Secured Transactions

Question 1

3 elements of attachment

Answer 1

(1) value
(2) rights in the collateral
(3) security agreement

Question 2

What is the most common method of perfection, and what is this method’s objective?

Answer 2

Filing is the most common method of perfection.

the secured party is giving notice that she has an interest in the debtor’s personal property

Question 2

Who is exempted from Florida’s certificate-of-title law?

Answer 2

A licensed car dealer selling motor-vehicle “floor-plan stock.”

Question 3

What is the buyer in the ordinary course of business (BOCB) exception and who qualifies as a BOCB?

Answer 3

A BOCB takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.

A BOCB is a person who:
i) Buys goods (other than farm products);
ii) In the ordinary course;
iii) From a seller who is in the business of selling goods of that kind;
iv) In good faith; and
v) Without knowledge that the sale violates the rights of another in the same goods

Question 4

Proceeds are whatever results when collateral is sold, leased, licensed, exchanged or otherwise disposed of. If a security interest was attached to collateral, how does the security interest then attach to the proceeds of that original collateral upon its sale or disposition?

Answer 4

A security interest in collateral attaches automatically to identifiable proceeds.

Question 4

For a security interest to be enforceable against a debtor (i.e., attachment), what three conditions must be met?

Answer 4

(1) Value has been given by the secured party;
(2) The debtor has rights in the collateral; and
(3) The debtor has authenticated a security agreement describing the collateral, or the secured party has possession or control of the collateral.

Question 5

What remedy is available to a secured party of large equipment that makes repossession difficult?

Answer 5

it can be rendered unusable in lieu of repossession. This is usually followed by disposal (e.g., sale) on the debtor’s premises.

Question 6

Does a perfected security interest have priority over an earlier created but unperfected security interest in the same collateral?

Answer 6

Yes, the perfected security interest has priority of over an earlier created but unperfected security interest in the same collateral.

Question 7

For all collateral not related to real property, where is the financing statement filed when the debtor is located in Florida?

Answer 7

The Florida Secured Transaction Registry

Question 8

When can a PMSI exist in goods?

Answer 8

(1) The value given (e.g., a loan) allows the debtor to acquire the goods or software; or
(2) The goods or software acquired is the collateral that secures the loan (e.g., goods bought on credit)

Question 9

Under what circumstances does a buyer of goods take free of an unperfected security interest?

Answer 9

A buyer, other than a secured party, of collateral that is goods, takes free of an unperfected security interest in the same collateral if the buyer:
i) Gives value; and
ii) Receives delivery of the collateral;
iii) Without knowledge of the existing security interest.

Question 10

What is the rule regarding construction mortgages and subsequent security interests in fixtures?

Answer 10

A construction mortgage has priority over any subsequent security interest in fixtures, including PMSIs in fixtures,

if it is recorded before the goods become fixtures, and it covers only those goods that become fixtures before completion of the construction.

Question 11

Once there has been a default, the secured party can repossess the collateral in what two ways?

Answer 11

(1) By use of judicial process (e.g., replevin action); or
(2) Self-help repossession

Question 12

When distinguishing between types of collateral, what is the difference between
“accounts”
and
“deposit accounts”

Answer 12

Accounts include the right to payment for property sold, leased, licensed, or for services rendered. Also included are rights to payment under insurance policies, amounts owing on credit cards, as well as a company’s accounts receivable.

Deposit accounts include savings, passbook, time, or demand accounts maintained with a bank.

Question 13

“Goods” encompasses anything that is moveable at the time that a security interest attaches. Also included in “goods” that are technically not moveable.

Give 5 examples of these non-moveable goods.

Answer 13

(1) Fixtures
(2) Standing timber
(3) Unborn animals
(4) Growing or unharvested crops (including crops grown on trees, vines, or bushes)
(5) Manufactured homes

Question 14

As between a secured party and a judicial lien creditor, who has priority?

Answer 14

A judicial lien creditor takes the collateral subject to an existing perfected security interest but generally has priority over an unperfected security interest.

