secured transactions

Question 1

attachment

Answer 1

A security interest is enforceable against the debtor and
third parties with respect to the collateral only if :
1. value has been given; (includes past consideration)
2. the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured
party; and
3. one of the following conditions is met:
(A) the debtor has authenticated a security agreement that provides a description of the collateral [or]
(B) the collateral is in the possession of
the secured party pursuant to the debtor’s
security agreement;”

Question 2

Consumer goods

Answer 2

goods used or bought primarily for personal, family, or household purposes

Question 3

Equipment

Answer 3

goods that are used or bought for use in a business.

Note: This is also the default category for goods. In other words, if the collateral is a good, and it doesn’t fit the definition of consumer goods, inventory, or farm products, it gets classified as equipment.

Question 4

Farm products

Answer 4

crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states (such as ginned cotton, wool-clip, maple syrup, milk, and eggs) if they are in the possession of a debtor engaged in farming operations

Question 5

Inventory

Answer 5

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

Question 6

Instruments

Answer 6

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

Question 7

Documents

Answer 7

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

Question 8

Chattel paper

Answer 8

A record or records which evidence both (1) a mon- etary 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 9

Investment property

Answer 9

Includes items such as stocks, bonds, mu- tual funds, and brokerage accounts containing such items

Question 10

Accounts

Answer 10

Includes a right to payment (that is not evidenced by an instrument or chattel paper) for property sold or services ren- dered. Note: A contractual obligation arising from a loan of money is not an account—it is a general intangible (see below).

Question 11

Deposit accounts

Answer 11

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 12

Commercial tort claims

Answer 12

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 (note that Article 9 also applies to noncommercial tort claims that are claimed as proceeds of other collateral)

Question 13

General intangibles

Answer 13

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 14

A seller’s retention of title

Answer 14

if a seller and buyer of goods agree that the seller will retain title to the goods after they are delivered until the buyer has paid for them, the agreement will be treated as the seller’s retention of a security interest

Question 15

A secured sale disguised as a lease

Answer 15

leases that are intended to serve as security arrangements (but not true leases); and a lease where the rental obligation is not terminable by the lessee and either: (1) the lease term is equal to or greater than the remaining economic life of the goods, (2) the lessee is bound to purchase the goods at the end of the lease or to renew the lease for the remaining economic life of the goods, or (3) at the end
of the lease, the lessee has an option to purchase the goods or renew the lease for the remaining economic life of the goods for no or nominal consideration

Question 16

Description of Collateral in security agreement

Answer 16

The description must reasonably identify the collateral “accounts, inventory, etc.”

a supergeneric description - “all of the debtor’s assets” or “all of the debtor’s personal property” is not a sufficient description.

Question 17

After-Acquired Property Clause

Answer 17

a security interest not only in debtor’s present property, but also in property that the debtor will obtain in the future.

Without an explicit after-acquired property clause in the security agreement, the secured party’s security interest only reaches collateral that the debtor had rights in at the time the debtor signed the security agreement.

Even without an after-acquired property clause, a security interest will attach automatically to collateral of a type that’s rapidly depleted and replenished, such as accounts and inventory.

does not apply to consumer goods or commercial tort claims

Question 18

Proceeds

Answer 18

a security interest in collateral automatically attaches to identifiable proceeds of the collateral. Proceeds include whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds.

Question 19

lowest intermediate balance rule.

Answer 19

what portion of a co-mingled bank account is identifiable.

you will look at the bank account starting at the time the proceeds are deposited and ending at the time you are applying the rule.

Question 20

Perfection

Answer 20

(i) Attachment; and

(ii) One of the following:

• Filing (in the proper place) of a financing statement describing the collateral,
• Taking possession of the collateral,
• Taking control of the collateral, * Automatic perfection (e.g., of a
  PMSI in consumer goods), or
• Temporary perfection (e.g., of a security interest in proceeds received from the sale of collateral).

Question 21

PMSI

Answer 21

When:
1. The secured party sells the goods to the debtor on credit and retains a security interest in the goods sold, or
2. The creditor loans the funds to the debtor to enable the debtor to buy specific collateral, those funds are used by the debtor to acquire the specific collateral, and the creditor takes a security interest in that collateral.

A PMSI in consumer goods is perfected as soon as it attaches.

Question 22

Perfection by control

Answer 22

A security interest in investment property, nonconsumer depost account, or electronic chattel paper may be perfected by control.

A nonconsumer bank acount can only be perfected by control; by putting the deposit account in the secured party’s name, or agreeing in an authenticated record with the bank that the bank will comply with secured party’s orders if debtor defaults.

Investment property is perfected by control when the secured party has taken whtaever steps are necessary to be able to have the investment property sold without further action from the owner.

Electronic chattel papers is perfected by control when the system reliably establishes the secured party as the assignee.

Question 23

perfection for motor vehicles

Answer 23

by notation on the certificate of title issued by the state.

If debtor is holding the car as inventory then secured party must perfect by fililng a financing statement.

Question 24

Perfection by filing

Answer 24

Secured party may obtain perfection by filing a financing statement.

