Secured Transactions

Question 1

What type of goods are raw materials when subject to a security interest?

Answer 1

Inventory includes goods held for sale or lease as well as raw materials, works in process, or materials used or consumed in a business. Thus, when a security agreement describes its collateral as “inventory,” this covers raw materials.

Question 2

What is a Buyer in the Ordinary Course of Business (BOCB) and what rights does one have?

GO MerK FAV

Answer 2

GO MerK FAV
Goods Ordinary MERchant Kind Faith Actual Violates

A BOCB is a buyer who:
1) Buys goods
2) In the ordinary course of business
3) From a merchant
4) Who is in the business of selling goods of that kind
5) In good faith, AND
6) Without actual knowledge that
7) The sale violates the rights of another in the same goods

When a buyer satisfies these elements he is a Buyer in the Ordinary Course of Business and TAKES FREE OF A SECURITY INTEREST CREATED BY THE SELLER

Question 3

What is a judicial lien creditor?

Answer 3

A judicial lien creditor is a creditor who acquires a lien on collateral by judicial process, rather than by operation of law.

A judicial lien creditor takes the property subject to a perfected security interest but has priority over an unperfected security interest

Question 4

How can a secured party perfect its security interest?

SPAC

Answer 4

SPAC
Statement Possession Automatic Control

A secured party can perfect a security interest by:
1. Filing a financing statement
2. Taking possession of the collateral
3. Exerting control over the collateral
4. Automatic perfection

Question 5

What are the four classes of tangible collateral (goods)?

Answer 5

Consumer Goods
Farm Products
Inventory
Equipment

Question 6

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

Answer 6

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 6

What type of collateral are these?

1. A check or promissory note
2. A check along with a security agreement
3. The right to be paid for a service rendered
4. A savings account at a bank

Answer 6

1. Instrument
2. Chattel Paper
3. Accounts
4. Deposit Account

Question 6

Secured Transactions: What is a “True Lease”?

Answer 6

A true lease means there is no security interest. The term “lease” will often be used even when it is not really a true lease, and is really a disguised secured transaction. A true lease is not a secured transaciton

Question 7

What happens when parties leave out after-acquired language in situations that suggest they inteded to include it (e.g., when the collateral is inventory or accounts)?

Answer 7

General Rule: if there is no reference to after-acquired property, the security interest attaches only to the collateral that exists at the time that the security agreement is executed.

Exception: in most states, if the security agreement describes inventory or accounts, there is a rebuttable presumption that the description includes after-acquired inventory and accounts

Question 8

What are the effects of the following descriptions in a security agreement?

1. All of debtor’s equipment
2. All of debtor’s inventory
3. All of debtor’s assets
4. All of debtor’s personal property

Answer 8

1. Effects a security interest in all of debtor’s equipment
2. Effects a security interest in all of debtor’s inventory
3. Insufficient description because it does not “reasonably identify” the collateral; rather it is overly broad and thus “super-generic.” This could have the effect of rendering the security agreement invalid and could cause attachment to fail
4. ”” “” “” “”

Super-generic descriptions in a financing statement are, however, sufficient.

Question 9

If a consignment is subject to Article 9, how are the consignor and the security interest in the consigned goods treated?

Answer 9

The consignor is treated as the secured party and must perfect its security interest in the consigned inventory, and the security interest in the consigned goods is treated as a PMSI in inventory. In other words, a consignor will have PMSI super-priority in consigned goodsif the consignor perfects by filing before the consignee receives possession of the items, and the consignor properly notifies any secured parties with conflicting security interests in consignee’s inventory

Question 10

In order for a consignment to be subject to Article 9, what 4 requirements must be met?

DMVC

Answer 10

DMVC
Deliver Merchant Value Consumer

1. A consignor must deliver goods to a merchant (consignee) to sell
2. The merchant/consignee must deal in goods of that kind, not operate under the name of the consignor, not be generally known by its creditors to be substantially engaged in the business of selling goods of others, and not be an auctioneer
3. The value of the goods must be at least $1,000 in each delivery
   AND
4. The goods must not be consumer goods immediately before delivery

Question 11

A PMSI may exist only with respect to what two types of collateral?

Answer 11

Goods (including fixtures)
Software

Question 12

A new security agreement is not necessary when a debtor buys additional collateral if the original security agreement includes what

Answer 12

An after-acquired property clause.

“All of the debtor’s existing and after-acquired [collateral]” or “all of the [collateral] now owned or hereafter acquired”

However, such language is not required for a security interest to attach to accounts and inventory, as these types of collateral are presumed to include after-acquired items

Question 13

When does a buyer of goods take free of an unperfected security interest?

