Secured Transactions

Question 1

Attachment

Answer 1

gives the creditor rights against the debtor in the collateral

To attach a security interest: (I) either the 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, (ii) the creditor must give value, and (iii) the debtor must have rights in the collateral.

All three requirements for attachment must be present but they can occur in any order.

Question 2

Perfection

Answer 2

needed to obtain rights against another claimant to a debtor’s collateral.

There are five methods: (1) filing (in the proper place) of a financing statement describing the collateral, (2) Taking possession of the collateral, (3) Taking control of the collateral, (4) Automatic perfection (eg. of a PMSI in consumer goods, or (5) Temporary perfection (eg. of a security interest in proceeds received from the sale of collateral).

Question 3

How can you perfect a security interest in goods?

Answer 3

(1) filing, in the proper public office, a financing statement that is authorized by the debtor in an authenticated record, or (2) by taking possession.

Question 4

PMSI or Purchase Money Security Interest

Answer 4

is created when a creditor advances credit (seller-financed PMSI) or provides the funds needed (financer-financed PMSI) to make a purchase possible and takes a security interest in the goods purchased.

Question 5

When is a PMSI in consumer goods perfected?

Answer 5

Automatically upon attachment.

Question 6

Consumer goods

Answer 6

Goods (Tangible Collateral)

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

Question 7

Equipment

Answer 7

Goods (Tangible Collateral)

Goods that are not consumer goods, inventory, or farm products or goods that are used or bought for use in a business.

Question 8

Who has priority between two perfected security interests?

Answer 8

The first secured party to file OR perfect.

Question 9

Secured Transaction

Answer 9

A transaction intended to create a security interest in personal property or fixtures.

Question 10

Debtor

Answer 10

the person who owes payment or performance of the obligation secured

Question 11

Secured Party

Answer 11

The secured party, aka creditor, is a lender, seller, or other person in whose favor there is a security interest.

Question 12

Security Agreement

Answer 12

The security agreement is the agreement between the debtor and the secured party that creates the security interest.

Question 13

Security Interest

Answer 13

A security interest is an interest in personal property or fixtures that secures payment or performance of an obligation. It’s a contingent property interest in the debtor’s collateral that the debtor grants to the creditor. When that contingency (which is default) occurs, the property interest springs to life and the creditor has rights in the debtor’s collateral.

Question 14

Collateral

Answer 14

The property subject to a security interest.

Question 15

Farm Products

Answer 15

Goods (Tangible Collateral)

crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their remanufactured states if they are in the possession of a debtor engaged in farming operations.

Question 16

Inventory

Answer 16

Goods (Tangible Collateral)

Goods held for sale or lease, goods that are to be furnished under service contracts, and materials used or consumed in a business in a short period of time.

Question 17

Instruments

Answer 17

Intangible or Semi-Intangible Collateral

Pieces of paper representing the right to be paid money, like promissory notes, drafts (for example, checks), and certificates of deposit.

Question 18

Documents

Answer 18

Intangible or Semi-Intangible CollateralIntangible or Semi-Intangible Collateral

A document that represents the right to receive goods (for example, a bill of lading, a warehouse receipt)

Question 19

Chattel paper

Answer 19

Intangible or Semi-Intangible Collateral

A record or records which evidence both (1) a monetary obligation, and (2) a security interest in or a lease of specific goods. A “record” is information that is stored in either a tangible medium ( for example, written on paper), or an intangible medium (for example, electronically stored). Chattel paper that is stored in an electronic medium is also called “electronic chattel paper.”

Question 20

Investment Property

Answer 20

Intangible or Semi-Intangible Collateral

Includes items such as stocks, bonds, mutual funds, and brokerage accounts containing such items.

Question 21

Accounts

Answer 21

Intangible or Semi-Intangible Collateral

Includes a right to payment (that is not evidenced by an instrument or chattel paper) for property sold or services rendered.

Note: a contractual obligation arising from a loan of money is not an account, it is a general intangible.

Question 22

Deposit Accounts

Answer 22

Intangible or Semi-Intangible Collateral

An account maintained with a bank.

Note: In general article 9 only applies to security interests in nonconsumer deposit accounts and account monies that are claimed as proceeds of other collateral.

Question 23

Commercial Tort Claims

Answer 23

Intangible or Semi-Intangible Collateral

A tort claim where (1) the claimant is an organization (for example, a partnership or corporation), or (2) the claimant is an individual, the claim arose out of the claimant’s business or profession, and the claim does not include damages for personal injury or the death of an individual (not that Article 9 also applies to noncommercial tort claims that are claimed as proceeds of other collateral).