Must contain:
1. Debtor’s name and mailing address’
2. secured party’s name and mailing address
3. a description of the collateral covered by the financing statement.

This perfects all kinds of collateral except deposit accounts and money.

Question 25

Debtor’s name on financing statement

Answer 25

Individual - unexpired driver’s license or name in the community.
* Error in name cannot be seriously misleading. If a search of the correct name in the filing office comes up with the erred name then it is not seriously misleading.

Organization - name must match its most recent public organic record.

Debtor Name Change - If the name on financing statement becomes seriously misleading, the financing statement is effective only agaisnt collateral acquired by the debtor before the name change and within 4 month after. (seured party msut fix debtor’s name if they want security in after acquired colalteral +4 months)

Question 26

Desccription of Collateral in financing statement

Answer 26

financing statement may contain a supergeneric description of the collateral, such as “all assets.”

it need not mention after acquired property.

Question 27

Real Property-Related Financing Statements

Answer 27

names and addresses of the debtor and secured party and a description of the collateral and

(1) a description of the related real property, (2) the name of the record owner (if not the debtor), and (3) an indication that it is to be filed in the real property records.

Question 28

Debtor must authorize filing of financing statement by:

Answer 28

auhtorizing it in any signed writing either before or after it is filed.

Debtor automatically authorizes the financing statement if the debtor authenticates the financing statement or authenticates a security agreement covering the same collateral as the financing statement.

Question 29

Place of filing for financing statement

Answer 29

Must be filed with the secretary of state where the debtor is loccated.
* Individual - principal residence
* organization - where it is organized
* unregistered org. - place of bussiness or chief executive office.

If the collateral is real estate related colalteral you make a county filing with the county clerk where the real estate is located.

Question 30

If the debtor moves out of state

Answer 30

The security interest generally becomes unperfected 4 months after the debtor’s move unless the secured party files F in new jurisdicition.

If collateral is transfered to a new owner out of state, security interest will become unperfected 1 year after move unless secured party files FS before.

Question 31

How long is a FS valid

Answer 31

FS is valid for 5 years, it can be extended by filing a continuation statement within 6 months before the lapse of the filed statement. Authorization from debtor is not required.

Question 32

Termination statement

Answer 32

if there is no outstanding obligation of the debtor and no commitment on the part of the secured party to make further advances, or if the debtor didn’t authorize the filing of the initial financing statement, the secured party must, on demand of the debtor, within 20 days, file a termination statement or provide one to the debtor.

consumer goods - the secured party must file the termination statement within 1 month after there is no obligation or commitment, or if the debtor demands it, within 20 days of the demand.

Question 33

perfection of proceeds

Answer 33

If the secured party has a perfected security interest in collateral, the secured party automatically has a perfected security interest in any proceeds of the collateral for 20 days after receipt of the proceeds. Perfection will continue after the 20 days if:
1. The proeceds are identifiable cash proceeds; or
2. The collateral was perfected by filing a FS, the security interest in the proceeds would be filed in the same place as the FS for original collateral, AND the proceeds were not purchased with cash proceeds of the colalteral; or
3. the security interest in the proceeds is perfected within the 20 day period.

If one of these does not apply to the proceeds, the secured party has to amend FS to include the type of proceed before the 20 day period.

Question 34

Change in use of collateral

Answer 34

the filed FS remains effective, secured party doesn’t have a duty to monitor collateral use.

Question 35

Priority between unperfected secured parties

Answer 35

the first to attach has priority

Question 36

priority between unperfected and perfected secured parties

Answer 36

a perfected security interest generally prevails over an unperfected security interest

Question 37

Priority between two perfected secured parties

Answer 37

Which ever party was the first to file or perfect provided that there is no period thereafter when there is neither filing nor perfection.

Question 38

PMSI superiority rule

Answer 38

PMSI in goods other than inventory or livestock (usually inventory) has priority in the same goods or proceeds if the PMSI is perfected before or within 20 days after the debtor receives possession of the goods

PMSI in invenotry or livestock has prioty if:
* before the debtor recieves possession:
1. the secured party perfects, AND
2. sends authenticated notice to other holders, and notice is received within 5 years of debtor getting possession.

Question 39

Special priority rule for conflicting security interest in investment property

Answer 39

a security interest perfected by control has priority over any other interest perfected by other method.

for conflicted interests both perfected by control, they rank according to time of obtaining control unless one of them is a broker then he has priority.

Question 40

special priority rule for deposit accounts

Answer 40

if perfected by control, it has priority over another interest perfected by other method.

If both are perfected by control they rank according to time of obtaining control except:
* the party who obtained control by putting the deposit account in the party’s name wins
* but if bank that has control because it maintains the account it has priority over everyone else even if party put the deposit acount in party’s name.

Question 41

priority
secured party vs buyer

Answer 41

if the buyer wins the fight, buyer takes free of security interest.

Secured party wins unless:
* Secured party authorizes the sale (express or implied (inventory to consumer), or acqueicens)
* A buyer in the ordinary course of business takes free of security interest created by seller (a person who buys goods in good faith w/o knowledge that sale violates someone elses interest party from seller of goods of that kind)

Question 42

Priority:
Buyers not in the ordinary course of business takes -

Answer 42

Subject to perfected security interests but take free from unperfected security interests unless they know of the interest when they give value for it.

