Secured Transactions

Question 1

To determine which security interest has priority, the issue is who prevails between the holders of ____ ____ ____ ___ ___ for which the debtor changes the intended use.

Answer 1

To determine whose security interest has priority, the issue is who prevails between the holders of conflicting security interests in collateral for which the debtor changes the intended use.

Question 2

Article _ of the Uniform Commercial Code governs security interests and provides rules for their priority.

Answer 2

9

Question 3

What is attachment?

Answer 3

Attachment gives the creditor rights against the debtor in the collateral.

Question 4

What three things are needed to attach a security interest?

Answer 4

To attach a security interest: (i) either the debtor must authenticate a security agreement granting the creditor a security interest in collateral, which describes the collateral; or the creditor must take possession or control of the collateral;

(ii) the creditor must give value; and

(iii) the debtor must have rights in the collateral

Question 5

To obtain rights against another claimant to a debtor’s collateral, a secured party must do what three things?

Answer 5

Attach, perfect, and have priority.

Question 6

To obtain rights against another claimant to a debtor’s collateral, a secured party must also _______ its security interest.

[in addition to attach]

Answer 6

perfect.

Question 7

How may a creditor perfect a security interest?

Answer 7

A creditor can perfect a security interest in goods by (i) filing, in the proper public office, a financing statement that is authorized by the debtor in an authenticated record, or (ii) by taking possession

Question 8

____________ are goods that are used or bought primarily for personal, family, or household purposes

Answer 8

Consumer goods

Question 9

Goods that are not consumer goods, inventory, or farm products are ________.

[Default]

Answer 9

Equipment.

Question 10

Who has priority?

Answer 10

Between two perfected security interests, the first secured party to file or perfect has priority.

Question 11

When is a PMSI created?

Answer 11

A PMSI is created when a creditor advances credit or provides the funds needed to make a purchase possible and takes a security interest in the goods purchased.

Question 12

When is a PMSI in consumer goods perfected?

Answer 12

A PMSI in consumer goods is automatically perfected upon attachment.

Question 13

Under Article 9, filing a financing statement is not effective to perfect a security interest in what scenario?

Answer 13

If there is a state statute providing for perfection. Under Article 9, filing a financing statement is not effective to perfect a security interest in vehicles subject to a state statute that provides for perfection by notation on the certificate of title.

Question 14

A/n ________ security interest prevails over a/n ________ security interest in the same collateral

Answer 14

A perfected security interest prevails over an unperfected security interest in the same collateral

Question 15

Does a security interest in goods continue after the goods have been attached to goods in which another creditor has a security interest?

Answer 15

A security interest in “the whole” perfected under an applicable certificate-of-title has priority over the security interest in the accession.

Question 16

Accessions

Answer 16

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

Question 17

Will a properly perfected purchase money security interest (“PMSI”) in equipment prevail over an earlier perfected security interest in the same equipment?

Answer 17

Between two perfected security interests, the first to file or perfect generally has priority.

A PMSI in equipment has priority over conflicting security interests if the PMSI is perfected when the debtor receives possession of the equipment (or within 20 days thereafter)

Question 18

When does a security agreement that includes an after-acquired property clause attach?

Answer 18

A security agreement that includes an after-acquired property clause attaches when the debtor obtains an interest in the property.

Question 19

When does a PMSI arise?

Answer 19

A PMSI arises when (i) a creditor sells the goods to the debtor on credit, retaining a security interest in the goods for all or part of the purchase price; or

(ii) a creditor advances funds that are used by the debtor to purchase the goods

Question 20

When does a PMSI prevail over conflicting security interests?

Answer 20

A PMSI in equipment has priority over conflicting security interests if the PMSI is perfected when the debtor receives possession of the equipment (or within 20 days thereafter)

Question 21

When may perfection occur by the filing of a financing statement?

Answer 21

Perfection can occur by the filing of a financing statement for all kinds of collateral except deposit accounts and money

Question 22

Where is a filing statement filed?

Answer 22

For collateral other than real estate, a financing statement is filed centrally with the secretary of state. The financing statement must contain: (i) the name and mailing address of the debtor, (ii) the name and address of the secured party, and (iii) an indication of the collateral covered by the financing statement o The financing statement is ineffective if it contains any seriously misleading errors o If the debtor is a registered organization, the debtor’s name will be considered seriously misleading if it does not match the name on the debtor’s public organic record o Use of the debtor’s trade name is insufficient o An incorrect name will not be treated as seriously misleading if the financing statement would be discovered in a filing office search under the debtor’s correct name

Question 23

what must a filing statement contain?

Answer 23

The financing statement must contain:

(i) the name and mailing address of the debtor, (ii) the name and address of the secured party, and (iii) an indication of the collateral covered by the financing statement.

Question 24

When is a filing statement not effective?

Answer 24

The financing statement is ineffective if it contains any seriously misleading errors. Minor errors in the debtor’s name will not render the financing statement ineffective, unless those errors make the financing statement “seriously misleading.”

Question 25

When does a debtor’s incorrect name constitute a seriously misleading error?

