Secured Transactions

Question 1

Article 9

Answer 1

Article 9 applies to all security interests in personal property or fixtures by contract

The words “security agreement” do not have to be specifically stated for one to exist

Article 9 also applies to lease agreements that are not true leases (but instead, security interests)

Question 2

Classification of Goods

Answer 2

Consumer Goods
Equipment
Farm Products

Question 3

Consumer goods

Answer 3

goods that are bought for use primarily for personal, family or household purposes

(example: a computer in the hands of a consumer)

Question 4

Equipment

Answer 4

Goods other than inventory, farm products or consumer goods

(example: computers sold by computer store)

Question 5

Farm products

Answer 5

Crops, livestock, supplies produced in a farming operation or products of crops or livestock in their unmanufactured state in possession of debtor who is engaged in a farming operation

Question 6

Attachment

Answer 6

To attach a security interest (1) either debtor must authenticate a security agreement granting the creditor a security interest in collateral that describes the collateral, or the creditor must take possession or control of the collateral, (2) the creditor must give value and (3) the debtor must have rights in the collateral.

Question 7

After-Acquired Property

Answer 7

The general rule is that a security agreement can cover after-acquired property and does not need to specifically reference it to be effective

Question 8

Perfection

Answer 8

To obtain rights against another claimant to a debtor’s collateral, a secured party must also perfect its security interest. A creditor can perfect its security interest by (1) filing, in the proper public office, a financing statement that is authorized by the debtor in an authenticated record or (2) taking possession.

Question 9

Security Agreement

Answer 9

In writing, signed by the debtor and include a description of the collateral

Once a SI attaches, it is secured meaning creditor has right to take the collateral if the debtor defaults

Question 10

Perfected Secured Creditor vs Perfected Secured Creditor

Answer 10

First to file or perfect wins

Question 11

Perfected Secured Creditor vs Unperfected Secured Creditor

Answer 11

Perfected party wins

Question 12

PMSI in equipment

Answer 12

Has priority over conflicting security interest (jumps to the front of the line)
PMSI in equipment jumps to the line if perfected immediately or within 20 days

Question 13

PMSI in inventory or livestock

Answer 13

Takes priority over conflicting security interest if before debtor receives possession: secured party perfects and sends authenticated notice to other holders, and notice received within five years of debtor getting possession

Question 13

Secured Party vs Buyer

Answer 13

When you buy something with a lien on it secured interest stays on it
SP wins unless
SP authorized sale of collateral free of security interest, implied authorization by acquiescence
BIOC Rule

Question 14

Priority

Answer 14

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. Know that a perfected security interest beats an unperfected one even if one has an unperfected PMSI

Question 15

BIOC

Answer 15

Generally does not take the collateral subject to the security interest, whereas a buyer not in the ordinary course of business generally does (unless the interest was not perfected and he does not otherwise know about it)

Question 16

Buyer in the ordinary course of business

Answer 16

Buyer in the ordinary course of business generally takes free of any security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence

(Note that a buyer is not in the ordinary course of business if he knows that the sale is in violation of a term in the security agreement)

Question 17

Buyer NOT in the ordinary course of business

Answer 17

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 18

Secured Party vs Lien Creditor

Answer 18

Priority belongs to the secured party, provided it perfects before the lien arises. If the interest was unsecured or only perfected after the lien creditor served the writ, then the lien creditor has priority

Question 19

Default

Answer 19

If a default occurs, the lender can demand payment or use of self-help to reclaim the goods so long as it does not breach the peace

Question 20

Breach of Peace

Answer 20

Whether the repossession took place at the debtor’s premises and whether the debtor objected are considered

Any objection even if slight and even if only verbal amounts to a breach of the peace

Question 21

Resale

Answer 21

The secured party may sell or dispose of the collateral in a commercially reasonable way

Question 22

Debtors means of protection

Answer 22

(1) the sale must be commercially reasonable
(2) the debtor must receive written notification of the sale. The debtor and perfected secured parties must know when the chance to redeem the collateral is going to pass

Question 23

Remedies if secured party fails to comply with above requirements

Answer 23

(1) Damages
(2) Sale
(3) Rebuttable presumption

Question 24

Debtor’s right to redeem

Answer 24

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

Question 25

Purchase Money Security Interest (PMSI)

Answer 25

A PMSI is created when a creditor advances credit or provides the funds needed to make a purchase possible and takes a security interest in the goods purchased

A PMSI in consumer goods is automatically perfected upon attachment

Question 26

Original Use Test

Answer 26

Under the original use test, a debtor’s original intended use of collateral governs the collateral’s classification