VDK

Answer 13

VDK
Value Delivery Knowledge

When a buyer who is not a secured party purchases goods that are collateral, they take it free of an unperfected security interest in those goods/collateral if the buyer:

1. Gives value; and
2. Receives delivery of the collateral;
3. Without knowledge of the existing security interest

Question 14

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

Answer 14

Filing a financing statement is the most common method of perfection.

By filing a financing statement, the secured party is giving notice that he/she has an interest in the debtor’s personal property.

The actual security agreement between the parties does not have to be filed. Perfection by filing assumes that a third party will investigate any details of a security agreement

Question 15

An after-acquired clause is not effective if the collateral is consumer goods unless:

Answer 15

Unless the debtor acquires them within 10 days after the secured party gives value

Question 16

Even if parties label their transaction as a lease in the hopes of avoiding Article 9 rules, their transaction will be governed by Article 9 (thus NOT a true lease) if one of the following four conditions is present:

TBRO

Answer 16

TBRO
Term Bound Renew Own

1. Term for Good’s Life: The original lease term is equal to (or greater than) the good’s remaining economic life
2. Bound to Renew or Own: The lessee is bound to renew the lease for the good’s remaining economic life (or is bound to become the owner of the goods);
3. Renew w/o Consideration: The lessee has the option to renew the lease for the good’s remaining economic life for nominal or no additional consideration;
   OR
4. Option to Own: The lessee has the option to become the owner of the goods upon completion of the lease for nominal or no additional consideration

In essence, the economic reality in all of these situations is that there is a sale to the lessee with a security interest retained by the lessor. Thus, the lessor is a secured party and cannot avoid filing by labeling the transaction as a lease. The lessor would need to file or otherwise perfect his/her interest in the goods

Question 17

How does the debtor moving to another state or the collateral being transferred (subject to the SI) to a person in another state affect the security interest?

Answer 17

If a debtor moves to another state: a perfected security interest will remain perfected for four months after the move (unless the financing statement lapses earlier). This four month grace period also covers collateral the debtor acquires after the debtor moves. To remain continuously perfected, the secured party must re-file in the new state within the four-month window

If the collateral is transferred to a new debtor out of the state, the secured party has one year to file a new financing statement listing the new debtor

Question 18

How and when does tangible collateral (goods) get classified, and does this method apply to other types of collateral?

Answer 18

To properly classify tangible collateral (goods), look to the debtor’s principal use when the security interest attaches.
Unlike tangible goods, classification of other types of collateral does not turn on the manner in which the debtor uses the property.

Question 19

How does a security interest attach to proceeds of collateral that is sold or disposed of?

Answer 19

A security interest in collateral attaches automatically to identifiable proceeds

Question 20

What are 5 examples of non-moveable goods

FTACH

Answer 20

FTACH
Fixtures Timber Animals Crops Homes

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

Question 21

When can a PMSI exist in goods?

Answer 21

1. The value given (i.e. 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 (i.e. goods bought on credit)

Question 22

What happens when a secured party has priority in a fixture?

Answer 22

The secured party may remove the fixture from the real estate but will be liable for the cost of repairing any physical damage to the real estate, but not for any reduction in the value of the real property due to the removal

Question 23

How must the collateral be described in a financing statement?

Answer 23

The financing statement must contain a description of the collateral that sufficiently indicates the collateral (such as one that meets the requirements for creation of an enforceable security agreement)

When the security interest covers all of the debtor’s assets or personal property, the description can contain a broad statement to that effect

Question 24

Chattel paper is a record (paper or electronic) with what two components?

Answer 24

Chattel paper is a record that evidences both
1. A monetary obligation
AND
2. A security interest in specific goods (security agreement) or a lease of specific goods

Question 25

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

Answer 25

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

When these conditions coexist, the security interest has attached, unless there is an agreement to postpone the time of attachment

Question 26

What is a buyer in the ordinary course of business and how does being one affect their purchase of an item that is subject to a security interest?

OMFN

Answer 26

OMFN
Ordinary Merchant Faith Notice

A Buyer in the Ordinary Course of Business is a person who:

1. Buys goods (not farm products) in the ordinary course of business
2. From a merchant who is in the business of selling goods of that kind, and who is NOT a pawnbroker
3. In good faith
   AND
4. Without actual notice that the sale violates the rights of another in the same goods

A Buyer in the Ordinary Course of Business takes any goods they purchase free of a security interest, EVEN when the buyer KNOWS of its existence.

Buyers that are NOT buyers in the ordinary course of business take whatever goods they purchase SUBJECT to any perfected security interest.

Question 27

What is the difference between accessions and commingled goods? What happens to security interests that are attached to those types of goods?

