Secured Transactions

Question 1

What is required for attachment

Answer 1

1. Value Given: The secured party must give value (e.g., a loan or credit).
2. Debtor’s Rights in Collateral: The debtor must have rights in the collateral.
3. Authenticated Security Agreement: The debtor must authenticate a security agreement describing the collateral, or the secured party must have possession or control of the collateral.

Question 2

Security agreement

Answer 2

1. Description of Collateral: Must reasonably identify the collateral (e.g., specific items, types of collateral).
2. Authenticated Record: Typically, the agreement must be in writing and signed by the debtor.

Question 3

Filing a Financing Statement

Answer 3

Method of perfection

Filing in the appropriate public office (usually the Secretary of State) with the debtor’s name, secured party’s name, and description of collateral.

Question 4

Possession of Collateral

Answer 4

Method of perfection

The secured party takes physical possession of the collateral.

Question 5

Control of Collateral

Answer 5

Method of perfection

For certain types of collateral (e.g., deposit accounts, investment property), the secured party must have control.

Question 6

Automatic Perfection

Answer 6

Method of Perfection

Occurs in certain situations (e.g., PMSI in consumer goods).

Question 7

Financing statements

Answer 7

Contents: Debtor’s name, secured party’s name, description of collateral.

Duration: Generally effective for five years; continuation statement can extend for another five years.

Question 8

Timing of Perfection

Answer 8

Relation-Back: For PMSIs, perfection can relate back to the time of attachment if filed within a certain period (usually 20 days)

Question 9

Basic Priority rules

Answer 9

1. Secured vs. Unsecured Creditors: Secured creditors have priority over unsecured creditors.
2. Perfected vs. Unperfected Secured Creditors: Perfected secured creditors have priority over unperfected secured creditors.
3. Conflicting Perfected Secured Creditors: First to file or perfect has priority.
4. Conflicting Unperfected Secured Creditors: First to attach has priority.

Question 10

Purchase money security interest (PMSI)

Answer 10

Priority Over Existing Security Interests: PMSIs in goods other than inventory generally have super-priority if perfected within 20 days of the debtor receiving possession of the collateral.

Question 11

PMSI (inventory)

Answer 11

Inventory: PMSIs in inventory have super-priority if the secured party gives notice to other secured parties before the debtor receives possession and the PMSI is perfected when the debtor receives possession.

Question 12

Buyers in the ordinary course of business

Answer 12

Priority over secured interests – a buyer in the ordinary course of business takes free of a security interest created by the seller even if the security interest is perfected

Question 13

Judicial Liens

Answer 13

have priority over unperfected security interest BUT are subordinate to perfected security interests

Question 14

Repossession (rights upon default)

Answer 14

the secured party can repossess the collateral without judicial process if it can be done without breach of the peace

Question 15

disposition (rights upon default)

Answer 15

the secured party may sell, lease, licenses, or otherwise dispose of the collateral in a commercially reasonable manner

Question 16

strict foreclosure (rights upon default)

Answer 16

the secured party can retain the collateral in full or partial satisfaction of the debt if the debtor consents and no other party objects

Question 17

Right to redeem (debtors rights)

Answer 17

the debtor can redeem the collateral by paying the full amount of the obligation before the secured party has disposed of the collateral or entered into a contract for its disposition

Question 18

surplus and deficiency (debtors rights)

Answer 18

the debtor is entitled to any surplus from the disposition of the collateral and is liable for any deficiency

Question 19

commercial reasonableness (standards)

Answer 19

all aspects of the dispositions must be commercially reasonable including method manner time a place and terms

Question 20

Required notice of disposition

Answer 20

the secured party must provide reasonable notice to the debtor and other secured parties before disposing of the collateral

Question 21

Accounts (special types of collateral)

Answer 21

1. Attachment and Perfection: Typically perfected by filing a financing statement.
2. Priority: Governed by general priority rules, with special rules for deposit accounts and investment property.

Question 23

Inventory (special types of collateral)

Answer 23

1. Perfection: Generally perfected by filing.
2. Priority: PMSI in inventory has special priority rules requiring notice to other secured parties.

Question 24

Fixtures (special types of collateral)

Answer 24

1. Attachment: Same as general rules, but perfection often requires a fixture filing.
2. Priority: Fixture filings compete with real property interests.

Question 25

Proceeds (special types of collateral)

Answer 25

1. Automatic Perfection: Security interest in proceeds is automatically perfected for 20 days.
2. Continuation of Perfection: Perfection continues beyond 20 days if the original financing statement covers the proceeds, or if the proceeds are identifiable cash proceeds, or if the secured party takes necessary steps to perfect the interest in proceeds within 20 days.

Question 26

Consignments (special transactions)

Answer 26

1. Definition: A transaction where goods are delivered to a merchant for the purpose of sale.
2. Perfection: Generally treated as a PMSI in inventory.

Question 27

Leases as security interests (special transactions)

Answer 27

True Lease vs. Disguised Security Interest: If a lease transaction is intended for security, it is treated as a secured transaction and must be perfected.