Secured Transactions

Question 1

Consumer goods

Answer 1

Bought primarily for personal, family, or household purposes

Question 2

Inventory

Answer 2

Inventory at a store, anything held for sale or lease, raw materials for that inventory, materials used or consumed in a business

Question 3

Equipment

Answer 3

Everything else (not consumer, inventory, or fam products)

Question 4

Attachment

Answer 4

Attachment is how a lien latches onto the collateral, making the security interest enforceable. Attachment requires (1) value. given by the secured party to the debtor, (2) debtor’s rights in the collateral, and (3) a binding security agreement.

Question 5

Binding security agreement

Answer 5

A binding security agreement has (1) authentication, (2) intent, and (3) a description of the collateral. (AID)

Question 6

After-acquired property

Answer 6

Generally, a security agreement can cover after-acquired property and does not need to specifically reference it to be effective.

Question 7

Perfection

Answer 7

A security interest is perfected if there has been an attachment and if a perfection method is completed. Perfection is at issue when there are multiple creditors who have an interest in a single collateral. There are various ways to perfect (filing, automatic, possession, and control).

Question 8

Filing (perfection method)

Answer 8

Perfection can occur by filing a financial statement.

Question 9

Automatic perfection

Answer 9

Perfection is automatic when there is a PMSI in a consumer good

Question 10

Priority

Answer 10

When two secured parties have a security interest in the same collateral, the first to file or perfect has priority. If no party perfects, then the first to attach has priority. A perfected security interest beats an unprotected one, even if one has an unperfected PMSI.

Question 11

Buyer in the ordinary course of business

Answer 11

A BIOC is a buyer who buyers goods in the ordinary course from a seller engaged in the business of selling goods of the kind purchased. A BIOC takes collateral free of any security interests in the collateral that were created by the seller unless the buyer knew the sale violated the security agreement.

Question 12

Buyers not in the ordinary course of business

Answer 12

A buyer not in the ordinary course of business takes collateral subject to a perfected interest. Generally, he does not take subject to an unperfected interest if he gives value and does not know about the interest.

Question 13

Garage sale exception

Answer 13

A buyer not in the ordinary course of business takes free of a security interest even though perfected if he buys without knowledge of the interest for value a consumer good that will be used as a consumer good unless, prior to the purchase, the secured party has filed a financing statement covering the goods.

Question 14

Priority of a lien creditor

Answer 14

Generally, between a lien creditor and a secured party, priority belongs to the secured party if it perfects before the lien arises. If there is a PMSI in collateral and attaches before the lien creditor’s interest arises, the PMSI will have priority if it files within 20 days after the debtor receives the collateral.

Question 15

Default

Answer 15

If a default occurs, the lender can demand payment or use self-help to reclaim the goods if there is no breach of the peace (objection or physical disturbance).

Question 16

Resale

Answer 16

The secured party may sell or dispose of the collateral in a commercially reasonable way. The security interest is discharged when this occurs but the debtor is liable for any deficiency. The obligation owed to the disposing party and any junior liens are paid off.

Question 17

Resale requirements

Answer 17

The sale must be (1) commercially reasonable), and (2) the debtor must receive written notice of the sale (at least 10 days prior to the sale with a description of the sale method and disposition, and mention that debtor is liable for any deficiency).

Question 18

Failure to sufficiently notify the debtor of resale

Answer 18

(1) if the resale was for consumer goods, statutory damages are awarded. (2) A court may order a sale. (3) If not commercially reasonable, there is a rebuttable presumption that the collateral is worth the amount of the debt and thus there would be no deficiency.

Question 19

Debtor’s right to redeem

Answer 19

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

Question 20

Article 9

Answer 20

Article 9 applies to all security interests in personal property or fixtures by contract. The words “security agreement” need not be specifically stated for one to exist.

Question 21

PMSI super priority for inventory

Answer 21

A PMSI in inventory has super priority over other security interests in the same inventory, regardless of the time of filing or perfection, if (1) the security interest is perfected at the time the debtor gets possession of the inventory, and (2) other creditors with perfected security interests in the inventory receive authenticated notice of the PMSI before the debtor receives possession of the inventory.

Question 22

PMIS super priority for equipment

Answer 22

If a creditor has a PMSI in equipment, the creditor has super priority over all other creditors in the same equipment if the creditor perfects within 20 days after the debtor receives possession of the equipment.