Secured Transactions

Question 1

Consumer Goods

Answer 1

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

Question 2

Equipment

Answer 2

goods that are used or bought for use in a business [default category]

Question 3

Farm Products

Answer 3

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

Question 4

Inventory

Answer 4

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 5

Instruments

Answer 5

pieces of paper representing the right to be paid money, like promissory notes, drafts, and certificates of deposit

Question 6

Documents

Answer 6

a document that represents the right to receive goods [e.g., bill of lading, warehouse receipt]

Question 7

Chattel Paper

Answer 7

a record or records which evidence both (1) a monetary obligation, and (2) a SI in or lease of specific goods

Question 8

Investment Property

Answer 8

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

Question 9

Accounts

Answer 9

includes a right to payment for property sold or services rendered

Question 10

Deposit Accounts

Answer 10

an account maintained with a bank [typically can only get an SI in nonconsumer deposit accounts]

Question 11

Commercial Tort Claims

Answer 11

a tort claim where (1) the claimant is an organization 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

Question 12

General Intangibles

Answer 12

any personal property not coming within the scope of the other definitions, such as patent and trademark rights, copyrights, and goodwill

Question 13

Attachment Requirements

Answer 13

the parties must agree to create the SI as evidenced by (1) the creditor taking possession of the collateral, (2) an authenticated security agreement, or (3) the creditor taking control of nonconsumer deposit accounts, electronic chattel paper, and investment property + value must be given by secured party + debtor must have rights in the collateral

Question 14

Description of Collateral

Answer 14

security agreement must contain a description of the collateral that reasonably identifies the collateral

Question 15

Value Must be Given

Answer 15

The secured party needs to give value to create the SI; any consideration sufficient to support a contract is value, and even past consideration will suffice

Question 16

What SI attaches to Rule Statement

Answer 16

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

Question 17

Exceptions to what SI attaches to Rule Statement

Answer 17

even without an after-acquired property clause, a SI will attach automatically to collateral of a type that’s rapidly depleted and replenished such as accounts and inventory; will also automatically attach to identifiable proceeds of collateral

Question 18

Proceeds

Answer 18

include whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds

Question 19

Lowest Intermediate Balance Rule

Answer 19

in the case of commingled cash proceeds, the identifiable proceeds can be traced using the lowest intermediate balance rule; look at the bank account starting at the time the proceeds are deposited and ending at the time you are applying the rule, and the lowest balance during that time period is the secured party’s identifiable proceeds

Question 20

Perfection of PMSI in Consumer Goods

Answer 20

a PMSI in consumer goods is perfected as soon as it attaches

Question 21

Perfection by Control

Answer 21

SI’s in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by control; SI’s in nonconsumer deposit accounts can only be perfected by control

Question 22

Nonconsumer Deposit Accounts [obtaining control]

Answer 22

(1) the bank in which the account is maintained automatically has control; (2) can put the account in the secured party’s name; or (3) can agree 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 consent

Question 23

Financing Statement Requirements

Answer 23

(i) the debtor’s name and mailing address, (ii) the secured party’s name and mailing address, and (iii) a description of the collateral covered by the financing statement [supergeneric description is ok]

Question 24

Location of Debtor

Answer 24

(i) individual: located in state of their principal residence; (ii) registered organization: located in state under whose laws it is organized; (iii) unregistered organization: located at its place of business/chief executive office if more than one place of business

Question 25

Continuation Statement

Answer 25

financing statement is good for 5 years, but a continuation statement may be filed and be good for an additional 5 years so long as it is filed within 6 months before the lapse of the filed statement

Question 26

Perfection for Proceeds

Answer 26

if a secured party has a perfected SI in collateral, the secured party automatically has a perfected SI in any proceeds of the collateral for 20 days after receipt of the proceeds; SI will continued to be perfected beyond 20 days if: (i) the proceeds are identifiable cash proceeds, (ii) the SI in the original collateral was perfected by filing a financing statement, a SI in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral, or (iii) the SI in the proceeds is perfected within the 20 day period

Question 27

Change in Use of Collateral

Answer 27

if the debtor changes its use of the collateral, the filed financing statement remains effective to perfect the SI; secured party has no duty to monitor the collateral or to amend the financing statement even if the party knows that the description is seriously misleading

Question 28

Priority: Secured Party v. Secured Party [both perfected]

