Secured Transactions

Question 1

Goods

Answer 1

Goods are all things that are movable when a security interest attaches.

Question 2

Consumer Goods

Answer 2

Consumer goods are goods that are used mainly for personal, family, or household purposes.

Question 3

Inventory

Answer 3

Includes goods that are kept by a person for sale or lease (does not include goods that are only being held for repair).

Question 4

Accounts

Answer 4

Covers any right to payment of a monetary obligation, whether or not earned by performance, for property that has been or is to be sold.

Question 5

Attachment

Answer 5

(1) Secured party extends VALUE to the debtor;
(2) Debtor has RIGHTS in the collateral or the power to transfer rights in the collateral to a secured party; and
(3) Authenticated security AGREEMENT/CONTROL/POSSESSION.

Question 6

Future Advances

Answer 6

Security agreement may provide that collateral secures future advances, whether or not the advances are mandatory, so long as the security agreement explicitly includes a future advances clause.

Question 7

After-Acquired Property

Answer 7

May be included in security agreements and are generally enforceable allowing the after-acquired property to be secured in favor of the secured party.

Question 8

Accessions

Answer 8

Collateral that does NOT lose its identity when physically united with other goods.

EX: A jet engine serving as collateral does not lose its identity when it is installed into a jet.

Question 9

Commingled Goods

Answer 9

Collateral that loses its identity when physically united with other goods. If collateral becomes commingled with other goods, a security interest attaches to the product that results.

Question 10

When does Article 9 apply?

Answer 10

Article 9 of the UCC applies to any transaction intended to create a security interest in personal property or fixtures, but not mortgages on real property. A security interest gives the creditor a right to sell a debtor’s property in order to satisfy a debt.

Question 11

Perfection (generally)

Answer 11

Enhances the secured party’s rights to the property serving as collateral. However, if the security agreement does not attach, then it cannot be perfected no matter what the creditor does.

Question 12

Perfection by Filing

Answer 12

Filing of a “financing statement” is the primary method of perfection. Must be filed in right place.

Must contain:

(1) Debtor’s name;
(2) Security party’s name;
(3) Adequate description of the collateral; and
(4) Filing fee.

Question 13

Perfection by Possession

Answer 13

May perfect a security interest in negotiable documents, goods, instruments, or money by taking mere possession of such items.

Question 14

Perfection by Auto

Answer 14

Following security interests are perfected automatically when they attach:

(1) PMSI in consumer goods; and
(2) assignment of accounts which does NOT by itself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor’s outstanding accounts.

Question 15

Perfected vs. Unperfected Interests (Priority)

Answer 15

Perfected security interest has priority over a conflicting unperfected security interest in the same collateral.

Question 16

Perfected vs. Perfected Interests (Priority)

Answer 16

First to file or perfect obtains priority.

Question 17

Lien Creditors

Answer 17

If a party becomes a lien creditor before a secured party files or perfects, the lien creditor will enjoy priority over that party.

Priority extends to future advances secured: (1) Before the lien arose; (2) Within 45 days of the lien; or (3) Without knowledge of the lien.

Question 18

Buyers in the Ordinary Course of Business (Priority)

Answer 18

Person who buys in the ordinary course from a person in the business of selling goods of that kind. They take the item free of a security interest created by the buyer’s seller even if the security interest is perfected and the buyer knows of its existence.

Shelter Principle – protected buyer may sell collateral to a third party free of secured party’s security interest.

Question 19

Consumers Buying from Consumers (Priority)

Answer 19

Buyer of consumer goods takes the goods free from security interests, even if perfected, if the buyer buys:

(1) Without knowledge of the security interest;
(2) For value;
(3) Primarily for the buyer’s personal, family, or household purposes; and
(4) Before the filing of a financing statement covering the goods.

Question 20

PMSI

Answer 20

Generally have priority over prior perfected security interests.

PMSI is either:

(1) A security interest held by the seller of collateral to secured payment of all or party of the price; or
(2) A security interest of a person that gives value to a debtor so that the debtor may acquire rights in or the use of collateral.

PMSI in inventory has priority over conflicting security interest if PMSI is perfected at time debtor receives possession and notice is provided to creditors.

PMSI in non-inventory collateral has priority over a conflicting security interest in the same collateral if the PMSI is perfected at the time the debtor receives possession of the collateral or within 20 days thereafter.

PMSI in consumer goods auto perfects upon attachment.

Question 21

Breach of the Peace

Answer 21

Any conduct by the secured party that has the potential to lead to violence is a breach of the peace.

Generally, physical presence by the debtor (or a representative of the debtor) + verbal objection = breach of peace.