Answer 27

Accessions are goods that are physically united with other goods so that the identity of the original goods is not lost (like a framed piece of art). A security interest that is created in collateral that becomes and accession is not lost due to the collateral becoming an accession

Commingled goods are goods that are physically united with other goods to the point that their identity is lost. The security interest in the good does not continue, but it will attach to the larger product

Question 28

At a minimum, what information must a financing statement contain?

DSC

Answer 28

DSC
Debtor’s Secured Collateral

1. Debtor’s name
2. The name of the secured party or a representative of the secured party;
   AND
3. The collateral covered by the financing statement

Question 29

What is the only way to perfect a security interest in money, and what is the exception to this rule?

Answer 29

A security interest in money can be perfected only by possession unless it is received as proceeds of a perfected security interest

Question 30

For how long is a security interest in proceeds temporarily perfected, and what is required to perfect the security interest in such proceeds indefinitely?

Answer 30

Proceeds from a security interest are automatically temporarily perfected for 20 days.

After 20 days, the perfection will lapse unless:
1. The original financing statement is broad enough to encompass the proceeds or the secured party amends the financing statement within 20 days
2. The proceeds are identifiable cash proceeds and the security interest in the original was perfected (cash proceeds includes checks and deposit accounts)
OR
3. If the same office rule applies

Question 31

Whom does attachment make a security interest enforceable against?
Whom does perfection make a security interest enforceable against?

Answer 31

Attachment makes a security interest enforceable against the debtor

Perfection is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties

Question 32

Who has priority in the same collateral between a perfected secured creditor and a statutory lien claimant?

Answer 32

The statutory lien claimant has priority over a perfected secured creditor, provided that:

1. The lienholder has possession of the goods; AND
2. The lien secures payment or performance of an obligation for services or materials furnished in the ordinary course of the person’s business (e.g. a mechanic’s lien)

Question 33

A secured party must typically give authenticated notice of disposition to a variety of parties. When is notice not required?

PSW

Answer 33

PSW
Perishable Sold Waived

A secured party is not required to send a notice of disposition when:

1. The collateral is perishable or threatens to decline speedily in value
2. The collateral is customarily sold on a recognized market;
   OR
3. Notice is waived by an authenticated agreement after default

Question 34

Where must a financing statement be filed?

Answer 34

The financing statement must generally be filed with the Secretary of State (“central filing”) of the state of the debtor’s location

Question 35

What collateral can only be perfected by control?

Answer 35

Deposit Account

Question 36

Under what circumstances does the same office rule extend temporary perfection?

FOC

Answer 36

FOC
Financing Office [not] Cash

Under the same office rule, temporary perfection in proceeds may continue indefinitely if:

1. A filed financing statement covers the original collateral
2. The proceeds are collateral in which a security interest may be perfected by filing in the same office as the original financing statement;
   AND
3. The proceeds are not acquired with cash proceeds

Thus, if there is a security interest in A and A is sold on credit, an account (B) is formed. Because A and B would be perfected by filing in the same office, the lender is perfected without refiling.

Question 37

When goods are sold on credit and there was a security interest in those goods, what type of collateral is the proceeds?

Answer 37

An account, because it is payment due on sale of goods

Question 38

When can perfection occur as it relates to attachment?

Answer 38

Perfection can happen after attachment or at the same time, but not before.

Question 39

Who has priority in a car radio that had been installed in a vehicle that was perfected under a certificate-of-tile statute?

Answer 39

A security interest in an accession is usually subject to general priority rules. But a security interest in an accession is subordinate to a security interest in the whole collateral if that collateral was perfected under a certificate-of-title statute. Here, the radio was installed in a vehicle that was perfected under a certificate-of-title statute. Therefore, the security interest in the car radio is subordinate to the holder of the lien noted on the title certificate of the vehicle.

Question 40

Who has priority between a secured party and a judicial lien creditor?

Answer 40

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

Question 41

A PMSI in what type of goods automatically perfects upon attachment?

Answer 41

A PMSI in consumer goods automatically perfects upon attachment.

A PMSI in other types of goods does NOT.

Question 42

When does a PMSI in a fixture have priority over a prior interest in the real property with which they are associated?

Answer 42

1. The debtor has an interest in the real property (owner) or is in possession (lessee);
   AND
2. The security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter

Question 43

What is the garage sale exception to the rule that unless a secured party authorizes a sale free and clear of its security interest, a buyer takes subject to a perfected security interest?
Is there an exception to this exception?

VCUK

Answer 43

VCUK
Value Consumer Use Knowledge

A buyer of consumer goods will take free of a security interest even if it is perfected, if the buyer:
1. buys consumer goods for value,
2. from a consumer seller,
3. for his own personal, family, or household use,
AND
4. without knowledge of the security interest.

However, if the party holding a PMSI in consumer goods filed a financing statement covering those goods before the consumer to consumer purchase occurred, then the secured party’s security interest will be good against the consumer buyer.