Answer 25

A name is not seriously misleading if the financing statement would be discovered in a filing office search under the debtor’s correct name using the filing office’s standard search logic, if any.

If the debtor is a registered organization, the debtor’s name must match the debtor’s public organic record. Use of the debtor’s trade name is insufficient.

Question 26

Perfection may occur without filing in which two contexts?

Answer 26

Perfection may occur without filing for

(1) security interests in a small-scale assignment of an account or
(2) payment intangible that does not alone transfer a significant part of the assignor’s outstanding accounts or payment intangibles to the creditor

Question 27

When does security interest attach?

Answer 27

A security interest attaches to collateral when the parties agree to create a security interest, the creditor gives value, and the debtor has rights in the collateral.

Question 28

How does a security interest in nonconsumer deposit accounts perfect?

Answer 28

A security interest in a nonconsumer deposit account is perfected by control.

Question 29

How does one gain control over a deposit account?

Answer 29

The bank in which the nonconsumer deposit account is maintained automatically has control over a deposit account.

Other means of gaining control are: (i) putting the deposit account in the secured party’s name; or (ii) agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will comply with the secured party’s orders regarding the account without the debtor’s further consent

Question 30

What happens when a debtor defaults?

Answer 30

If a debtor defaults on a secured transaction, the creditor can repossess the collateral.

Question 31

When may a secured party use self help to repossess collateral?

Answer 31

A secured party can use self-help to repossess collateral only if it can do so without a breach of the peace.

Article 9 does not define “breach of the peace,” but generally repossession over a debtor’s protest qualifies

Question 32

Waiver of right to redemption

Answer 32

A debtor has a right to redeem collateral after a default. The right to redeem collateral can be waived, but only after there has been a default.

Question 33

Acceleration clause

Answer 33

It is permissible for a clause to accelerate all payments in the event of default, but once a debtor offers to pay the entire amount due, a secured party must allow a debtor to redeem.

Question 34

When is a secured party liable?

Answer 34

A secured party will be liable to the debtor for any damages caused by a failure to follow Article 9 rules.

Question 35

A secured party will be _(1)_ from collecting any _(2)\_if any Article 9 default rules are _(3)_ed unless the secured party can show that the _(3)\_ did not cause the _(2)_.

Answer 35

A secured party will be prohibited from collecting any deficiency if any Article 9 default rules are broken unless the secured party can show that the breach did not cause the deficiency.

Question 36

Does Art. 9 govern leases intended as security?

Answer 36

Yes. If a transaction is characterized as a lease but is intended to have effect as security, it will be governed by Article 9 as a security interest.

Question 37

Whether a lease is intended for security depends on the _____ _____ of the transaction.

Answer 37

Whether a lease is intended for security depends on the economic realities of the transaction.

Question 38

When does a transaction create a security interest rather than a lease?

Answer 38

A transaction will be deemed to create a security interest rather than a lease if the rental obligation is not terminable by the lessee and, at the end of the lease, the lessee has an option to purchase the goods for no or nominal consideration.

Question 39

How does repossession and sale affect junior interests?

Answer 39

If a secured party sells the collateral after default by the debtor, all subordinate security interests in the collateral are discharged.

Good faith.

Question 40

What is the priority as between a seller that retained title to delivered goods and a prior creditor with a perfected security interest in the same goods?

Answer 40

Prior creditor prevails if seller’s interest is unperfected.

Question 41

_________ includes supplies used in manufacturing

Answer 41

Inventory includes supplies used in manufacturing.

Question 42

How is the seller’s interest treated when a seller delivers goods to a buyer and attempts to reserve title in the delivered goods until they are paid for?

Answer 42

When a seller delivers goods to a buyer and attempts to reserve title in the delivered goods until they are paid for, the seller’s interest will be treated only as a security interest.

Question 43

If the parties contracted that no interest would arise until delivery, and the collateral is never delivered, when does a debtor obtain rights?

Answer 43

Never.

Question 44

What is the effect of a perfected security interest when an item of inventory is sold in the ordinary course of business?

Answer 44

Buyers generally take goods subject to any perfected security interests/OR a perfected security interest generally follows the collateral.

Buyers in the ordinary course of business (“BIOCs”) buy goods in the ordinary course of business from a seller engaged in the business of selling goods of that kind. Generally, BIOCs take free of nonpossessory security interests unless they know the sale violated a security agreement.

Question 45

Goods held for sale or lease are _______

Answer 45

inventory.

Question 46

Buyers in the ordinary course of business

Answer 46

A BIOC takes free of nonpossessory security interests created by his seller unless he knows the sale violates a security agreement.

Question 47

A _____ passes his rights in property to his _____

Answer 47

A transferor passes his rights in property to his transferee.

Question 48

A consumer who buys goods from another consumer, before a financing statement has been filed and without knowledge of the interest, takes the goods _______

Answer 48

free of security interests.

Question 49

A consumer who buys goods subject to an automatically perfected PMSI takes the goods _________

Answer 49

A consumer who buys goods subject to an automatically perfected PMSI takes the goods free of the security interest.