Secured Transactions

Question 1

The Article 9 types of tangible collateral are

Answer 1

Any tangible, movable personal property in one of these categories:

-Consumer Goods -used/bought for personal use
-Equipment - (default) used/bought for business use
-Farm Products
-Inventory - goods for sale or lease OR raw business materials used in short period of time

Question 2

The test to determine what category of goods collateral fits into is:

Answer 2

The debtor’s original use of the goods

Question 3

Article 9 types of collateral include:

Answer 3

-Tangible (consumer goods, equipment, farm prods, inventory)
-Intangible (instruments, docs, chattel paper, record)

Question 4

Intangible goods as collateral include:

Answer 4

-Instruments - promissory notes, checks
-Documents - Warehouse receipts
-Chattel paper - (1) monetary obligation (ie Promissory Note) AND (2) security interest in specific goods
-Record - writing or electronic equivalent
-Accounts payable - right to payment
-Non-con deposit accounts
-Commercial tort claims
-Payment intangible - debtor’s monetary obligation
-General intangible - anything else

Question 5

By definition, secured transactions creates

Answer 5

a security interest in personal property or fixtures that is only triggered by default

Question 6

To create a security interest, a security agreement must include language that

Answer 6

expressly creates the security interest

Question 7

A purchase money security interest (PMSI) can be created in two ways:

Answer 7

1. Seller financed - purchase on credit provided by the seller who takes a security interest in the item
2. Financier financed - Loan to debtor for specific collateral, used to purchase that collateral, with the creditor taking a security interest in the item

Question 8

An after acquired property allows

Answer 8

A creditor to take a security interest in property later acquired by the debtor

Requires a clause in the security agreement

Question 9

A future advance clause allows

Answer 9

A creditor to make future loans to the debtor which are secured by the original security agreement

Question 10

At attachment, the security interest is ____ and requires _____

Answer 10

Created (once all reqs met)

-Agree to create a security interest (1 of 3 ways)
-Value given
-Debtor rights in collateral

Question 11

For the first requirement of attachment, two parties agree to create the security interest in one of three ways:

Answer 11

1. Creation of an authenticated security agreement
2. Creditor takes possession of collateral
3. Creditor takes control of non-con deposit accounts, electronic chattel paper, and investment property

Question 12

To agree to create a security interest (first requirement of attachment), a security agreement must

Answer 12

-Writing or electronic record with a present intent to create a security interest
-Authenticated by the debtor - any signature or mark indicating intent to be bound
-Reasonably identifying the collateral (all equipment/inventory is suff, just not “all property”)

Question 13

Proceeds are ____ and always ____

Answer 13

Anything reasonably identifiable as resulting from sale, exchange, or other disposition of collateral

Create a security interest in the proceeds unless otherwise agreed

Question 14

Perfection of a security interest is

Answer 14

the process of providing public notice to secure priority

Being unperfected does not render an interest unsecured

Question 15

Perfection occurs when:

Answer 15

Attachment AND one of the following:

1. Automatic perfection - PMSI Cons Goods
2. Perfection by possession
3. Control
4. Notification on certificate of title
5. Filing financial statement

Question 16

Perfection by possession characteristics:

Answer 16

-Money can only be perfected by possession
-Intangibles can’t be perfected by possession
-Perfection lasts as long as possession is held

Question 17

Control perfection characteristics:

Answer 17

-Security interest in non-con deposit accounts can ONLY be perfected by control (Ownership, Management, Control Agreement)
-Investment paper or Chattel paper - Creditor has right to sell or is assignee

Question 18

Notification on certificate of title perfection characteristics:

Answer 18

-Only way to perfect for Cars/Trucks
-Requires notation by government authority on certificate of title
-EXCEPT - where car dealers (holding for sale or lease) are taking debt on their inventory, then perfection by financing statement

Question 19

Perfection by financing statement characteristics:

Answer 19

Requirements of statement
-Debtor’s/Secured Party’s names
-Description of collateral
-Authorized by debtor
-Filed with SoS unless real prop, then county

Question 20

Priority between secured perfected creditor and secured perfected creditor

Answer 20

First to file financing statement OR perfect (attach+method of perfection)

