Secured Transactions

Question 1

UCC 9

Answer 1

governs any transaction regardless of its form as long as it creates a security interest

Question 2

Kinds of Collateral Subject to Security Interest

Answer 2

1. Equipment –goods other than inventory, farm products, or consumer goods
2. consumer goods – goods purchased primarily for personal, family, or household purposes
3. farm products
4. inventory – goods that are leased/sold/given for contract of service; raw materials, materials used/consumed in business
5. accounts – rights to payment of a monetary obligation
6. Proceeds

The type of goods depends on how it’s used, not by what they’re called

Question 3

Attachment and Perfection

Answer 3

A security interest in collateral is valid upon proper attachment. It is secured against other creditors or interests in the collateral if it is properly perfected.

Attachment – a security interest becomes attached upon the proper authentication of a financing statement signed by the debtor that gives rights to the creditor in the named or described collateral; or by possession or control of the collateral

Perfection – a security interest becomes perfected once the creditor files the financing statement with the proper public office; or the creditor takes possession or control of the collateral

PMSI in consumer goods – auto perfected

PMSI in any other collateral – perfected if creditor files before debtor takes possession or within 20 days

Question 4

Sale of Collateral and Identifiable Proceeds

Answer 4

SI continues despite sale, lease unless authorized free by secured party

Perfected SI attaches to identifiable proceeds from disposition of collateral for 20 days unless reperfected or proceeds are identifiable cash proceedsmt

Question 5

Buyer in Ordinary Course of Business

Answer 5

BOCB – takes the property free of any security interests if they buy it:

1. in good faith;
2. with no knowledge of the interests; and
3. in the ordinary course of business (good is something that a merchant typically sells that type of good)

Question 6

Priorities

Answer 6

1. BOCB
2. PMSI-holder (auto for consumer goods, if non-consumer goods, then must be properly perfected)
3. Perfected parties
4. Judicial lien holders (also over anyone who didn’t perfect before the lien was placed on the collateral)
5. Unperfected parties

If multiple creditors/secured parties within a category, priority goes to first to file or possess

Question 7

Priority for Fixtures

Answer 7

A fixture filing can be filed to perfect a security interest in a fixture that is connected to real property

Filing requires:

1. filing financing statement that covers goods that are or will become fixtures
2. properly filed financing statement, authenticated
3. properly filed according to real estate filing rules

PMSI in fixture – perfected and priority if

1. debtor has interest of record or is in possession of the real property
2. interest arose before goods became a fixture; and
3. pmsi was perfected before they became fixtures or within 20 days

Question 8

Rights and Remedies Upon Default: Creditor

Answer 8

Upon default, secured parties have right to possess collateral or dispose of it

Secured parties may also either seek judicial process or engage in self-help that doesn’t breach the peace

Right to dispose of collateral – upon default, a secured party may sell, lease, or dispose of the collateral in a reasonably commercial manner but must send authenticated notification to debtor and secondary obligors

Right to Collect directly from an account debtor – secured parties with an SI in debtor’s accounts may, upon default, direct that the payments be sent directly to the secured party – must properly notify the account debtor and they’d be required to pay the secured party

Question 9

Rights and Remedies Upon Default: Debtor

Answer 9

Debtor may be able to recover damages if the secured party fails to comply with the proper procedures of default, includes having their entire debt extinguished or limiting deficiency judgment to secured party

Right of Redemption is allowed if the debtor pays their debt and attorney’s fees and applicable costs before:

1. creditor takes collateral;
2. creditor disposes of collateral (or enters contract to dispose); OR
3. creditor accepted collateral in full/partial satisfaction of debt