Sec Transactions

Question 1

Article 9 scope and mechanics

Answer 1

UCC applies to ANY transaction intended to create a security interest in personal prop or fixtures. Security interest = right to sell. Collateral.

Question 2

Parties to article 9

Answer 2

Secured party - creditor
Debtor - owner
Obligor - responsible for obligation

Question 3

Collateral

Answer 3

Property in which the security interest is created. Extends to identifiable proceeds from property served as collateral.

Question 4

Types of collateral

Answer 4

Goods
Consumer goods - used for personal, family, or household purposes
Inventory - kept by person for sale or lease
Accounts - any right to payment obligation (A/R)
Farming
Equipment

Question 5

Attachment

Answer 5

How a security interest is created. Attached when it becomes enforceable against the debtor with respect to collateral (unless agreement postpones)

Question 6

Requirements of attachment

Answer 6

Secured party extends value to debtor
Debtor has rights to collateral or power to transfer rights to 3rd party
UCC 9-203b3: authentication of security agreement or when secured party takes control

Question 7

Authentication of security agreement

Answer 7

Providing the secured party with reasonable description of collateral in writing. Signature, thumbprint or initials all adequate proof so long as intent

Question 8

Consignment

Answer 8

A transaction in which a person delivers goods to merchant for the purpose of the sale in which

1. the merchant: deals in goods of that kind under different person then one making delivery, is NOT an auctioneer and is NOT generally known by creditors to be substantially engaged in selling the goods to others
2. Aggregate value is 1000 or more at each delivery
3. Goods are NOT consumer goods AND
4. Transaction does NOT create security interest

Question 9

Affects of consignment

Answer 9

Co-signee has rights and title to the goods identical to those of the co-signor. Cosignee possesses the full ownership interest of the co-signer in the goods, such that as a security interest of creditor will attach

Question 10

Future advances

Answer 10

Security agreement May provide that collateral secures future advances so long EXPLICIT

Question 11

After-acquired property

Answer 11

Generally enforceable (exception consumer goods need to be 10 days)

Question 12

Specification clause

Answer 12

Terms: default (non-defined is non-payment), acceleration, covenants

Question 13

Use or disposition of collateral by a debtor

Answer 13

Security interest NOT. Be invalid if debtor has right to dispose of it

Question 14

Collateral in secured parties possession

Answer 14

Reasonable care

Question 15

Accessions and conmingled goods

Answer 15

Accession - NOT lose identity when attach with other goods

Commingled - loses identity; attach to product that results

Question 16

Perfection

Answer 16

ENHANCES the secured party’s rights to collateral. CANNOT be perfected without attaching first.

Question 17

3 Methods to perfect

Answer 17

Filing a financing statement by authorized party: contain debtor name, secured party’s name, adequate description of collateral, and filing fee

Taking possession

Automatic perfection - purchase-money security interest in consumer goods AND an assignment of accounts which is not significant part of outstanding accounts

Question 18

Priority rules

Answer 18

Perfected > unperfected

First to file OR first to perfect (only not subject to filing requirements)

Lien creditor treated as perfected party. Also applies to future advances: before lien arose, within 45 days of lien OR without knowledge of lien

Accession becomes part of whole, the security interest in the whole has priority over security interest in accession

Question 19

Exceptions to priority rules

Answer 19

Buyer in ordinary course of business - takes it free and clear even if know of security interest

Shelter principle: protected buyer May sell purchased collateral to third party

2. Consumer buying from consumers IF buys without knowledge of security interest, for value, AND before the filing of a financing statement
3. PMSI: security interest held by seller to secure payment of price OR security interest to acquire collateral. Needs to be perfected for inventory. Non-inventory there is a 20 day grace period to perfect. Consumer goods is automatic!

Question 20

Secured party right to repossess

Answer 20

Upon default, self help okay as long as do not BREACH the peace! (Any opposition)

Question 21

Secured party right to dispose collateral

Answer 21

May sell, lease, license or otherwise dispose collateral.

May sell collateral in possession as long as commercially reasonable—need reasonable notice in timely manner

Strict foreclosure - secured party May purchase the collateral at sale ONLY if collateral customarily sold on recognized market

Question 22

Secured party right to collect directly

Answer 22

Must send authenticated notification to debtor informing them the amount due has been assigned. Upon notice, can ONLY discharge by paying assignee

Question 23

Debtor right non-complying disposition of collateral

Answer 23

Recover actual damages, statutory damages (consumer goods min = credit loan interest amount + 10% principal. $500 each violation) OR judicially mandates disposition

Question 24

Debtor right to redemption

Answer 24

Right to reclaim property until secured party disposes. MUST fulfill all obligations secured by collateral AND pay reasonable expenses and attorney fees

Question 25

Surplus debtor right

Answer 25

Amount collected from disposal was more than obligation then surplus goes to debtor. EXCEPTIONS: accounts, chattel paper, intangibles or promissory notes

Question 26

Rules for deficiency in consumer goods

Answer 26

Absolute defense (none) OR rebuttable presumption that it satisfies debt

Question 27

Deposit accounts and money perfection rules

Answer 27

Bank in which NONCONSUMER deposit account is maintained automatically has control over deposit account.

Other ways to put control is put account in secures party’s name or authenticated record