Secured Transactions

Question 1

A security interest is created upon ____, and ____ of the security interest creates priority.

Answer 1

Attachment, perfection

Question 2

A security interest that is enforceable against the debtor is attaches to the collateral. Attachment requires:

Answer 2

(1) value given by the secured party to the debtor,
(2) debtor must have rights in the collateral, and
(3) the debtor authenticates a record describing the collateral (security agreement) or the secured party has possession or control of the collateral (valid security agreement)

Question 3

Perfection creates superior rights in the collateral for secured party over third parties rights in that collateral: A security interest can be perfected by:

Answer 3

(i) filing a financing statement in the appropriate office that lists the parties and the collateral,
(ii) possession or control of the collateral, or
(iii) by automatic perfection

Question 4

After-acquired property

Answer 4

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

Question 5

Equipment is:

Answer 5

a catch-all category for goods and therefore is a good that is not a consumer good, inventory, or farm product

Question 6

A PMSI exists when:

Answer 6

the secured party provides all or part of the funds to purchase the collateral that is being offered for security either through: (i) an advance of funds to purchase the collateral, or (ii) by extending credit to be debtor for the purchase price

Question 7

PMSI will have priority over perfected security interests if:

Answer 7

Secured party files a financing statement in the appropriate office within 20 days of the possession of the collateral by the debtor

Question 8

Article 9 of the UCC only applies to leases when:

Answer 8

the transaction, although in form a lease, is in economic reality or substance a secured transaction

Courts will consider: (i) rights to cancel, whether term extends over entire economic life, optional or mandatory requirement to renew or purchase for little value, and value exchanged over the lease

Question 9

A perfected security interest will have priority over an unperfected security interest:

Answer 9

even if the unperfected security interest is a PMSI

Question 10

A security agreement exists to create:

Answer 10

a security interest in collateral. It gives a creditor certain rights in collateral in exchange for value.

Question 11

A party defaults on its security agreement when:

Answer 11

conditions included in the agreement occur or when it fails to make payments or perform under the agreement

Question 12

On default, a secured party may demand payment or engage in self-help to repossess the collateral so long as:

Answer 12

It does not breach the peace.

A secured party breaches the peace when it engages in any behavior that could lead to violence

A secured party may also seek judicial action and foreclosure to enforce its interests in collateral

Question 13

A secured party has an interest in any accounts granted by the debtor to another party if:

Answer 13

those accounts are payment toward the use of collateral secured by the original security agreement and the original debtor has defaulted or become insovlent

Question 14

A PMSI in goods other than consumer goods (those bought or to be used for household, family, or personal use) are not:

Answer 14

automatically perfected.

Question 15

Debtor’s means of protection:

Answer 15

(1) sale must be commercially reasonable,

(2) Debtor must receive written notification of the sale

Question 16

What are the notice requirements of the secured party prior to disposition?

Answer 16

Must provide debtor, secondary obligor, any other secured party or lien holder with notice at least 10 days before the disposition unless an exception to notification applies.

Failure to meet these requirements: secured party may be liable for damages due to failure to notify

Question 17

Exceptions to Notification

Answer 17

(1) collateral is perishable or threatens to decline speedily in value;
(2) collateral is of a type customarily sold on a recognized market;
(3) the person has waived his right in an authenticated writing

Question 18

Lien Creditor and Secured Party

Answer 18

Priority belongs to the secured party, provided that it perfects before the lien arises

Question 19

Description of Collateral in Security Agreement

Answer 19

It must reasonably identify the collateral and not be super generic, such as “all personal property”

Question 20

Article 9 applies to all security interests:

Answer 20

in personal property or fixtures by contract, even if the agreement is not characterized as a security agreement

Question 21

What are the FOUR classifications of goods?

Answer 21

Consumer goods: used primarily for personal, family, or household purposes

Inventory: goods, other than farm products, that are held by a person for sale or lease to be furnished under a contract of service

Equipment: goods, other than inventory, farm products, or consumer goods

Farm Products: crops, livestock, supplies produced in a farming operation

Question 22

When to secured parties have a security interest in the same collateral:

Answer 22

The first to file or perfect has priority.

• If no party perfects, the first to ATTACH has priority
• A perfected security always beats an unperfected security interest

Question 23

Buyer in the Ordinary Course (BOCB)

Answer 23

(1) buys goods (not farm products) by giving new value,
(2) in the ordinary course,
(3) from a seller in the business of selling goods of that kind,
(4) in good faith, and
(5) without actual knowledge that the sale violates another’s rights in the goods

*BOCB takes free of any SI in goods given by seller

Question 24

Buyer Not in Ordinary Course

Answer 24

Generally takes collateral subject to any perfected interest, but not unperfected interest

Question 25

Consumer to Consumer Goods (Garage Sale) Exception

Answer 25

(1) Buys consumer goods for value, (2) for his own personal, family, or household use, (3) from a consumer seller, and (4) without actual knowledge of the security interest
* Takes free of any SI in consumer goods UNLESS secured party has filed a financing statement covering the goods

Question 26

Debtor’s Remedies if Secured Party Fails to Comply With Formalities

Answer 26

Damages, sale

Question 27

Does a debtor have the right to redeem?

Answer 27

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