Secured Transactions

Question 1

Overview statement

Answer 1

If you have a security interest in collateral, it must have attached and been perfected to be protected in order for you to pursue a remedy upon default

Question 2

4 classifications of goods

Answer 2

Consumer goods
inventory
Equipment
Farm products

Question 3

Consumer goods

Answer 3

Goods bought for use primarily for personal, family, household purposes

Question 4

Inventory

Answer 4

Goods held for sale or lease or used/consumed in business

Question 5

Equipment

Answer 5

goods for use primarily in biz (machinery, office furniture, computers used)

Question 6

Equipment

Question 7

Farm products

Answer 7

crops, live stock, etc. owned by farmer

Question 8

Non collateral goods

Answer 8

Accounts (right to payment for property sold, leased, licensed, etc.) or services rendered

Question 9

Attachment requirements

Answer 9

Attachment is a prerequisite to a security interest arising. Once attachment occurs, a creditor will be a secured party and have rights against the debtor

1. Value must be given by secured party to the debtor
2. debtor must have Rights in collateral
3. Binding security agreement –> requires (AID): authentication, intent to create security agreement, description of collateral

Question 10

Security Agreement requires

Answer 10

Authentication (signed in writing or w/ intent to mark or adopt record) , intent to create security agreement, and description of collateral

satisfies SoF - need to know what is being secured, must be in writing/otherwise authenticated, and there must be words granting the security agreement

OR possession

Question 11

After-acquired property

Answer 11

Security agreement can cover after-acquired property and doesn’t need to specifically reference it to be effective. Exception: doesn’t apply to consumer goods, unless acquired within 10 days after secured party gives value

Question 12

What is perfection?

Answer 12

Perfection of a security interest is required to provide protection to the secured party against claims by 3rd parties.
4 methods: filing, possession, control, automatic perfection

Question 13

Automatic Perfection

Answer 13

Upon attachment, perfection occurs without additional steps
Applies to:
- PMSI: (1) when creditor sells good to debtor on credit (2) when loan used to purchase goods and reserves security interest

Question 14

attachment via possession

Answer 14

Possession can function as attachment and perfection

Question 15

PMSI

Answer 15

Purchase Money Security Interest: gives a lender a security interest in goods that’ve been purchased with funds borrowed form them or purchased on credit for them

Exists for 1. Goods (including fixtures) and 2. Software

Exists when: 1. creditor gives value to debtor and debtor uses can to acquire rights in or use of collateral; OR
2. Securted party sells collateral to debtor, and debtor enters into agreement requiring it to pay secured party all or part of purchase price

Question 16

Perfection via control

Answer 16

1. Perfection by control allowed for deposit account or letter of credit rights
2. Control can’t require debtor’s cooperation for access
3. If secured party holding account is bank, control is automatic

Question 17

PMSI for non consumer goods

Answer 17

Priority if filed before 20 days after D receives collateral

Question 18

Proceeds

Answer 18

Proceeds are anything given in exchange for the collateral as a result of debtor’s rights in collateral. A security interest automatically attaches to identifiable proceeds

Question 19

Garage Sale Buyer (consumer to consumer goods)

Answer 19

Consumer buyer who 1. buys goods for value 2. for personal, family, or household use, 3. from a consumer seller 4. without knowledge of the security interest.

UNLESS prior to the purchase, the secured party has filed a financing statement covering the goods. Good must be consumer goods both when seller has them and when buyer buys them for this to apply.

PMSI has priority if financing statement filed

Question 20

BOCB

Answer 20

Buyer in the ordinary course of business generally does not take collateral subject to security interest (whereas buyer not in the ordinary course of business does - unless interest not perfected and he doesn’t otherwise know about it)

Question 21

Buyer not in the ordinary course of business

Answer 21

Buyer not in ordinary course of business generally does take interest subject to security interest, unless he doesn’t know about it and interest not perfected)

Question 22

Secured party vs. Lien creditor priority

Answer 22

The general rule is that, btw a secured party and a lien creditor, priority belongs to the secured party, provided it perfects before the lien arises.

If interest was unsecured or only perfected after lien creditor served the writ, then lien creditor has priority.

Question 23

Debtor means of protecting himself (2)

Answer 23

(1) Sale must be commercially reasonable

(2) Debtor must receive written notification of the sale.
- The debtor and perfected secured parties (or secured parties who have notified the secured party of their interest) must know when the chance to redeem collateral is going to pass

Question 24

Remedies if secured party fails to comply with (1) commercially reasonable sale or (2) providing written notification of sale to debtor

Answer 24

1. Damages - including consequential, but debtor has duty to mitigate. If collateral constitutes consumer goods, statutory damages
2. Sale (court may order)
3. Rebuttable presumption (consumer vs. non consumer transaction)

Question 25

Secured party vs. secured party

Answer 25

1st to file or perfect
Perfected > Unperfected

Perfected v. Perfected:
- PMSI > Non-PMSI
- PMSI Seller > PMSI Lender
- Perfection by control > any other method

Question 26

Secured party v. Purchaser

Answer 26

Authorized buyer > Perfected - secured party authorized sale

BOCB > Perfected
[BOCB: a purchase of goods from a seller during the ordinary course of business; and in good faith, w/o actual knowledge that sale would be violation]

Perfected > Non-BOCB

Garage Sale Buyer > Perfected (unless financing statement was filed)