Secured Transactions

Question 1

Article 9 Scope

Answer 1

(1) transaction that creates a security interest in personal property or fixtures by contract

(2) seller and buyer agree to seller retaining title to goods after delivery and until the purchase price paid.

(3) agricultural liens, nonpossessory lien on farm products when person gives goods, services to farmers
(4) sales of accounts, chattel paper, payment intangibles, and promissory notes

(5) commercial consignment of goods - consignor of +$1,000 nonconsumer goods to (1) persons dealing in those nonconsumer goods, (2) under a name different than the consignor (3) not an auctioneer and (4) not known by creditors to sell the goods of others.

(6) transactions in form a lease, in substance a secured sale - (i) leases that are intended to serve as security arrangements (ii) leases where the rental obligation is not terminable by the lessee and (a) the lease term is equal or greater than economic life of good (b) lessee bound to purchase the good at end or renew for the remaining economic life (c) lessee option at end of lease term to purchase or renew lease for the remaining economic life for no or nominal consideration.

Question 2

Debtor

Answer 2

party who owes payment on the secured debt

Question 3

Secured Party

Answer 3

party in whose favor the security interested is created

Question 4

Security Agreement

Answer 4

agreement between the debtor and secured party that creates a security interest

Question 5

Security Interest

Answer 5

a property interest in a debtor’s personal property or fixtures contingent upon the nonpayment of a debt

Question 6

Collateral

Answer 6

the personal property subject to the security interest

Question 7

Purchase Money Security Interest

Answer 7

(1) Seller-Financed - a retained security interest in goods (collateral) purchased on a seller’s credit contingent upon the buyer’s nonpayment of the credit given to purchase those goods
(2) Lender-Financed - a security interest in goods (collateral) purchased with lender’s funds contingent upon the nonpayment of the loan given to purchase those goods

Question 8

After-Acquired Property Clause

Answer 8

explicit provision in the security agreement that enables the secured party to attach their security interest in the debtor’s goods after signed the security agreement as security for the original debt

i.e. new goods securing same debt

Exceptions
(1) implied provision for (1) rapidly depleted or frequently replenished goods such as accounts or inventory AND (2) identifiable proceeds
(2) explicit provision does not apply to consumer goods unless acquired within 10 days of creditor giving value and never to commercial tort claims

Question 9

Future Advance

Answer 9

provision in the security agreement that enables the debtor to receive more funds from the secured party from the original collateral.

i.e. original goods securing more money

Question 10

Attachment

Answer 10

the legally required steps for an unsecured creditor to make the security interest effective against the debtor, rendering it a secured creditor

Question 11

Perfection

Answer 11

the legally required steps for a secured creditor to make the security interest effective against the world

Question 12

Financing Statement

Answer 12

the fifth and preferred method of perfection that provides public constructive notice of the security interest

Question 12

Financing Statement

Answer 12

the fifth and preferred method of perfection that provides public constructive notice of the security interest

Question 13

Goods

Answer 13

all things movable at the time the security interest attaches

Question 14

Classification of Goods - Standard

Answer 14

depends on how the debtor uses the collateral at the time of attachment

Question 15

Consumer Goods

Answer 15

goods used or bought for personal, family, or household uses

Question 16

Equipment

Answer 16

goods other than consumer goods, farm products, or inventory

Question 17

Farm Products

Answer 17

goods, other than timber, the debtor engages in a farming operation and is
(i) crops grown, growing, or to be grown including crops on trees, vines, or bushes
(ii) livestock, born or unborn
(iii) supplies used or produced in a farming operation
(iv) products of crops or livestock in unmanufactured state

farming operation means raising, cultivating or any other farming or livestock operation

Question 18

Inventory

Answer 18

goods, other than farm products, which are:
(1) leased by a lessor
(2) held for sale or lease
(3) furnished under contract of service (goods given to employee)
(3) raw materials, works in process
(4) materials used or consumed in a business

Question 19

Negotiable Instrument

Answer 19

a signed writing that shows another has the right to payment and normally transferred by delivery with indorsement.
i.e. formalized IOU,
ex. checks, CD’s, and promissory notes

Question 20

Documents

Answer 20

document of title to goods that authorizes receipt of goods.
ex. bill of lading

Question 21

Chattel Paper

Answer 21

a record showing both a debt to the seller and a security interest or lease of specific goods.
ex. Construction Company buys a tractor on credit from Catapillar and execute a record that they will pay off during their use.
ex. commercial leaseback

Question 22

Investment Property

Answer 22

stocks, bonds, brokerage accounts

Question 23

Accounts

Answer 23

right to payment for property sold or services rendered on account, not evidenced in a record.
ex. Accounts receivable

