Secure Transactions Basics

Question 1

Define secure transaction

Answer 1

Agreement b/t debtor and creditor
Debtor’s personal personal property will serve as collateral

Question 2

What happens if a debtor defaults on the loan?

Answer 2

Creditor has rights to repossess the collateral and use it to satisfy the debt

Question 3

What is attachment?

Answer 3

How security interests are created

(steps necessary for the security interest to be enforceable against debtor)

Question 4

What is perfection?

Answer 4

Providing notice of a security interest to establish a claim superior to other parties who may wish to claim an interest in the same collateral

Question 5

What is priority?

Answer 5

Rules to resolve priority disputes between multiple claimants to the same collateral

Question 6

Define enforcement

Answer 6

Rights and duties of a secured party who enforces its interest in the collateral

Question 7

What is the best approach to secure transactions MEE problems?

Answer 7

1. Identify and classify the property at issue (call of the question)
2. Determine which parties have or claim an interest in the collateral
3. At least one will be a secured party with a security interest
   + attachment? to which collateral? when?
   + perfection? has the secured party perfected? When?
4. Find the appropriate priority rule
5. Apply the rule to the facts

Question 8

Define security interest

Answer 8

Interest in personal property/fixtures that secures payment or performance of an obligation

Question 9

Define security agreement

Answer 9

Contract that creates security interest

Question 10

Who is a secured party?

Answer 10

Creditor who obtains security interest in debtor’s property

Question 11

Who is an obligor?

Answer 11

Party that must pay or perform the obligation that the collateral secures

Question 12

Who is a debtor?

Answer 12

Party with interest, other than security interest, in the collateral (owner)

Question 13

Can the debtor and obligor be the same person?

Answer 13

Yes, but not always the same person

Ex: if you get a loan and pledge your car as collateral for the loan, you are both the debtor and obligor

Ex: your friend co-signs to help you start your law practices and offers her car as collateral.

Question 14

Article 9 governs transactions, regardless of the form that creates a security interest in….?

Answer 14

Personal property or fixtures by contract

Note: real estate is not governed by Article 9 of the UCC

Question 15

True or false: “regardless of form” means the courts look to the words of the contract and not the substance

Answer 15

False.

Courts will look at the substance of the transaction versus the labels parties use

Question 16

True or false: Agricultural liens fall under Article 9

Answer 16

True. Agricultural liens: interest in farm products that secures payment or performance of an obligation

Question 17

Sales of which types of collateral are treated like secure transactions?

Answer 17

1. Chattel paper
2. Promissory notes
3. Accounts
4. Payment intangibles

Note: This means that the buyer must perfect its interest in the purchased collateral in order to have a superior claim on it

Question 18

Define collateral

Answer 18

Property subject to a security interest

Question 19

To properly classify collateral, look to…?

Answer 19

The debtor’s principal use
at the time the security interest is created

Question 20

What are the subclassifications of Goods?

Answer 20

Goods = things that are movable

1. Consumer goods
2. Farm products (not equipment)
3. Inventory
4. Equipment (catch-all)

Question 21

True or false: a good can transition to a fixture

Answer 21

True.

Ex: a chandelier bought at a store and installed in a home, not taking it with you

Question 22

What are the different subcategories to rights to payment?

Answer 22

1. Instrument: promissory notes, checks, drafts
2. Chattel paper: monetary obligation + security interest/lease
3. Accounts: payment of a monetary obligation
4. Payment Intangible: catch-all/loan of money

Question 23

Landlord leases property to lessee. Landlord gives lender a security interest in landlord’s right under the lease.

What kind of collateral is this?

Answer 23

Chattel paper: monetary obligation + security interest

Lease serves as a security interest in specific goods, not real property

Question 24

A landscaper got a loan from a bank and grants the bank a security interest in her right to receive payment from clients for landscaping work.

The right to receive payment for landscaping work is what kind of collateral?

Answer 24

An account: payment of a money obligation

It is a right to be repaid for services rendered

Question 25

A paper company gets a loan from a bank and pledges as collateral its rights to be paid for the paper it has sold on credit.

What kind of collateral is this?

Answer 25

Account: payment of a money obligation

This is a right to be repaid for goods sold

Question 26

A paper company forms an agreement (used when paper is sold on credit) providing that the store retains a security interest in the paper sold until the buyer repays the purchase price.

What kind of collateral is this?

Answer 26

Chattel paper: right to payment + security interest

Question 27

A business loans money to many parties and holds numerous promissory notes that represents borrowers’ obligations to repay.

What sort of collateral is this if the business uses the notes for a loan?

Answer 27

Instrument

Question 28

Beyond rights of payment, what are the other types of collateral?

Answer 28

1. Documents: ownership rights (bill)
2. Investment property
3. Bank accounts: different from right of payment account
4. Commercial tort claims
5. Letter of credit rights
6. General intangibles: blueprints, copyrights, trademark, software