Question 15

What is the priority rule for a PMSI in goods (other than inventory or livestock)?

Answer 15

This PMSI will prevail over all other security interests in the same collateral, even if those other security interests were previously perfected (e.g., an existing after-acquired equipment clause by a lender), so long as the security interest is perfects before or within 20 days after the debtor receives possession of the collateral.

Question 16

Once a default has occurred, what are the secured party’s options?

Answer 16

The secured party may:
(1) Seek possession of tangible collateral (repossess) and either sell or retain it in satisfaction of the obligation owed;
(2) Initiate a judicial action to obtain a judgment against the debtor or obligor; or
(3) Pursue other courses of action to which the debtor and secured party have agreed.

Question 17

When both a secured party and an unsecured party have a security interest in the same collateral, the secured party will prevail over the non-secured party.

Question 18

In what order are Cash proceeds from collateral’s sale are distributed?

Answer 18

(1) reasonable collection expenses
(2) the secured party to satisfy the debtor’s obligation
(3) the debtor is entitled to any surplus and is liable for any deficiency.

Question 19

A security interest that has attached to specific collateral may be enforced against the debtor upon default.

Question 20

A buyer in the ordinary course of business takes its interest free of any security interest held by a creditor in a seller’s inventory.

Answer 20

ex: Electronics store sells 100 tv’s to best buy on credit and takes security interest in all their inventory. Then you go and buy a tv at best buy.

would you be subject to the electronics’ security interest? no

Question 21

A security agreement referencing future interests is perfected upon filing of the financing statement for interests obtained in the future.

Question 22

A creditor may foreclose on collateral in full satisfaction of the debtor’s obligation if the debtor has not paid at least 60% of the cash price of the collateral.

Question 23

A creditor who has a security interest in a negotiable instrument may perfect its security interest by doing what

Answer 23

Either:
(1) filing a financing statement
or
(2) by taking possession of the negotiable instrument.

Question 24

A judgment lien creditor has priority over the debtor’s assets as against someone who has a security interest in those assets that is unperfected when the lien is filed.

Answer 24

PMSI in inventory will only prevail over other security interests if the PMSI is perfected by the time the debtor receives possession of the collateral and the secured party notifies holders of conflicting security interests of the PMSI.

Question 25

Between a PMSI held by a seller of the collateral and a PMSI held by the lender who enabled the purchase of the collateral, the seller’s PMSI takes priority.

Answer 25

Buyer purchased a machine from Seller. He executed a loan with Bank to pay a portion of the purchase price, with the remainder being financed directly with Seller. Both creditors obtained a security interest in the machine. Bank filed its financing statement immediately after Buyer took possession of the machine, while Seller filed its financing statement 15 days later. Two years later, Buyer defaulted, and the machine was sold.

Question 26

a PMSI wont lose its status as one just bc its collateral is also securing a different obligation

Question 27

only a PMSI in consumer goods is automatically perfected

Answer 27

retailer purchasing stuff as inventory to sell as part of its business ISNT automatically perfected

Question 28

If someone buys goods or other specific items that were used as collateral, they won’t be affected as long as they buy the collateral:

Answer 28

> without knowledge of the existing security interest
give value, and
take possession to take the collateral free of the creditor’s claim.

Question 29

A purchase-money security interest (PMSI) in inventory takes priority over all other security interests if the PMSI is perfected when the debtor receives the inventory and if the secured party notifies other creditors about the PMSI before the debtor takes possession.

Question 30

Upon the debtor’s default, a secured party is required to use judicial process to seize the collateral unless possession can be obtained without breach of the peace

Answer 30

a breach of peace means the debtor objected

Question 31

security interest in most collateral may be perfected by filing a financing statement.

Answer 31

The statement must contain:
> debtor’s name
> name of the secured party (or secured party’s representative) and > collateral being covered

Question 32

A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral so long as the PMSI is perfected before the debtor receives possession of the collateral or within 20 days thereafter.

Answer 32

so equipment will surpass pmsi surpass a pmsi for a loan for something else