Secured Transactions

Question 1

Security Agreement

Answer 1

Remember: written, value, and rights

To be valid, (1) the security agreement must show intent, be authenticated/signed by debtor, describe (reasonably identify) the collateral, (2) the party offering collateral must have rights in it (they must own it or have other legal rights in it), and (3) the party gaining the security interest (usually a bank or merchant) must give value in exchange for the security interest.

Question 2

Accessions

Answer 2

Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost.

Example: wheels on a car

Question 3

Methods of Perfection

Answer 3

(1) Automatic perfection (PMSI in consumer goods auto perfects upon attachment)
(2) Possession of collateral by a secured party (rare)
(3) Control (security interest in non-consumer deposit accounts can only be perfected by control. Bank where acct is maintained auto has control. If secured party is not the bank, it obtains control by (i) putting acct in secured party’s name, or (ii) agreeing in authenticated record “control agreement” with debtor and bank).
(4) Notation of lien on title (only way to perfect for a car. If car is inventory, must filing financing statement.)
(5) Filing financing statement (must use debtor’s real name and is effective for 4 months after name change, and describe collateral).

Question 4

Financing Statement

Answer 4

Effective for 5 years. Can be extended by filing continuation statement within the last 6 months of the 5-year life.

Question 5

Perfection as to Proceeds

Answer 5

If secured party has perfected security interest in collateral, they automatically have perfected interest in proceeds debtor receives for that collateral for 20 days.

To retain perfected in those proceeds after 20 days, secured party must take new action to perfect.

Question 6

Same Office Rule (Barter Rule)

Answer 6

Remember: perfected by financing statement, same office, and no cash

Security interest in proceeds need not be re-perfected if filing would be in the same office as the original financing statement already filed and proceeds were not purchased with cash proceeds.

(1) security interest in original collateral was perfected by filing a financing statement, (2) a security interest in the type of collateral constituting proceeds would be perfected by filing in the same place as the statement for the original collateral, and (3) proceeds were not purchased with cash proceeds of the collateral.

Question 7

Exceptions to Proceeds Perfection

Answer 7

No new action needed after 20 days to perfect unless. . .

(1) proceeds are identifiable cash, or
(2) the “same office rule” (barter rule) applies.

Question 8

Perfected Secured Creditor v. Perfected Secured Creditor

Answer 8

First to file or perfect, whichever occurs first, has priority.

Question 9

Unperfected v. Unperfected

Answer 9

First to attach has priority.

Question 10

Buyer in Ordinary Course

Answer 10

A buyer in the ordinary course takes free of a security interest if they buy in good faith, without knowledge that the sale violates the rights of another person in the goods, and buys in the ordinary course from a business selling goods of that kind.

Think “garage sale buyer”