Question 24

Article 9 Deposit Accounts

Answer 24

commercial (nonconsumer) deposit bank account

Question 25

Proceeds

Answer 25

whatever received from sale, exchange, collection, or disposition of collateral or proceeds (proceeds of proceeds)
including, money, property, insurance payments or tort claims arising from damage to collateral

Question 26

Cash Proceeds

Answer 26

money, checks, deposit accounts

Question 27

Commercial Tort Claims

Answer 27

claim arising in tort where the claimant is (i) an organization OR (ii) an individual whose claim arose in the course of their business/profession AND not including personal injury or death damages.

e.g. claims to proceeds for damages from injury to collateral

Question 28

Payment Intangible

Answer 28

account debtor’s principal obligation is a monetary obligation

Question 29

Account Debtor

Answer 29

person obligated on an account, chattel paper, or general intangible

Question 29

Article 9 Scope

Answer 29

(1) transaction that creates a security interest in personal property or fixtures by contract

(2) seller and buyer agree to seller retaining title to goods after delivery and until the purchase price paid.

(3) agricultural liens, nonpossessory lien on farm products when person gives goods, services to farmers
(4) sales of accounts, chattel paper, payment intangibles, and promissory notes

(5) commercial consignment of goods - consignor of +$1,000 nonconsumer goods to (1) persons dealing in those nonconsumer goods, (2) under a name different than the consignor (3) not an auctioneer and (4) not known by creditors to sell the goods of others.

(6) transactions in form a lease, in substance a secured sale - (i) leases that are intended to serve as security arrangements (ii) leases where the rental obligation is not terminable by the lessee and (a) the lease term is equal or greater than economic life of good (b) lessee bound to purchase the good at end or renew for the remaining economic life (c) lessee option at end of lease term to purchase or renew lease for the remaining economic life for no or nominal consideration.

Question 30

General Intangible

Answer 30

any personal property not coming within the scope of the other definitions. Includes a payment intangible

Question 31

Attachment Requirements

Answer 31

Attachment occurs at the last of the three requirements to be satisfied:
(1) Intent - to create security interest evidenced by (i) creditor possession of collateral (ii) authenticated security agreement (iii) creditor control of collateral
(2) Value - valuable consideration by both parties (i) debtor promise to pay (ii) creditor extension of credit or funds
(3) Rights - Debtor has present ownership or possessory rights in the collateral

Question 32

Attachment Requirements - Intent - Authenticated Security Agreement

Answer 32

(1) Record - written or electronically stored record showing intent to create a security interest
(2) Signed - authenticated by debtor by signature or symbol
(3) Description - sufficient description of collateral. Test: reasonably identify the collateral by specific, type, category, or specific consumer good or commercial tort claim, but not supergeneric

Question 33

Attachment to Proceeds

Answer 33

Automatic for identifiable proceeds.
Identifiable is traceable to the original collateral through chain of disposition otherwise the intermediate balance from time proceeds deposited to the time attempting to trace

Question 34

Attachment to Supporting Promises to Pay

Answer 34

Automatic attachment to surety and guarantee on accounts, negotiable instruments, chattel paper, etc.

Question 35

Perfection Methods

Answer 35

(1) Automatic
(2) Possession
(3) Control
(4) Certificate of Title
(5) Filing Financing Statement

Question 36

Perfection - Automatic

Answer 36

(1) Pre-Attachment Perfection - Creditor filed financing statement prior to attachment and then subsequently satisfies the Attachment requirements
(2) PMSI in non-vehicle, consumer goods

Question 37

Perfection - Possession

Answer 37

(1) actual possession, continues until dispossessed
(2) bailee possession by authenticated agreement holding for secured party

NOT valid for accounts, deposit accounts, certificate of title goods, electronic chattel paper,

Question 38

Perfection - Control

Answer 38

(1) Nonconsumer deposit accounts (i) automatically control if secured party is the bank where deposit account held (ii) co-signor on deposit account (iii) debtor and bank agreement to comply with secured party without debtor consent

(2) investment property, secured party can sell the property without the owner’s consent

(3) electronic chattel paper, system reliably establishes secured party as assignee

Question 39

Perfection - Certificate of Title

Answer 39

motor vehicles, secured party goes to state to have name stamped on certificate of title

Except, dealers of vehicles in inventory may perfect by financing statement

Question 40

Perfection - Financing Statement

Answer 40

(1) authorized by the debtor through (i) separate signed writing, (ii) signed financing statement (iii) signed security agreement covering same collateral
(2) debtor name and address
(3) secured party name and address
(4) description of collateral
(5) filed in the correct place

