Secured Transactions

Question 1

Six Main Things to Know
(Sentence Themis said to memorize)

Answer 1

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

Question 2

What is “Attachment”?

Answer 2

how security interests are created
(i.e., the steps necessary for the security interest to be enforceable against the debtor)

Question 3

Roadmap for Topics (4 topics)

What is “Perfection”?

Answer 3

providing notice of a secuirty interest to establish a claim superior to other parties who may wish to claim an interest in the same collateral

Question 4

Roadmap for Topics (4 topics)

What is “Priority”?

Answer 4

rules for resolving priority disputes b/t multiple claimaints to same collateral
(who wins and who loses when claimaints fight over the same piece of property?)

Question 5

Roadmap for Topics (4 topics)

What is “Enforcement”?

Answer 5

rights and duties of a secured party who enforces its interest in the collateral

Question 6

When does Article 9 apply?

Answer 6

Applies to ALL security interests
* in personal property or
* fixtures by contract.

ALSO APPLIES TO:
* lease agreements that are not true leases

Question 7

When does Article 9 NOT apply?

Answer 7

does NOT apply to:
* real property liens (e.g., mortgages)
* statutory liens (e.g., mechanic’s liens) or
* judicial liens (e.g., judgment lien)

Question 8

Parties in Secured Transaction

Answer 8

• debtor - party who gives the lien for personal property
• secured party - party who holds the lien
• obligor - party who owes the obligation that is secured (usually same party as debtor)

Question 9

What is “collateral”?

Answer 9

personal property that is subject to the lien

Question 10

How do you classify collateral?

Answer 10

must look to the debtor’s PRINCIPAL USE at the time of the security interst is created

subjective test!

Question 11

Classifying Collateral

Four-Subcategories of Goods

Answer 11

1. consumer goods
2. farm products
3. inventory
4. equipment

Question 12

Classifying Collateral

When does a good become a fixture?

Answer 12

Once the good is attached to the house.

If you’re going to take it with you when you move away, it’s likely a fixure.

Question 13

Consumer Goods

Answer 13

items used for personal, family, or househould use

Question 14

Inventory

Answer 14

goods (that are not farm products) held for sale or for lease

Question 15

Equipment

Answer 15

catchall category
* goods that are not

Question 16

Classifying Collateral

Farm Products

Four-Subcategories of Goods

Answer 16

crops, livestock, and supplies used in farming

NOTE: does NOT include FARMING EQUIMENT, that falls under equipment classification!

Question 17

Attachment v. Perfection

Answer 17

(PIG FAT; think collateral vs. cholestoral)
PIG = attachment
FAT = perfection

Question 18

Attachment

Requirements for Attachment:
PIG

Answer 18

1. P - property must be owned by debtor (i.e., debtor must have rights in collateral)
2. I - Interest must be created (i.e., valid security agmt)
3. G - give value to debtor (promise not good enough!)

Question 19

Attachment

Requirements for Creating a
Valid Security Agreement

Answer 19

must meet one of the following requirements:
1. authenticated security agmt that describes collateral
2. secured party takes possession or control of collateral pursuant to an oral or unauthenticated security agmt

Question 20

Attchment

Requirements for Authenticated Security Agreement

Security Agreement

Answer 20

(MENMONIC: AID)
1. A - Authentication (need signature or other symbol that shows intent of debtor to be bound)
2. I - Intent to create security agmt
3. D - Description of collateral
(a) must reasonably identifies collateral - cannot be super-generic)

Question 21

Attahccment

Requirements for Possession or Control of Collateral

Security Agreement

Answer 21

• if you can hold it in your hands –> creditor can attach by possession!
• if you can’t hold it in your hands (e.g., electronic chattle paper, investment property, letter of credit rights, deposit accounts) –> creditor might be able to attach by control!

