Secured Transactions

Question 1

Introduction

Answer 1

This question involves Article 9 of the UCC, which governs security interests in personal property/fixtures.

For a security interest to exist, there must be:

1. A secured party
2. Debtor
3. Collateral, which is property the debtor has an interest in and is subject to a security interest of the secured party.

Question 2

How can goods be classified?

Answer 2

Four ways:

1. Consumer goods: bought primarily for personal, family, household purposes.
   - Ex: Buying a van to drive kids to soccer
2. Inventory: goods held for sale/lease by contract (other than farm products), work in process, raw materials, or materials used in business.
   - Ex: Buying things to resell them
3. Farm Products (crops, livestock, equipment, etc.)
4. Equipment: catchall (if none of the above).
   - Ex: cell phone used by a business
   - Ex: doctor uses a van to have mobile first aid stand for her business

Question 3

Attachment

Answer 3

A valid secured transaction requires attachment of the security agreement to the collateral. Attachment is a prerequisite to perfection.

Requirements for attachment:

1. Value: given by SP to Debtor (i.e., a loan)
2. Rights: Debtor has rights in the collateral and
3. There is a security agreement
   - Must have intent, be signed, and have a general description

Question 4

Perfection

Answer 4

The first to perfect usually has priority, although PMSIs usually have superiority if they take the proper steps.

Four methods to perfect:

1. Control
2. Possession
3. Filing Financing Statement (state name of parties, and describes collateral)
4. PMSI in Consumer Goods: automatically perfected (unless it’s a vehicle).

Question 5

PMSI: Intro

Answer 5

A perfected PMSI takes priority over conflicting security interests in the same good.

A security interest is a PMSI to the extent that the money given by the SP is used to purchase the collateral.

Question 6

PMSI: In Consumer Goods

Answer 6

A PMSI in consumer goods is automatically perfected once it attaches.
- Even if a filing statement is never filed.

Exception: vehicles are not automatically perfected

Question 7

PMSI: In Inventory

Answer 7

PMSI in inventory (or livestock) has priority if:

1. PMSI is perfected when the debtor receives possession of the inventory
2. SP sends authenticated notification to the holder of the conflicting interest
3. And the conflicting interest holder receives the notification within 5 years before the debtor receives possession of the inventory
   - 6 months if livestock

Question 8

PMSI: In Equipment

Answer 8

To have priority:

1. The PMSI must attach and
2. A financing statement must be filed in the JDX where the Debtor is located

Question 9

20-Day Grace Period Rule

Answer 9

There is a 20-day grace period to perfect a PMSI (unless it’s in inventory).

Meaning you can perfect it within 20 days after the debtor takes possession of the collateral, and it will still have priority - even if the SP knows that a conflicting interest was perfected before theirs.