Requirements for a Secured Transaction

Question 1

Define a secured transaction.

Answer 1

A transaction

Intended to create

A security interest

In personal property** or **fixtures

NOTE: generally involves a sale on credit or a loan in which the seller or lender obtains a lien on some or all of the debtor’s personal property as security for payment

• credit transaction
• agreement that creates a lien in favor of the creditor in debtor’s personal property

Question 2

Identify the terms (“magic words”) to a secured transaction.

Answer 2

Debtor: person who owes payment or performance of the obligation secured

Secured party: lender, seller, or other person in whose favor there is a security interest

Security agreement: the agreement between the debtor and the secured party that creates the security interest

Security interest: interest in personal property or fixtures which secures payment or performance of the obligation

Collateral: the property subject to the security interest

Attachment: the steps legally required to give the secured party a security interest in the collateral that is effective as against the debtro:

Perfection: deals with the steps legally required to give teh secured party an interest in teh collateral that is effective as against the world

Financing statement: document generally used to provide public notice of the security–> perfect the security interest

Question 3

What is a purchase money security interest?

Answer 3

Where the secured party sells a debtor** the **collateral** on **credit** and **retains a security interest; or

An enabling loan to the debtor that enables the debtor to buy collateral.

• the loan proceeds must actually be used to acquire the collateral

NOTE: A PMSI triggers special rules in priority and attachment

Question 4

In what situations does a security interest NOT lose its PMSI status?

Answer 4

The purchase money obligation also secures an obligation** that is **not purchase money;

Nonpurchase money collateral also secures the puchase money obligation

Purchase money obligation has been renewed, refinances, consolidated, or restructured

Question 5

What are the types of collateral?

Answer 5

Goods

• All things which are movable at the time the security interest attaches
• includes unborn young of animals and growing crops
• Classified into 4 categories:

1. Consumer goods–used or bough for use primarily for personal, family, or household purposes
2. Equipment–used or bought for use primarily in business
3. Farm products–crops or livestock or supplies used or produced in farming operations; OR products of crops or livestock in their unmanufactured states if in possession of a debtor engaged in farming operation
4. Inventory–held by a person who holds them for sale or lease or to be furnished under service contracts; materials used or consumed in a business in a short period of time

Semi-intangible and intangible

• instruments–negotiable instruments and any other writing which evidences a right to payment of a monetary obligation (commercial paper)
• documents–in the regular course of is treated as evidencing that the holder of it is entitled to receive, hold, and sipose of the document and goods it covers
• chattel paper–record (information stored in tangible or intangible medium) which evidences both a monetary obligation and a security interest in or a lease of spefici goods
• investment property–e.g., stocks, bonds, mutual funds
• accounts–a right to payment (not evidenced by an instrument or chattel paper) 1) for goods; 2) services; 3) real property; 4) insurance; 5) secondary obligation; 6) energy; 7) use or hire of a vessel; 8) credit card use; 9) lottery winnings
• deposit accounts–demand, time, savings, passbook maintained with a bank.
• commercial tort claims–1) claimant must be an organization; or 2) where claimant is an individual and the claim arose in the claimant’s business or profession and does not include damages for personal injury or death of an individual
• general intangibles–any personal property not within the definitions above (if money obligation to pay=payment intangible)

NOTE: deposit accounts does not include an assignment of a deposit account in a consumer transaction

Question 6

What does UCC Article 9 apply to?

Answer 6

Any transaction**, regardless of its form, that **creates a security interest in personal property or fixtures by contract

An agricultural lien

• Article 9 doesn’t create such interests but does regulate some of the legal issues that arise

A sale of accounts, chattel paper, payment intangibles, or promissory notes

Most consignments:

• consigned goods are worth more than $1000;
• consignor did not use the goods as consumer goods;
• consignee deals in goods of the kind under a name other than the consignor’s;
• consignee is not an auctioneer;
• consignee is not generally known by her creditors to be substantially engaged in selling the goods of others
• NOTE: consignor’s interest in the consigned goods is considered to be a PMSI in inventory

Secured sale disguised as a lease

• at the end of a lease period, the lessee becomes the owner of the goods for little or no consideration; or
• lessee is bound to purchase the goods at the end of the lease or to renew the lease for the remaining economic life of the goods; or
• the lease is for the entire economic life of the leased goods, with or without renewal