral; or
• secured party sells collateral to debtor, and debtor enters an agreement requiring it to pay secured party all or part of the purchase price (i.e., a sale of goods
  on credit).

Question 26

“Perfection” of a security interest

Answer 26

generally necessary for the secured party to have rights in the
collateral that are superior to any rights claimed by 3Ps. A security interest is “perfected” upon
attachment of that interest and compliance with one of the methods of perfection.

Question 27

Methods of perfection

Answer 27

Under Article 9, a secured party can perfect a security interest by:
o Filing of a financing statement
o Possession of the collateral
o Control over the collateral
Automatic perfection (either temporary or permanent)
o Statute: If there’s another statute that governs perfection of a security interest, that statute
may provide another way to perfect=.

Question 28

Filing a financing statement

Answer 28

A security interest in any collateral, except a deposit account, money, or letter‐of‐credit rights that are not a supporting obligation, may be perfected by filing a financing
statement to give interested parties notice of the
existence of the security interest.
Must contain :
 debtor’s name;
 name of the secured party or a representative of secured party; and
 collateral covered by the financing statement.

Question 29

Timing for filing a financing statement

Answer 29

financing statement will be effective on the date of filing. A financing statement is generally effective for 5 years and may be continued for another 5
years by filing a continuation statement within 6 months prior to the expiration of the
statement.

Question 30

Error in debtor’s name

Answer 30

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

Question 31

Exception to the rule against errors in debtor’s name

Answer 31

If a standard search of the filing office records 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 32

Control over collateral

Answer 32

A secured party may perfect a security interest in in
investment property, deposit accounts, letter‐of‐credit rights, electronic chattel paper, or electronic documents by taking control of the collateral. The security interest remains
perfected only while the secured party retains control

Question 33

Deposit acct

Answer 33

A security interest in a deposit account can be
perfected only by control. A secured party has control of a deposit account if:
 The secured party is the bank with which the deposit account is maintained;
 The bank, secured party, and debtor agreed in writing to follow the instructions of
the secured party; or
 The secured party becomes the bank’s customer with respect to the deposit
account

Question 34

Automatic perfection

Answer 34

A PMSI gives lenders a special security interest in goods that have been bought with funds borrowed from them or purchased on credit from them.A PMSI in consumer goods is automatically perfected upon attachment. A secured
party doesn’t need to file a financing statement or have possession to have a
perfected PMSI in consumer goods. A PMSI in other types of goods (e.g., inventory,
equipment) or in automobiles is not automatically perfected

Question 35

Prceeds of sale of collateral

Answer 35

—If a security interest in collateral is perfected, and then the
collateral is sold for cash proceeds (or checks or deposit account), the secured party will have a
perfected security interest in the proceeds.

Question 36

Timing of perfection

Answer 36

A security interest is perfected upon (i) attachment of that interest and (ii) compliance with
one of the methods of perfection (such as filing a financing statement).

Additionally, a security interest that is perfected by one method and later perfected by
another method without a lapse in perfection is continuously perfected despite the change
in method. The date of perfection is the date on which the security interest first became
perfected

Question 37

Determination of priority (2 steps)

Answer 37

1) ID status of each claimant then
2) apply appropriate priority rule

Question 38

Potential claimants

Answer 38

Creditors
o Transferees/buyers
o Other secured parties

Question 39

General creditor

Answer 39

one who has a claim, including a judgment,
but who has no lien or security interest with respect to the property in question (i.e., the
collateral). This type of creditor does not have a claim to particular property owned by the
debtor. A secured party will always prevail over a general creditor with respect to the debtor’s
collateral.

Question 40

Judicial lien creditor

Answer 40

creditor who acquires a lien on the collateral
by a judicial process, rather than by operation of law. A perfected security interest has priority
over a judicial lien creditor, but the judicial lien creditor had priority over an unperfected
security interest.

Question 41

transferee

Answer 41

Transferees of the collateral are persons who obtain full title to the
goods as a result of a transfer of the collateral from the debtor

Question 42

Transferee vs secured party with a security interest—

Answer 42

If collateral is transferred from debtor to transferee and transferee is NOT a buyer, security interest continues in collateral UNLESS the secured party authorized transfer free of the security interest.

In
other words, the secured party still has a security interest in the collateral.

Question 43

Buyer vs secured party with an unperfected security interest—

Answer 43

A buyer, other than a
secured party, of collateral that is goods, tangible chattel paper, tangible docs or a
security certificate takes free of an unperfected security interest in collateral if buyer:
o Gives value; and
o Gets delivery of collateral;
o w/o knowledge of existing security interest.

Question 44

Buyer vs secured party with a perfected security interest

Answer 44

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

Question 45

Buyers in the Ordinary Course of Business

Answer 45

(BOCB) takes goods free of a security interest that the seller gave to the creditor in the goods, even if the security interest is perfected and the buyer knows of its existence.
A BOCB:
o Buys goods (not including farm products);
o In the ordinary course of business;
o From a merchant who sells goods of that kind;
o In good faith; and
o w/o knowledge that the sale violates rights of another in the same goods.

Question 46

Consumer Buyer

Answer 46

Buys consumer goods free of a security interest, even if perfected,
unless before purchase, the secured party filed a financing statement covering
goods.

A consumer buyer:
- Buys consumer goods for value;
- For his own personal, family, or household use;
- From a consumer seller; and
- Without knowledge of the security interest.

Question 47

Perfected security interest vs perfected security interest

Answer 47

If 2+ perfected secured parties with rights in same collateral, the first to party to either file a
financial statement or perfect has priority

Question 48

Perfected security interest vs unperfected security interest

Answer 48

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

Question 49

Unperfected security interest vs unperfected security interest

Answer 49

If neither interest is
perfected, then the first party to have attached their interest has priority.

Question 50

PMSI (Purchase Money Security Interest) Rules

Answer 50

Preference is generally given to a PMSI over a non‐PMSI security interest

Question 51

A PMSI in goods other than inventory or livestock prevails over all other security
interests in the collateral, even if the other security interests perfected earlier, if…

Answer 51

PMSI is perfected before or within 20 days after the debtor receives possession of
the collateral.

Question 52

A PMSI in inventory or livestock—

Answer 52

prevails over all other security interests in same
collateral, even if previously perfected, if
(i) PMSI is perfected by the time the debtor receives possession of the collateral, and
(ii) the purchase‐money secured party sends an authenticated notification of PMSI to holder of any conflicting security interest before debtor receives possession of collateral.

(notification must state that purchase‐money secured party has or expects to
have a PMSI in debtor’s inventory or livestock and it must include a description)

Question 53

PMSI versus PMSI—

Answer 53

If there 2+ competing PMSIs, the first to party to either
file a financial statement or perfect has priority.

Question 54

Proceeds from a PMSI in goods—

Answer 54

priority of a PMSI in goods generally extends to the
identifiable proceeds of the OG collateral, but only as to proceeds in which the security
interest is perfected when the debtor receives possession of the collateral or within 20 days
thereafter.

Question 55

Construction Mortgage

Answer 55

Secures an obligation incurred for construction of an improvement on land, including
cost of acquiring land, and that indicates it is a construction mortgage in real property
records) has priority over a subsequent security interest in a fixture, including a PMSI in a
fixture.

Construction mortgage must be recorded before goods become fixtures, and it
covers only goods that become fixtures before completion of the construction