Question 22

Attachment

After-Acquired Property:
Definition

Security Agreement

Answer 22

property acquired by debtor AFTER security interest attches

Question 23

Attachment

After-Acquired Property:
General Rule

Answer 23

• if no reference to after-acquired property
  –> security interest only attaches to collateral that existed at the time security interest was excuted
• must explicitly include afer-acquired property clause!
  ~EXCEPTION: curts will IMPLY this clause when the collateral is of a type that is rapidly depleted and replenished (inventory, accounts)

Question 24

Attachment

After-Acquired Property Clauses:
Enforceability

Answer 24

• GENERALLY enforceable; need not specifically reference collateral to be effective!
• NOTE: does NOT apply to consumer goods
  UNLESS debtor acquires rights in them within ten (10) days after secured party gives value

Question 25

# Perfection Methods of Perfection (FAT)

Answer 25

1. F - Filing a financing statement 2. A - Automatic perfection 3. T - Take Possession

Question 26

Perfection by Filing

Answer 26

financing statement filed in central filing office of the approrpiate state

Question 27

Security Interests that CANNOT be perfected by filing

Answer 27

1. deposit acocunts 2. money 3. letters of credit

Question 28

# Perfection Required Information of Filing Statement ## Footnote Methods of Perfection

Answer 28

Filing must contain: 1. debtor's name 2. secured party's name 3. adequate description of collateral; AND 4. filing fee this info is ESSENTIAL to perfection; if any elemnt missing --> NOT perfected

Question 29

# Perfection Perfection by Taking Possession ## Footnote Methods of Perfection

Answer 29

secured party may perfect security interest in negotiable docs, goods, instruments, or money by taking mere possession of such items

Question 30

# Perfection Automatic Perfection ## Footnote Methods of Perfection

Answer 30

following security interests are perfected automatically when they attach: 1. **purchase-money security interest in consumer goods**; and 2. assignment of accounts that does NOT by itself trasnfer a significant part of assignor's outstanding accounts

Question 31

# Perfection When is a security interest perfected?

Answer 31

upon attachment of that interest *and* compliance with one of the methods of perfection

Question 31

Security Interests that CANNOT be perfected by filing

Answer 31

1. deposit acocunts 2. money 3. letters of credit

Question 32

# Perfection When is a security interest perfected if the necessary steps for perfection are taken PRIOR to attachment?

Answer 32

perfected upon attachment

Question 33

Security Interests that CANNOT be perfected by filing

Answer 33

1. deposit acocunts 2. money 3. letters of credit

Question 33

# Priority Approach to determining priority of a party

Answer 33

1. Characterize the status of each claimaint ~ buyer in the ordinary course of business? ~PMSI? ~ secured? ~ unsecured? 2. Determine applicable rule of priority 3. Apply rule and any applicable acception (remember "first in time, first in right" and first to file/perfect.

Question 34

# Priority Basic Rule for Priority

Answer 34

first in time, first in right

Question 35

# Priority Perfected v. Perfected

Answer 35

As between **two PERFECTED** secured creditors, 1. the first to file *OR* 2. the first to perfect [whichever occurs first] has priority!

Question 36

# Priority Unperfected vs. Unperfected

Answer 36

As between **two UNPERFECTED** secured creditors: * first to ATTACH has priority

Question 37

# Priority Perfected vs. Unperfected

Answer 37

As between a perfected secured creditor and an unperfected secured creditor: * the perfected secured creditor has priority

Question 38

# Priority Perfected v. Authorized Buyer ## Footnote Secured Party v. Purchaser

Answer 38

As between perfected secured creditor and authorized buyer (secured party authorized sale; can be express or implied): * authorized buyer has priority

Question 39

# Priority Perfected vs. Buyer in the Ordunary Course of Business ## Footnote Secured Party v. Purchaser

Answer 39

As between **perfected** secured creditor and **buyer in ordinary course of business** : * BOCB has priority

Question 40

# Priority Perfected vs. Buyer NOT in the Ordinary Course of Business ## Footnote Secured Party v. Purchaser

Answer 40

As between **perfected** secured creditor and **buyer NOT in ordinary course of business** : * perfected buyer has priority * BUT non-BOCB will take priority over a future advance given after the purchase

Question 41

# Priority Perfected vs. Garage Sale Buyer ## Footnote Secured Party v. Purchaser

Answer 41

As between **perfected** secured creditor and **garage sale buyer** : * garage sale buyer has priority

Question 42

# Priority Unperfected vs. Buyer ## Footnote Secured Party v. Purchaser

Answer 42

As between **unperfected** secured creditor and **buyer** : * buyer has knowledge