R6 Secured Transactions

Question 1

What is a purchase money security interest?

Answer 1

A PMSI is a security interest that can have superior priority and it arises when:

• A creditor sells the collateral to the debtor on credit and retains a security interest in the collateral for the price or
• The creditor advances funds that are used by the debtor to purchase the collateral and retains a security interest in the collateral for the price

Question 2

What are the 3 requisites for attachment of a security interest?

Answer 2

1. An agreement to create a security interest evidence by either:
   
   • An authenticated record of the security agreement (signed, written security agreement or an authenticated electronic file containing the agreement)
   • The creditor taking possession of the collateral
2. The secured party must give value for the security interest
3. The debtor must have rights in the collateral

Question 3

What are the 5 ways to perfect a security interes?

Answer 3

1. File a financing statement
2. Possession of the collateral
3. Automatic perfection upon attachment with a PMSI in consumer goods and small scale assignment of accounts
4. Control
5. Temporary

Question 4

Under the Secured Transactions Article (Article 9) what is the order of priority in collateral when the debtor defaults?

Answer 4

1. Buyer in the ordinary course of business
2. Perfected PMSI holder
3. Perfect secured creditor Non-PMSI holder
4. Unperfected secured creditor
5. Debtor

Question 5

What advantages does the holder of an automatically perfected PMSI in consumer goods gain by filing?

Answer 5

If a PMSI in consumer goods filed, it takes priority over consumer who buys the collateral from the debtor in a garage sale/second hand purchase. Absent filing, the garage sale/second hand purchaser would not be subject to the automatically perfected PMSI.

Question 6

What is the difference in filing requirements to perfect a purchase money security interest in inventory compared to noninventory (equipment)?

Answer 6

Inventory - must be filed before the debtor receives possession of the collateral and holders of prior perfected security interest in the inventory must be given notice before the debtor receives the collateral

Noninventory - may be perfected by filing up to 20 days after the debtor receives possession of the collateral that there is no special notice requirement

Question 7

What is the rule for determining which creditor has priority when two creditors have perfected security interest in the same collateral?

Answer 7

The first secured creditor to either file or perfect has priority, dates of attachment are irrelevant

Question 8

What is the effect o the sale of collateral to a good faith purchaser at a default sale?

Answer 8

The sale discharges the security interest in the collateral and all subordinate liens

Question 9

What are a secured party’s basic rights after a debtor defautls in the secured obligation?

Answer 9

• Take possession of the collateral through self-help if this can be done without breach of the peace, and sell or keep the collateral to satisfy the secured obligation
• If the collateral is an account, notify the account debtor to pay the secured party
• Bring a judicial action to replevy the collateral
• Bring an ordinary judicial action to enforce the obligation