Secured Transactions

Question 1

what are the basic steps of secured transactions?

Answer 1

Identify parties
Attach?
Perfect?
Priorities

Question 2

What is Collateral

Answer 2

Collateral is the property subject to the security interest which is often consumer goods.

Question 3

When does UCC Article 9 apply?

Answer 3

UCC Article 9 applies to all security interest in personal property or fixtures by contract. and to leases that are not true leases.

Question 4

What are the different types of Collateral?

Answer 4

“Consumer goods” -goods acquired primarily for personal, family, or household purposes

“Accounts” -include the right to payment for goods sold, property licensed, or services rendered.

“Inventory” -includes not only goods, other than farm products, that are held for sale or lease but also raw materials, works in process, or materials used or consumed in a business.

The catchall “equipment” class of goods, includes goods or machinery used in the business.

“Farm Products” are goods that are crops or livestock and include supplies that are used or produced in farming.

Question 5

What is attachment?

Answer 5

Under article 9, for a security interest to be enforceable against a debtor, the interest must attach to the collateral.

Question 6

AID

what are the 3 conditions that must be met for attachment?

Answer 6

(i) value must be given by the secured party;
(ii) the debtor has rights in the collateral; and
(iii) there must be a binding agreement that is authenticated, intent to create the agreement and a description of the collateral.

Question 7

When does a security interest for after-acquired property attach?

Answer 7

As soon as the debtor obtains an interest in the property.

Question 8

When is a security agreement not required

Answer 8

When the secured party has possession or control of the collateral pursuant to a security agreement,, oral agreements are okay.

Question 9

identifiable proceeds

Answer 9

A security interest in collateral automatically attaches to identifiable proceeds. Proceeds include that which is acquired upon the sale, exchange, or other disposition of collateral.

Question 10

What is perfection?

Answer 10

Perfection of an attached security interest is generally necessary for the secured party to have superior rights over third parties that have security interests in the same collateral.

Question 11

In what ways can PERFECTION occur?

Answer 11

1. by filing a financial statement where the debtor is located
2. automatic (i.e. purchase money securtiy interest in consumer goods)
3. by posssesion or control of the item *
   4 . perfection as to proceeds.

*deposit accounts must be perfected by control

Question 12

How can a secured party perfect its interest in collateral?

Answer 12

by
(i) filing a financing statement;
(ii) possessing the collateral;
(iii) controlling the collateral; or
(iv) perfecting automatically.

Question 13

What must be contained in a Financial Statement?

Answer 13

must contain the following information:
i) The debtor’s name;
ii) The **name of the secured party **or a representative of the secured party; and
iii) The collateral covered by the financing statement.

Question 14

what is a PSMI

Answer 14

a security interest in goods that has priority over other security interests in the same goods.

Question 15

When is a PSMI created?

Answer 15

when a creditor sells goods to a debtor on credit and retains a security interest in those goods, or the creditor advances funds, which are then used to purchase the goods and the creditor reserves a security interest in those goods. (like a car sale.

Question 16

When is a security interest perfected?

Answer 16

its perfected upon attachment of that interest and compliance with one of the methods of perfection.

Question 17

How is Priority determined?

Answer 17

When there are two or more perfected secured parties with rights in the same collateral, the first to file the financing statement or perfect has priority. If only one security interest is perfected, and the other is not, then **the perfected interest takes priority **over the unperfected one.

A perfected security interest beats an
unperfected one—even if one has an
unperfected PMSI!

Question 18

Security Interest vs . Judicial Lien Creditor

Answer 18

In a contest between a perfected security interest and a judicial lien, a judicial lien creditor takes the collateral subject to an existing perfected security interest but generally has priority over an unperfected security interest.

Question 19

general creditor vs. perfected creditor

Answer 19

A general creditor will lose to a perfected creditor

Question 20

Buyer of an attached item

Answer 20

Buyer of an attached but not perfected security interest will take free and clear of the security interest if they
1. pay value,
2. received delivery, and
3. did not know of the security interest

Question 21

Who is a Judicial Lien Creditor

Answer 21

judicial lien creditor is a creditor who acquires a lien on the collateral by a judicial process.

Question 22

What is a Buyer in the ordinary course of business?

Answer 22

A buyer in the ordinary course of business (BOCB) takes free of a security interest created by the seller.

• a buyer is not a buyer in the ordinary course of
  business if he knows that the sale is in violation of
  some term in the security agreement not waived by the
  secured party
• 3rd parties are sheltered by the BOCB

Question 23

What generally happens with a BOCB of a collateral subject to a perfected security interest.

Answer 23

They generally take the collateral subject to the that interest unless the secured party has authorized its sale free of the security interest.

Question 24

How do secured parties attach to proceeds?

Answer 24

A security agreement automatically gives the right to receive proceeds unless the parties agreed otherwise.

(So, if a secured party has an interest in “inventory” and the
inventory is sold, the security interest will attach to whatever was used to buy the
inventory—cash, chattel paper, etc.)

Question 25

Perfection As to Proceeds

Answer 25

Rule: So long as the secured party has a perfected security interest in the collateral,
it will automatically have a perfected security interest in the proceeds for 20 days.
However, in order to remain perfected after the 20-day period, the secured party
must perfect unless:
1. proceeds are identifiable cash proceeds
2. of the same type as original collateral
3. financing statement covers the original collateral

Question 26

for the debtor

where should the financing statement be filed?

Answer 26

The statement should be filed where
the debtor is located.

Question 27

DEFAULT- what happens?

Answer 27

1. Lender can demand payment
2. Lender can use Self help so long as they don’t breach the peace. they may sell it or dispose in a reasonanble manner to satisfy obligations.

Question 28

What factors are used to determined if they have breached the peace?

Answer 28

1) repo to place on debtors premises (business okay, home (no))
2) debtor objected even verbally
3) repossession accompanied by trickery.

reprossesion can take place in private driveway or public place.

Question 29

A buyer not in the ordinary course of business

Answer 29

a) Perfected interest: a buyer not in the ordinary course of business takes the collateral
subject to a perfected security interest.

b) Unperfected interest: a buyer does not take subject to an unperfected interest in goods, tangible chattel paper, documents, or instruments if he gives value, and does
not know about the interest.

Question 30

Consumer-to-consumer sales for goods (garage sale exception)

Answer 30

If the buyer does not have knowledge of the security interest and the secured party has not filed a financing statement covering the goods.

Question 31

When is a security interest enforceable?

Answer 31

a security interest that is enforceable against the debtor is said to have “attached” to the collateral.

Question 32

what is necessary to have superior rights in a collateral?

Answer 32

Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties.