SECURE TRANSACTIONS

Question 1

When does Article 9 apply?

Answer 1

Article 9 applies to all security interests in personal property or fixtures by contract. Article 9 also applies to lease agreements that are not true leases (but instead, security interests).

Question 2

What are Consumer goods?

Answer 2

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

Question 3

What is Inventory?

Answer 3

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 (e.g., computers sold by a computer store).

Question 4

What is Equipment?

Answer 4

Goods, other than inventory, farm products, or consumer goods (e.g., a computer used in a business).

Question 5

What are Farm products?

Answer 5

crops, livestock, supplies produced in a farming operation, or products of crops or livestock in their unmanufactured state in possession of a debtor who is engaged in a farming operation.

Question 6

What is attachment?

Answer 6

An arrangement linking debt to collateral, upon attachment interest becomes enforceable.

Requires value given, the debtor to have rights, and either a security agreement or possession/control

Question 7

After-acquired property:

Answer 7

The general rule is that a security agreement can cover after-acquired property and does not need to specifically reference it to be effective.

Question 8

What is required in a security agreement?

Answer 8

Identify collateral, shows the intent of debtor to be bound, and is in a tangible medium

Question 9

Perfection can occur by?

Answer 9

Perfection can occur by filing a financing statement. it can be automatic in some cases (e.g. PMSI in consumer goods). Or, an interest can be perfected by possession or control.

Question 10

A PMSI in ____ will automatically perfect.

Answer 10

Consumer goods.

Question 11

Priority between Perfected int v. perfected int? (Non-PMSI)

Answer 11

When two secured parties have a security interest in the same collateral, the first to file or perfect has priority. If no party perfects, then the first to attach has priority. A perfected security interest beats an unperfected one—even if one has an unperfected PMSI.

Question 12

Priority between perfected v unperfected? (Non-PMSI)

Answer 12

Perfected wins

Question 13

Priority between Perfected interest v. perfected interest? (Non-PMSI)

Answer 13

First in time to file OR perfect

Question 14

What happens when a debtor sells collateral subject to a security interest or if a judicial lien creditor acquires an interest?

Answer 14

A buyer in the ordinary course of business generally does not take the collateral subject to the security interest, whereas a buyer not in the ordinary course of business generally does (unless the interest was not perfected and he does not otherwise know about it).

Question 15

What is a buyer in the ordinary course of business?

Answer 15

A buyer who buys goods from a merchant, in the ordinary course of that business, in good faith and without notice of the security interest.

Question 16

Buyer in the ordinary course of business

Answer 16

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.

(Note that the buyer is not in the ordinary course of business if he knows that the sale is in violation of a term in the security agreement.)

Question 17

Buyer not in the ordinary course of business

Answer 17

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 18

consumer-to-consumer buyer (garage sale) exception

Answer 18

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 security interest; for value; and for his own personal, family, or household purposes unless, prior to the purchase, the secured party has filed a financing statement covering the goods. The goods must be consumer goods both when the seller has them and when the buyer buys them for this to apply.

Question 19

When a lien creditor is involved

Answer 19

The general rule is that, as between a secured party and a lien creditor, priority belongs to the secured party, provided it perfects before the lien arises. If the interest was unsecured or only perfected after the lien creditor served the writ, then the lien creditor has priority.

Question 20

Default

Answer 20

If a default occurs, the lender can demand payment or use self-help to reclaim the goods so long as it does not breach the peace.

Question 21

Breach of peace

Answer 21

There are several factors to examine to determine if the lender has breached the peace, including whether the repossession took place at the debtor’s premises and whether the debtor objected. Some courts also look at whether trickery was used. Some courts say that any objection (even if slight and even if only verbal) amounts to a breach of the peace.

Question 22

Resale

Answer 22

The secured party may sell or dispose of the collateral in a commercially reasonable way. The security interest is discharged when this occurs, but the debtor is liable for any deficiency. The obligation owed to the disposing secured party and any junior liens are paid off. (Senior liens remain on the collateral.)

Question 23

Debtor’s means of protecting itself

Answer 23

• Debtor’s means of protection #1: the sale must be commercially reasonable.
• Debtor’s means of protection #2: The debtor must receive written notification of the sale. The debtor and perfected secured parties (or secured parties who have notified the secured party of their interest) must know when the chance to redeem the collateral is going to pass.

Question 24

Remedies if the creditor makes a non-complying disposition of the collateral

Answer 24

When a creditor makes a non-complying disposition of the collateral under article 9, the debtor can:

1- Recover actual damages;
2- Recover statutory damages;
3- Be subject to judicially mandated disposition of the collateral

Question 25

Debtor’s right to redeem

Answer 25

The Debtor can redeem prior to the disposition of the collateral by paying everything due and owing to the creditor.