Review

Question 1

When does Article 9 apply to an agreement?

Answer 1

Article 9 governs all security interests in personal property or fixtures by contract, regardless of what the parties call the agreement.

Question 2

What are the four classifications of goods?

Answer 2

1) Consumer Goods
2) Inventory
3) Equipment
4) Farm Products

Question 3

Define consumer goods

Answer 3

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

Question 4

Define “Inventory”

Answer 4

Goods, other than farm products, that are held by a person for sale or lease to be furnished under a contract of service; or raw materials work in process, or materials used or consumed in a business

Question 5

Define “Equipment”

Answer 5

Goods, other than inventory, farm products, or consumer goods that are used in the business

Question 6

Define “Farm Products”

Answer 6

Crops, livestock, supplies produced in a farming operation or products of crops or livestock in their unmanufactured state

Question 7

What are the requirements of attachment?

Answer 7

1. Value must be given by the secured party to the debtor (i.e., a loan)
2. The debtor must have rights in the collateral; &
3. There must be a binding security agreement

Question 8

What makes a security agreement binding?

Answer 8

AID: Authentication, Intent to create it, and a Description of the collateral

Question 9

After-acquired property rule

Answer 9

A security agreement can cover after-acquired property and does not need to specifically reference it to be effective.

Question 10

When two secured parties have an interest in the same collateral, who has priority?

Answer 10

First to file or perfect

**If no one perfects, first to attach

Question 11

How is perfection obtained?

Answer 11

By either a) filing a financing statement with the Secretary of State (must identify collateral + SI), or

b) Taking possession or control of collateral

Question 12

What is a PMSI?

Answer 12

A purchased money security interest. Created when a creditor extends value to the debtor for the purpose of enabling the debtor to acquire rights in the collateral

Question 13

What are the PMSI perfection/priority rules?

Answer 13

PMSI in consumer goods -→ perfects automatically

PMSI in non-consumer goods -→ takes priority if creditor files financing statement within 20 days after debtor receives delivery of collateral

Question 14

Buyer in the Ordinary Course of Business Rule

Answer 14

A buyer in the ordinary course of business generally takes free of any security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence

Question 15

Buyer NOT in the Ordinary Course of Business

Answer 15

A buyer not in the ordinary course of business takes collateral subject to a perfected interest. Generally, he does not take subject to an unperfected interest if he gives value, and does not know about the interest

Question 16

What is the garage sale exception?

Answer 16

For consumer goods: A buyer not in the ordinary course of business takes free of a security interest even though perfected if he buys without knowledge of the interest; for value, and for his own personal, family, or household purposes UNLESS the secured party has filed a financing statement covering the goods prior to the sale

Question 17

What steps does a secured creditor take to foreclose on its collateral when the debtor defaults?

Answer 17

The lender can demand payment or use self-help to reclaim the goods so long as it does not breach the peace

Question 18

What is a breach of the peace?

Answer 18

A fact-intensive question, but courts look at whether repossession took place at the debtor’s premises; whether the debtor objected. Some courts look at trickery.

Question 19

May a secured party resell defaulted-on collateral?

Answer 19

Yes, the SP may sell or dispose of the collateral in a commercially reasonable way. Result = discharge of security interest, but debtor is liable for any deficiency

Question 20

What are the notice requirements when a secured party disposes of collateral?

Answer 20

SP must send an authenticated notification of the disposition to the debtor and secondary obligor

–EVEN IF debtor had actual knowledge of disposition, SP is liable for damages for failing to provide notice

Question 21

Timeliness of notification (of sale post-default)

Answer 21

Question of fact, but in a non consumer transaction, 10+ days before disposition is reasonable

Question 22

Content of notification: nonconsumer transactions

Answer 22

Notification of disposition should describe the debtor, the secured party, and the collateral; state the method of disposition; state that the debtor is liable for unpaid indebtedness and charge for accounting

Question 23

Content of notification: consumer transactions

Answer 23

Same requirements as nonconsumer, but additionally: a description of any liability for deficiency; telephone number debtor can call to discover amount owed; and mailing address or phone number to get additional info

Question 24

What are the debtor’s remedies if secured party does not comply with disposition requirements?

Answer 24

Money damages or sale

Question 25

Rebuttable presumption rule

Answer 25

Nonconsumer transaction: If there is a failure to comply with disposition requirements and the secured party fails to show that the sale was commercially reasonable, there is a rebuttable presumption that collateral is worth the amount of the debt and debtor’s deficiency is nothing

Question 26

In a consumer transaction, what two approaches apply to creditor’s noncompliance (w/ disposition requirements)?

Answer 26

Absolute bar rule: creditor’s noncompliance bars any recovery

Rebuttable presumption rule: (same as nonconsumer trans)

Question 27

Right to Redeem

Answer 27

A debtor can redeem prior to the disposition of the collateral by paying everything due and owing to the creditor

Question 28

Can a secured party repurchase the collateral?

Answer 28

Yes, at either a) a public sale; OR b) a private sale only if collateral is subject to a standard price quotation

Question 29

What is the shelter principle?

Answer 29

If a buyer acquires property free of a security interest, any subsequent transfer is also free of the security interest

Question 30

Effect of errors on a financing statement

Answer 30

Minor errors are fine, unless error makes the statement seriously misleading (like wrong name of debtor)

Question 31

When will something called a “lease” be deemed a security interest?

Answer 31

When:

1. a commitment to make payments for a term exists, &
2. either:
   
   1. the original term ≥ to the remaining economic life of the goods
   2. lessee must renew the lease for remaining econ. life of goods or is forced to take ownership
   3. lessee has option to renew for no additional consideration, or
   4. lessee has option to become owner of goods for no additional consideration

Question 32

Who has priority: a judicial lien creditor or a secured party?

Answer 32

If the security interest is perfected, the secured party takes priority

If unperfected, the lien creditor has priority