Secured Transactions - 1

Question 1

How and why would a creditor attach a security interest to debtor’s collateral?

Answer 1

First, the creditor has to give value to the debtor which means they’re paying out the loan.

Second, the debtor has to have rights in the collateral, so it has to be something they have at least partial ownership in.

Third, there either has to be an authenticated security agreement or possession or control.

That is how we would attach and the reason that we would attach is becase the creditor wants to be able to enforce their security interest. Meaning that if the debtor defaults they want to be able to repossess the item.

Question 2

What it the relationship between attachment and perfection?

Answer 2

You can’t perfect without attachment

Question 3

Why should a creditor perfect?

Answer 3

They want to have priority over other creditors so that is why they perfect because they want to have a good spot in line should the debtor default.

Question 4

When is a creditor perfected?

Answer 4

When attachment is complete. The creditor cannot be perfected until attachment is complete.

Question 5

Why is collateral classified?

Answer 5

So that you know which the appropriate method of perfection.

Question 6

How do you know which creditor has priority if two competing creditors have an interest in the same collateral?

Answer 6

The first to file or perfect

Question 7

If creditor 1 files, then creditor 2 perfects, then creditor 1 finishes attaching, who has priority if debtor defaults?

Answer 7

creditor 1 because filing first preserves their place in line.

Question 8

What is a PMSI?

Answer 8

Purchase Money Security Interest

Question 9

Why would a creditor want a PMSI?

Answer 9

Super Priority and that would allow you to beat a person who has perfected prior to you. You filed second but you still win because you have a PMSI.

Question 10

A stapler in Prof. Swanson’s office.
A. Consumer Goods
B. Inventory
C. Equiptmemt
D. Farm Products

Answer 10

C. Equiptmemt

Question 11

The curtains in the lobbby of your lawyer’s office.
A. Consumer Goods
B. Inventory
C. Equiptmemt
D. Farm Products

Answer 11

C. Equiptmemt

Question 12

Milk in the hands of the restaurant making it into macaroni and cheese.
A. Consumer Goods
B. Inventory
C. Equiptmemt
D. Farm Products

Answer 12

Inventory

Question 13

Staples in the stapler

Answer 13

Inventory because the little pieces are used quickly.

Question 14

Lottery Winnings
A. Consumer Goods
B. Account
C. Document
D. Payment Intangible

Answer 14

Account

Question 15

How does a Bank perfect in a car that a consumer purchases for personal use?
A. File a financing statement
B. File a fixture filing
C. Automatic upon attachment
D. Possession
E. Note the lien interest on the Certificate of Title
F. A, C and E
G. All of the above
H. None of the above

Answer 15

Note the lien interest on the Certificate of Title

Question 16

With Debtor’s permission, Bank One files a financing statement covering Debtor’s diamond ring (valued at $25,000) on 1/1/23. On 1/12/23, Bank Two loans Debtor $10,000, takes possession of Debtor’s diamond ring, and Bank Two and Debtor sign a proper security agreement. On 1/15/23 Bank One gives value (pays out the $15,000 loan to Debtor) and Debtor and Bank One sign a valid security agreement. Debtor defaults on 1/30/23. Who has priority in the diamond ring and why?

Answer 16

Bank One has priority because they filed on 1/1, saving their place in line. When they finished attaching on 1/15 (by paying value and signing a security agreement) their perfection dated back to the day they filed. Even though Bank Two perfected first (through possession) Bank One filed first and Article 9 states that the first to file or perfect will prevail.

Question 17

___________ is something that is (the thing you sell) or raw materials used or consumed in a business. – pens, post-it notes, copy paper, highlighters.

Answer 17

inventory