Exception: future adavances, buyer not in the ordinary course has priority over future advances either after secured party learns of purchase/lease or 45 days after the purchase/lease.

Exception: PMSI grace period, if secured party atttaches PMSI, before the consumer buyer pays and gets possession then PMSI has priority if PMSI files within 20 days

Question 43

Priority when the sale is from consumer to consumer

Answer 43

a buyer takes free of security even though it perfected, if the buyer
1. buys w/o knowledge of the interest
2. for value
3. for buyers personal use and
4. beofre FS has been filed

must be consumer good in both seller and buyers hands

Question 44

secured party vs judicial lien creditor or holder of possessory lien

Answer 44

judgement lienholder wins if lien levied before secruity interest was perfect.
However, secured party will have priority if it has filed FS before levy but not attached and perfected

Question 45

PMSI rule when there is a judicial lien holder

Answer 45

if the secured aprty files FS wihtin 20 days after debtor recieves possession he has priority over lien creditor arising between the time interest attaches and tiem of filing.

Question 46

future advance exception when there is a judicial lien creditor

Answer 46

for a perfected future advance to have prioroty over a subsequent judicial lien the future advance must be made
(1) without knowledge of the lien
(2) wihtin 45 days of the lien arising; OR
(3) pursuant to a commitment enetered into w/o knowledge of the lien

Question 47

secured party vs statutory lien calimaint

Answer 47

possesory lien imposed by other state law in favor of those who supply goods or services has priority over perfected interests as long as the goods or services were prvided in the ordinary course of business and collateral remains in lien holder’s possession.

Question 48

default

Answer 48

secured party is entitled to take possession of the collateral without judicial process (that is, by “self-help”) if this can be done without a breach of the peace.

Or you can reposses by asking the court for a writ of replevin and get a marcial to possess your collateral.

When a secured party breaches the peace, the secured party loses the authorization to repossess, may be sued for conversion (and possibly assault, battery, trespass, etc.), and is liable for actual (and frequently punitive) damages.

Question 49

breach of peace

Answer 49

any conduct that has the potential to lead to violencce.
*physical presence by the debtor plus verbal objection is a breach of the peace.

if violence is not at risk its fine, so they can come at night and steal your car and not breach peace and its ok.

Breaking and entering into a home is usually breaking of the peace.

Question 50

secured party and strict foreclosure

Answer 50

When creditor jsut want to keep collateral and not sell it

can do so if:

1. the secured party sends its proposal to retain the collateral to
   * any other secured party that they have received notice of a claim to the collateral from; and
   * any other secured party who has perfected an interest in the collateral by filing a FS or certificate of title. if notified party object within 20 days, the collateral must be sold
2. secured party must obtain the debtors consent by:
   * debter agreeing in an authenticated record after default or
   * if full strict foreclosure, debtor failing to make an authenticated objection within 20 days after the secured party sends notice

Question 51

self help for equipment havey bulky equipment

Answer 51

secured party can render it unuseable on the debtor’s property (like take keys, or wires)

Question 52

self help with accounts

Answer 52

seured party can notify the person owing money to the debtor and have them pay the secured party instead. upon notificaiton the account debtor msut pay the secured party

Question 53

forclosure sale of collateral

Answer 53

same as mortgage - senior liens stay on the property junior liens get wiped out

every aspect of the sale must be commerically reasonable (time, method, manner, place, and terms)

secured party can buy collateral at any public sale and if its private only if the collateral is typically sold in recognized market or is of type subject to widely known distributed standard price quotes

The proceeds of the sale - same as mortgages

Debtor’s right to redeem - any time before secured party resells the debtor can redeem the colalteral by tendering fulfilment of all obligations secured by the collateral plus reasonable expenses. if facceleration clause then the whole debt.

Question 54

Fixture

Answer 54

goods that have become so related to real property that an interest in them arises under real property law.

to perfect - a fixture filing must be made in the office where mortgage would be filed. (must reasonably identify real estate and show name of owner)

Default - may remove fixture

Question 55

priority
secured part vs subsequent real estate interest

Answer 55

security interest in fixtures has priority over any real estate interest that is recorded subsequent to the perfection fo fixture filing.

Question 56

secured interest vs. prior real estate interest

Answer 56

prior real estate interest that is properly recorded has priority over a security interest that subsequently arises.

Exception - PMSI take priority if perfected by fixture filing before goods become fixtures or within 20 days. BUT contruction mortgage always wins

Question 57

fixture filing not necessary if

Answer 57

readily removable. any method of perfection before such goods beome fixtures entitles the secured party to priority.

Question 58

Accessions

Answer 58

are goods that are physically united with other goods in such a manner the idenity of the original goods is not lost (tires on a car)

perfect - if perfected when colalteral becomes accession it stays perfected

priority - First ot file or perfect with all usual exceptions.
Exception - if perfected by certificate of title, the secured interest int he whole wins.

Removal - secured party can remove the accession if they have priority . Must pay for damages to the whole.