Secured Transactions

Question 1

When is a security transaction enforceable?

Answer 1

A security interest is enforceable if it has attached to the collateral.

Question 2

3 conditions for security interest to attach:

Answer 2

Three conditions must coexist for the security interest to attach to the collateral: (i) the secured party must have given value (e.g., giving a loan); (ii) the debtor must have rights in the collateral; and (iii) the debtor must have authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.

Question 3

Define equipment (for secured transactions):

Answer 3

Equipment consists of goods that are not consumer goods, farm products, or inventory.

Question 4

Name the 4 ways a secured party can perfect a security interest:

Answer 4

There are four ways by which a secured party can perfect a security interest: (1) filing a financing statement; (2) possession of the collateral; (3) control over the collateral; and (4) automatic perfection.

Question 5

What is a PMSI?

Answer 5

A PMSI is a special type of security interest that may be accorded special rules with respect to perfection and priority.

Question 6

When does a PMSI exist in goods?

Answer 6

A PMSI exists in goods that: (i) a secured party gave value (e.g., made a loan) to the debtor to enable the debtor to acquire rights in or use of the goods, and the value given was so used; or (ii) a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the security party all or part of the purchase price (i.e., a sale of goods on credit).

Question 7

What two types of collateral exist with PMSIs?

Answer 7

A PMSI may exist only with respect to two types of collateral—goods (including fixtures) and software.

Question 8

When does a PMSI have priority over other security interests in the collateral?

Answer 8

A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if the secured party perfects before or within 20 days after the debtor receives possession of the collateral. Knowledge by the purchase money secured party of the conflicting prior security interest does not prevent the priority of the PMSI over the earlier perfected security interest.

Question 9

How do you explain attachment in an essay?

Answer 9

Attachment is required for a security interest to be enforceable against the debtor with respect to the collateral. Three conditions must coexist for the security interest to attach to the collateral: (i) the secured party must have given value (e.g., giving a loan); (ii) the debtor must have rights in the collateral; and (iii) the debtor must have authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.

Question 10

Explain perfection in an essay

Answer 10

A security interest is perfected upon attachment of the interest and compliance with one of the methods of perfection. There are four ways a secured party can perfect a security interest: (i) filing a financing statement; (ii) possession of the collateral; (iii) control of the collateral; and (iv) automatic perfection (either temporary or permanent).

Question 11

How do you get a perfected security interest in a person’s bank account?

Answer 11

A security interest in a deposit (bank) account can be perfected only by control. A secured party has control of a deposit account if: (1) the secured party is the bank with which the deposit account is maintained; (2) the bank, secured party, and debtor agreed in writing to follow the instructions of the secured party; or (3) the secured party becomes the bank’s customer with respect to the deposit account.

Question 12

How do you perfect a security interest in a fixture?

Answer 12

A fixture is a good. Fixtures are perfected by filing a financing statement. A financing statement must contain: (1) the debtor’s name; (2) the name of the secured party; and (3) the collateral covered by the financing statement. When the collateral is related to real property, the financing statement must also include: (1) an indication that it covers this type of collateral; (2) an indication that it is to be filed in the real-property records; (3) a description of the real property to which the collateral relates; and (4) the name of a record owner, if the debtor does not have an interest of record in the real property.

Question 13

Where would you file to perfect a security interest in farm crops?

Answer 13

Article 9’s definition of “goods” also encompasses growing or unharvested grown crops. For collateral related to real property, the financing statement is generally filed in the office for recording a mortgage on the related real property (“local filing”). In Virginia, a financing statement generally must be filed only with the Virginia State Corporation Commission. Perfecting a lien in goods related to real property also requires filing with the State Corporation Commission.

Question 14

What two types of collateral does a PMSI cover?

Answer 14

A PMSI may exist only with respect to two types of collateral—goods (including fixtures) and software.

Question 15

When does a PMSI exist with regard to goods?

Answer 15

A PMSI in goods exists with respect to goods that: (i) a secured party gave value (e.g., made a loan) to the debtor to enable the debtor to acquire rights in or use of the goods, and the value given was so used; or (ii) a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the security party all or part of the purchase price (i.e., a sale of goods on credit).

So a bank making a loan so you can buy milking equipment gives the bank a PMSI in the equipment.

Question 16

What 3 things must be included in a financing statement?

Answer 16

A financing statement is required to contain the debtor’s name, the name of the secured party or a representative of the secured party, and the collateral covered by the financing statement.

Question 17

How long does a dissociated partner’s apparent authority last? (This binds the partnership for contracts the expartner enters into on “behalf” of the partnership when the other party doesn’t know she’s an ex)

Answer 17

a dissociated partner’s apparent authority continues for one year after dissociation.

Question 18

In a PMSI, how much does the debtor have to have paid to prevent creditor from repossessing collateral?

Answer 18

In a consumer transaction, the creditor may retain the collateral in full satisfaction of the debtor’s obligation if the debtor has not paid at least 60 percent of the cash price in the case of a purchase money security interest. In order to do so, the creditor must send the consumer a notice of the creditor’s proposal to take such action. If the consumer does not respond to the proposal within 20 days after the proposal is sent, the creditor may retain the collateral in full satisfaction of the consumer’s obligation.

Question 19

If you’re renting land from someone to grow crops, what kind of lien exists? (VA)

Answer 19

An agricultural lien is a lien subject to Article 9. An agricultural lien is an interest in farm products such as crops or livestock that secures payment for either goods or services with respect to the debtor’s farming operation, or rent on real property leased in connection with a farming operation.

Question 20

Help I lost my promissory note can I still enforce it?

Answer 20

Yup you lucky duck. A person entitled to enforce an instrument who loses the instrument can nevertheless enforce it, provided that person is able to prove the terms of the instrument and the person’s right to enforce the instrument.

Question 21

How does a buyer of goods in the ordinary course of business avoid a perfected security interest claim?

Answer 21

A buyer of goods in the ordinary course of business generally takes free of any security interests, including perfected ones, held by a creditor in the seller’s inventory. In order to qualify, the buyer must purchase goods from a merchant who is in the business of selling goods of that kind, in good faith, and without knowledge that the sale violates the creditor’s security interest in the goods.

Question 22

What’s the Shelter Rule?

Answer 22

Pursuant to the shelter rule, the transferee of a negotiable instrument receives all of the rights of the transferor of the instrument, unless the transfer is carried out by fraud or illegal means. This is important in situations where the transferor is a holder in due course, but the transferee is not

Question 23

What’s the Shelter Rule?

Answer 23

Pursuant to the shelter rule, the transferee of a negotiable instrument receives all of the rights of the transferor of the instrument, unless the transfer is carried out by fraud or illegal means. This is important in situations where the transferor is a holder in due course, but the transferee is not

Question 24

What is a holder in due course?

Answer 24

holder in due course is a party who took possession of an instrument for value, in good faith, and without
notice that the instrument had some type of defect including whether it had been dishonored. In absence of
any of those elements a party in possession of the instrument would simply be a holder.