Remember PMSI CG auto perfects on attach

Question 21

Priority between unperfected vs unperfected

Answer 21

First to perfect wins

Question 22

Priority between Perfected Security Creditor vs Unperfected

Answer 22

Perfected always win

Question 23

Special PMSI Priority rules for PMSI in Equipment/Con Goods

Answer 23

Takes priority over conflicting interests in the same goods or their proceeds if:
-Interest perfected before or within 20 days after debtor receives possession of the goods

Question 24

Special PMSI Priority rules for PMSI in Inventory and livestock

Answer 24

Takes priority over conflicting interests in the same goods or their proceeds if:
-Perfected at time of possession
-Other secured party gets authenticated notification within 5 years

Question 25

Priority between SF PMSI and FF PMSI:

Answer 25

Seller wins

Question 26

Priority between conflicting security interest in deposit accounts is determined by:

Answer 26

highest method of control

1. Ownership - listed on bank account
2. Management - in their bank
3. Control agreement

Question 27

A buyer of secured property typically _____ unless _____

Answer 27

Takes subject to the security interest

1. Authorized w/o Sec Int - Explicitly/Implicitly through sale of inventory to ordinary consumers, buyer takes free of any security interest
2. Buyer in Ordinary Course from Seller of those Goods takes free of a security interest from the seller, but subject to any preexisting security interests

Question 28

For consumer to consumer sales

Answer 28

The buyer takes free of SI if:
-No knowledge of SI
-Buys for value
-For personal use (consumer goods)

UNLESS the Creditor filed a financial statement (constructive notice) or the buyer knew of SI (actual notice)

A PMSI on consumer goods that did not file (b/c it doesn’t have to in order to perfect) would be stripped for failure of notice in this situation

Question 29

Priority between a Secured Party and a Judicial Lien Creditor:

Answer 29

-Perfection before Levy = Sec Party wins
-Levy before perfection = Lien Creditor wins

Question 30

Priority between a secured creditor and a statutory lien holder:

Answer 30

Statutory lien holder takes priority IF
-Goods/services provided in normal course of business
AND
-Lien holder has possession

Question 31

On default, a creditor is entitled to use self help if

Answer 31

it can be done without a breach of the peace (potential to lead to violence)

Question 32

A sale on default MUST be

Answer 32

commercially reasonable or the seller will be liable for actual damages

Question 33

Chattel paper requires

Answer 33

(1) monetary obligation (ie Promissory Note) AND (2) security interest in specific goods

Question 34

Accessions are

Answer 34

goods physically united with other goods such that their identity is not lost (tires on a car)

Question 35

A security interest in an accession is perfected

Answer 35

if the security interest is perfected when the collateral becomes an accession, then the security interest in the collateral remains perfected

Question 36

For accessions, the priority rules are

Answer 36

Generally the same (first to file or perfect or special PMSI rule)

EXCEPT when a security interest in whole (I.e. a vehicle) is perfected under certificate of title, then the security interest in the whole prevails over the interest in the accession

Question 37

A fixture is

Answer 37

a good so related to real property that an interest in them arises under real property law

Personal property attached to real estate with the intent that it become permanent are fixtures

Question 38

To perfect a security interest in a fixture

Answer 38

A fixture filing must be made in the office where real estate filings are made

UNLESS readily removable, in which case any method of perfection grants priority

Question 39

Perf SI in Fixtures vs any subsequent real estate interest:

Answer 39

Perf SI in Fixtures wins

Question 40

Secured party v. prior real estate interest

Answer 40

Prior real estate interest properly recorded wins EXCEPT

PMSIs take priority if perf’d before or w/in 20 days of them becoming fixtures

Construction mortgages beat PMSIs

Question 41

After acquired clauses that create a security interest in the property are perfected according to the

Answer 41

rules applicable to the type of collateral

Ineffective perfection for the initial property type does not prevent perfection in the later acquired property if the requirements for that type of collateral were met

Question 42

Failure to include correct Corp name (using debtor’s trade name) on a financing statement has what effect

Answer 42

Renders the statement insufficient to perfect UNLESS the name is not seriously misleading because a search of debtor’s correct name would still reveal the financing statement