Answer 28

priority goes to whichever party was first to either file or perfect, whichever is earlier

Question 29

Priority: Unperfected SP v. Unperfected SP

Answer 29

first to attach has priority

Question 30

PMSI Superpriority

Answer 30

PMSI’s are superior to prior perfected SI’s in the same collateral if certain conditions are met

Question 31

Conflicting PMSI’s

Answer 31

(i) a secured party who has a PMSI in collateral as a seller has priority over secured party who has PMSI in the same collateral as a lender; (ii) first secured party to file or perfect prevails

Question 32

Conflicting SI’s in Investment Property

Answer 32

(i) SI perfected by control has priority over SI perfected by any other method; (ii) conflicting SI’s perfected by control rank according to time of obtaining control

Question 33

Conflicting SI’s in Deposit Accounts

Answer 33

(i) SI in a deposit account that is perfected by control has priority over conflicting SI perfected by another method; (ii) conflicting SI’s perfected by control rank according to time except: control by putting account in secured party’s name has priority over all other secured parties with control + bank that maintains the account has next priority

Question 34

Filing Collateral

Answer 34

goods, accounts, commercial tort claims, general intangibles, and nonnegotiable documents

Question 35

Non-filing Collateral

Answer 35

cash, chattel paper, nonconsumer deposit accounts, negotiable documents, instruments, and investment property

Question 36

Certain Proceeds of Non-filing Collateral

Answer 36

a secured party has priority in the proceeds of non-filing collateral if: (1) the secured party has priority in the original collateral, (2) their SI in the proceeds is perfected, and (3) the proceeds are cash proceeds or proceeds of the same type as the original collateral

Question 37

Authorized Sales

Answer 37

if the sale/lease of the collateral is authorized by the secured party free of the SI, the transferee takes free of the SI; authorization may be express or implied from type of sale/seller’s conduct

Question 38

BIOC General Rule

Answer 38

a buyer in the ordinary course takes free of a nonpossessory SI in the goods created by the buyer’s seller

Question 39

BIOC definition

Answer 39

a buyer in the ordinary course if one who buys goods (1) in good faith, (2) without knowledge that the sale violates the rights of another person in the goods, and (3) in the ordinary course of business from a seller in the business of selling goods of the kind purchased

Question 40

Buyers Not in the Ordinary Course of Business

Answer 40

(i) take subject to perfected SI’s and (ii) take free from unperfected SI’s unless they know of the SI when they give value/take delivery

Question 41

Consumer-to-Consumer Sales

Answer 41

a buyer takes free of a SI, even if perfected, if the buyer buys (1) without knowledge of the SI, (2) for value, (3) for the buyer’s own personal, family, or household purposes, and (4) before a financing statement covering the goods has been filed; the goods must be consumer goods in the hands of both the buyer and seller

Question 42

Priority: Secured Party v. Judicial Lien Creditor

Answer 42

a judicial lien creditor prevails over the holder of a SI in collateral if the lien creditor becomes such [i.e., at the time of levy] before the SI is perfected

Question 43

Priority: Secured Party v. Statutory Lien Holder

Answer 43

a statutory lien has priority over even a perfected SI as long as the goods or services were provided in the ordinary course of business and the collateral remains in the lien holder’s possession

Question 44

Self-Help Repossession

Answer 44

after default, the secured party is entitled to take possession of the collateral without judicial process if this can be done without a breach of the peace

Question 45

Breach of the Peace

Answer 45

any conduct by the secured party that has the potential to lead to violence; generally, physical presence by debtor + verbal objection by debtor over repossession is enough to create breach

Question 46

Foreclosure Sale

Answer 46

must be commercially reasonable; factors: sufficiency of the advertising, if the collateral had a limited market –> whether people in that market were contacted, whether the collateral needed cleaning/repair, and if the sale was by public auction –> convenience of the time and place

Question 47

Failure to Comply with Code Rules

Answer 47

(i) a secured party is liable for the actual damages caused by failure to follow any of the Code’s rules, (ii) debtor entitled to 10% of cash price + amount equal to all interest changes to be paid over life of loan of consumer goods if they are the collateral and SP violates Code rules on default, and (iii) rebuttable presumption upon Code violation that the sale proceeds equal the amount of the debt [presumptively loses any deficiency]