Question 41

Perfection - Financing Statement - Debtor’s Name

Answer 41

-Debtor is individual, then name on unexpy DL in state of filing otherwise name in community
-Debtor is registered corporation, then name under most recent public organic record
-trade name’s invalidate
-Minor errors in debtor name, filing office errors, and error’s in secured party’s name do not invalidate
-Errors that are seriously misleading do invalidate. An error is not seriously misleading if the financing statement would be discovered in search under correct name and filing system logic (no spaces all caps)

Question 42

Perfection - Financing Statement - Debtor Name Change

Answer 42

if name change makes financing statement seriously misleading (see seriously misleading analysis) financing statement still effective for all property acquired before name became seriously misleading and 4 months after.
To perfect for property acquired after the 4 month grace period, must refile with appropriate name change.

Question 43

Perfection - Financing Statement - Description of Collateral

Answer 43

• sufficient if reasonably identifies.
• reasonably identify standard same as attachment but also may contain a supergeneric description.
• reaches after-acquired property if financing statement description broad enough to cover
• for minerals, timber, and fixtures, must also have description of real property where sits, the landowner, and that it is to be filed in real property records.

Question 44

Perfection - Financing Statement - Addresses

Answer 44

If the financing statement omits the mailing addresses but is accepted by the filing office, then effective.

Question 45

Perfection - Financing Statement - Addresses

Answer 45

If the financing statement omits the mailing addresses but is accepted by the filing office, then effective.

Question 46

Perfection - Financing Statement - Place of Filing

Answer 46

centrally in the office of the SOS where debtor is located. An individual is located where the primary residence is. a registered corporation is located where they are incorporated. A unregistered corporation (GP) is located at its principal place of business otherwise at its CEO office.

locally in the county office where the real property is located.

centrally in the state where the certificate of title records are

Question 47

Perfection - Financing Statement - Relocation of Debtor and Collateral

Answer 47

(1) debtor relocation - Security interest perfected (financing statement effective) up to 4 months after relocation, then unperfected for all property unless refile in proper jdx
(2) collateral relocation - security interest perfected (financing statement effective) up to 1 year after collateral relocated to new owner in different state, then unperfected for all property unless refile in proper jdx

Question 48

Perfection - Financing Statement - Debtor Change Use of Collateral

Answer 48

if the financing statement properly classified or described the collateral at the time it was filed, they are perfected regardless of the debtor’s change in use of the collateral.
secured creditor has no duty to monitor the collateral’s use by the debtor.

Question 49

Priority - Perfected v. Perfected

Answer 49

first to file or perfect, whichever is more helpful to the party

Question 50

Priority - Perfected v. Unperfected

Answer 50

Perfected wins

Question 51

Priority - Unperfected v. Unperfected

Answer 51

first to attach wins

Question 52

Priority - PMSI v. Prior Perfected

Answer 52

PMSI in Consumer, Equipment, or their proceeds and files within 20 days after debtor receives possession, wins
PMSI in Inventory or Livestock, or proceeds (cash, chattel paper), files and sends authenticated notification to creditors before debtor possession, wins

Question 53

Priority - PMSI v. PMSI

Answer 53

Seller-financed wins over lender, otherwise first to file or perfect

Question 54

Priority - Investment Property

Answer 54

control wins over automatic or filing,
first to control wins

Question 55

Priority - Deposit Accounts

Answer 55

any control wins over proceeds of collateral (e.g. control bank account where money deposited)
same manner of control, first to control wins
named on account beats all others
bank control by maintain deposit account wins over debtor-bank agreement control

*money out of deposit account takes free of SI unless fraud

Question 56

Priority - Perfected v. Buyer/Transferee

Answer 56

generally, security interest remains attached unless
(1) expressly authorized sale
(2) impliedly authorized sale (i) acquiescence to previous sales (ii) to ordinary consumer (such as inventory to ordinary consumer)
(3) unauthorized but seller(lessor) created the security interest with secured party and buyer purchases in seller’s ordinary course. BIOC is buyer in (i) good faith (ii) w/o knowledge of violating rights of secured party (the SA) (iii) in the ordinary course of business from a seller in the business of selling goods of the kind purchased
* unperfected v. nonBIOC, buyer/lessor didn’t know of SI when gave value or take delivery

Question 57

Priority - PMSI Consumer Goods v. Consumer Buyer

Answer 57

Sears Garage Sale Rule, PMSI consumer Goods automatically perfects, but a consumer-buyer takes free of security interest if (i) both seller and buyer was used as consumer goods (i) didn’t know of security interest, (ii) for value (iii) for consumer purposes (iv) before a financing statement was filed.