Question 24

General Intangibles

Answer 24

Intangible or Semi-Intangible Collateral

Any personal property not coming within the scope of the other definitions, such as patent and trademark rights, copyrights, and goodwill. A general intangible under which the account debtor’s principal obligation is a monetary obligation is a payment intangible.

Question 25

Authenticated Security Agreement

Answer 25

Evidenced by a Record, authenticated, and provide a description of the collateral so that it is reasonably identifiable. (No magic language is required, but watch for “supergeneric descriptions”).

Question 26

Perfection through Filing

Answer 26

Effective for all classes of collateral except deposit accounts and money.

Question 27

Perfection through possession

Answer 27

Effective for all classes of collateral except general intangibles, accounts, nonconsumer deposit accounts, nonnegotiable documents, and electronic chattel paper, although it is impractical for some classes of collateral (eg. if secured party takes debtor’s equipment or inventory, it will be difficult for debtor to run his business).

Question 28

Perfection through automatic method

Answer 28

Most commonly effective only as to PMSIs in consumer goods.

Question 29

Perfection through temporary method

Answer 29

Effective for 20 days (and possibly longer) for proceeds; 20 days when a secured party gives new value under a security agreement where collateral is a negotiable document, instrument, or certificated security; 20 days where a secured party makes available a negotiable document, instrument, certificated security, or goods in possession of a bailee on a temporary basis (eg. for debtor to present for payment or to sell); four months where debtor movesefrom one state to another if debtor’s location governs perfection.

Question 30

Perfection through control

Answer 30

Effective only for nonconsumer deposit accounts, electronic chattel paper, and investment property.

Question 31

Priority between perfected secured parties goes to:

Answer 31

whichever party was the first to either file OR perfect - whichever is earlier - provided that there is no period thereafter when there is neither filing nor perfection.

Question 32

Priority between two unperfected secured parties goes to:

Answer 32

the first to attach.

Question 33

General Hierarchy of Interests in Collateral

Answer 33

Buyers in Ordinary Course of Business, HDCs, and the like prevail over PMSI Holders with Superpriority Prevail over Perfected Secured Creditors (perfected secured creditor vs. perfected secured creditor: first to file or perfect wins) AND Lien Creditors (Perfected secured creditor vs. lien creditor: first to perfect (security interest) or attach (lien) wins) prevail over Unperfected Secured Creditors (Unperfected Secured Creditor vs. Unperfected secured creditor: first to attach wins) prevail over Debtor

Question 34

Factors considered for “reasonable sale”

Answer 34

(1) the sufficiency of the advertising, (2) if the collateral had a limited market, whether people in that market were contacted, (3) whether the collateral needed cleaning or repair, and (4) if the sale was by public auction, the convenience of the time and place.

*Low price alone is not enough to make the sale not commercially reasonable, but if the price is very low, courts will give extra scrutiny to the other circumstances of the sale.

Question 35

Place of filing for real estate

Answer 35

county of location

Question 36

Place of filing for anything other than real estate

Answer 36

secretary of state in the state where the state law applies (choice of law issue)

Question 37

What law governs?

Answer 37

Generally the law of the state where the debtor is located governs perfection

Question 38

The only type of PMSI that is automatically perfected

Answer 38

PMSI in consumer goods

Question 39

Is filing a financing statement effective to perfect a security interest in vehicles subject to a state statute that provides for perfection by notation on the certificate of title enough?

Answer 39

No

Question 40

Accessions

Answer 40

goods that are physically united with other goods in such a manner that the identity of the original good is not lost (ex. tires on a car, attachable GPS unit on a car)

Question 41

Does a perfected security interest in “the whole” have priority over a perfected security interest in the accession?

Answer 41

Yes.

Question 42

Attachment

Answer 42

occurs when the parties agree to create a security interest, the creditor gives value, and the debtor has rights in the collateral.

Question 43

Pefection by filing

Answer 43

works as to all kinds of collateral except deposit accounts and money.

Question 44

A security interest in a nonconsumer deposit account is perfected by

Answer 44

control.

Question 45

Means of gaining “control”

Answer 45

(1) be the bank in which the nonconsumer deposit account is maintained, (2) putting the deposit account in the secured party’s name; (3) agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will comply with the secured party’s orders regarding the account without the debtor’s further consent

Question 46

Can a financing statement be valid despite an error in the debtor’s name?

Answer 46

Yes, because a minor error in the debtor’s name will not render the financing statement ineffective, unless those errors make the financing statement “seriously misleading.”

A name is not seriously misleading if the financing statement would be discovered under the debtor’s correct name using the filing office’s standard search logic, if any.

Question 47

Does a prior perfected security interest in collateral trump a judicial lean?

Answer 47

Yes.

Question 48

A financing statement must contain

Answer 48

(1) the name and mailing address of the debtor; (2) the name and mailing address of the secured party; and (3) an indication of the collateral