Purchase Money Security Interest and Pefection

Question 1

A debtor incurs a purchase-money obligation if

Answer 1

You use a loan specifically to purchase an item

1. obligation incurred for all or part of the purchase price of the collateral (direct financing seller)
2. Third-party purchase money financing

Question 2

Purchase money security interest requirements

2

Answer 2

(1) collateral is the goods debtor purchases with the loan (can be partial payment);
(2) debtor actually purchased goods with loan

Question 3

Ways to perfect a security interest?

4

Answer 3

1. Filing
2. Possession
3. Control
4. Automatic Permanent Perfection

Question 4

Production money security interest in crops occurs when?

Answer 4

When a debtor borrows money in order to produce a crop + give security interest in the grown crops

=Purchase-money obligation

Question 5

Perfection by filing can be done by

Answer 5

1. filing a financing statement (N.C. Secretary of State’s office)
2. if fixtures - file in Office of the Country Clerk (land records)

Question 6

Where to file financing statement for perfection?

Answer 6

The state where the debtor is located

Question 7

Where is a debtor located

1. individual
2. registered organization
3. non-registered organziation

Answer 7

1. principal residence
2. located where it is registered
3. primary place of business (chief executive office)

Question 8

How to get possession to perfect?

Answer 8

get physical actual possession of it

Question 9

How to use third parties to get possession to perfect?

Answer 9

Must be a true third party that agrees in writing to possess the collateral for the secured party’s benefit

Question 10

Taking control of the collateral applies only to

Answer 10

1. investment securities
2. letter-of-credit rights
3. deposit accounts; and,
4. electronic chattel paper

Question 11

A person has control of a certificated security in bearer form if:

Answer 11

they have possession of the paper

Question 12

A person has control of a certificated security in registered form if

Answer 12

The debtor must sign it over and give it to the bank

Question 13

A person has control of an uncertificated security if

Answer 13

Get issuer to say that they will comply with instructions from creditor

1. debtor signs
2. issuer signs
3. creditor signs

Question 14

A certificated security is

Answer 14

A piece of paper representing a security

Question 15

A certificated security in bearer form is?

Answer 15

Whoever bears the stock certificate owns it

Question 16

A certificated security in registered form

Answer 16

Stock certificate is in the name of the debtor

Question 17

A secured party has control of a deposit account if:

3

Answer 17

1. the deposit account is at the lender bank;
2. debtor, account holder, and lender 3-way agreement that account holder will follow instructions of lender; or,
3. put the lender on account (named on account)

Question 18

A security interest in a deposit account is perfected only by

Answer 18

attachment + control;

and is effective only for as long as the secured party has control.

Question 19

What is electronic chattel paper?

Answer 19

a monetary obligation + security interest

Question 20

Automatic permanent perfection occurs when?

Answer 20

1. Purchase money security interest in consumer goods
2. sale of a payment intangible
3. assignment of accounts receivable (if not a significant part of accounts receivable)
4. security interest created in an investment property created by a brokerage intermediary (mutual fund account) –> when your brokerage firm loans you money to buy stocks and takes a security interest in stocks

Question 21

Automatic Temporary Perfection occurs when?

Answer 21

1. Proceeds of collateral
   - 20 days
2. Certificated Securities
   - 20 days after attachment if arises for new value (new loan)
   - 20 days after giving back for presentment for payment + get it back or proceeds
3. Negotiable Documents
   - 20 days after attachment if arises for new value (new loan)
   - 20 days after giving back for presentment for payment + get it back or proceeds
4. Instruments
   - 20 days after attachment if arises for new value (new loan)
   - 20 days after giving back for presentment for payment + get it back or proceeds

Question 22

How long are proceeds automatically perfected?

Exceptions

Answer 22

20 days after attachment (sale)

Question 23

If a security interest is perfected by one method, and later perfected by another method

Answer 23

there is no lapse if it was continuous

Question 24

For PMSIs in collateral that is not a consumer good perfection automatically occurs

Answer 24

for first 20 days