Question 44

In which two ways can a secured party repossess collateral upon a default?

Answer 44

1. By use of judicial process (replevin)
   OR
2. Self-help repossession

Question 45

What is the general priority rule for security interests in a fixture versus the interest of the owner of the real property?

Answer 45

The general rule is that a security interest in fixtures is subordinate to a conflicting interest of an owner of the related real property (other than the debtor)

Question 46

When does a security interest in fixtures have priority over another’s interest in real property?

Answer 46

The secured party must file a fixture filing before the real property interest is recorded. It must be filed in the office designated for the recording of a mortgage on the related real property

Question 47

If a secured party holding a subordinate security interest in a piece of collateral repossesses and sells that collateral, what happens to the senior/superior security interests in that collateral?

Answer 47

The senior/superior interests survive the sale and follow the collateral into the hands of whoever bought, leased, or licensed it in the foreclosure sale.

Question 48

How is priority established between two unperfected security interests in the same collateral?

Answer 48

The first to attach takes priority

Question 49

When is self-help appropriate and legal?

Answer 49

Self-help repossession cannot “breach the peace.” Self-help measures that are typically deemed acceptable are:
1. Trespass with respect to the collateral itself (entering a car, for example)
2. Trespass onto debtor’s open land (driveway is okay, garage is NOT) to repossess the collateral

Question 50

What is the PMSI super-priority?

Answer 50

A PMSI (other than livestock or inventory) will prevail over all other security interests in the same collateral, even if those other security interests were previously perfected (such as with an existing after-acquired clause), so long as the security interest is perfected before or within 20 days after the debtor receives possession of the collateral

Question 51

What is the priority rule for a lender with a PMSI versus a seller with a PMSI?

Answer 51

The seller PMSI beats the lender PMSI.

Question 52

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

Answer 52

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 53

In the absence of an agreement that defines “default,” what event will give rise to default?

Answer 53

Article 9 does not specify what will constitute a default, but in the absence of an agreement between the parties, the only event of default will be the failure of the obligor to make timely payments to the secured party.

Question 54

Upon default, what happens with a secured party has priority in an accession?

Answer 54

The secured party with priority in the accession is allowed to remove the accession from the other goods (i.e. if the security interest in the accession has priority over the claims of every person having an interest in the whole). A secured party that removes an accession from other goods must reimburse the holder of a security interest or the owner of the whole for physical injury to the whole or the goods.

A security in a car radio is subordinate to a security in the car perfected by notation of the security interest on the title to the car.

Question 55

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

Answer 55

Equipment that is hard to repossess can be rendered unusable in lieu of repossession. This is usually followed by disposal (i.e. sale) on the debtor’s premises

Question 56

What is the priority rule for a PMSI in inventory or livestock?

BN

Answer 56

BN
Before Notification

This PMSI will have priority over all other security interest in the same inventory or livestock if the secured party:
1. Perfects before the inventory or livestock is delivered to the debtor;
AND
2. Sends an authenticated notification of the PMSI to other secured parties

Question 57

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

RJO

Answer 57

RJO
Repossess Judicial Other

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 58

All aspects of the disposition of collateral must be conducted in a commercial reasonably manner. When is a disposition considered commercially reasonable?

SCC

Answer 58

SCC
Standardized Current Conformity

A disposition is commercially reasonable when the collateral is:

1. Sold in the usual manner in a recognized market that has standardized prices for fungible goods
2. Sold at the price current in a recognized market
   OR
3. Disposed of in conformity with reasonable commercial practices among dealers in that type of collateral

Question 59

If a secured party sells collateral, cash proceeds of a disposition are distributed in what order?

EFSD

Answer 59

EFSD
Expenses Foreclosing Subordinate Debtor

Cash proceeds of a disposition are distributed in the following order:

1. Pay reasonable expenses for collection and enforcement (i.e. reasonable attorney’s fees);
2. Pay off the debt to the foreclosing secured party
3. Pay subordinate security interests, provided the subordinate party makes a FORMAL DEMAND prior to distribution of the proceeds;
4. Any surplus or remainder will be returned to debtor

Question 60

What are the four types of Goods

Answer 60

Farm Equipment
Consumer Goods
Inventory
Equipment

*Fixtures - these are not technically goods, they fall into their own category.

Question 61

What are semi-intangibles and what do they include?

Answer 61

Semi-intangibles are collateral where the paper representing the semi-intangible is indispensable

Indispensable = transfer of the document is transfer of the rights to the underlying property

1. Documents of Title - states that the document holder has the right to dispose of the goods referenced by the document.
2. Instruments - checks, promissory notes, but NOT IOU’s
3. Tangible Chattel Paper - represents a monetary obligation AND a security interest in specific goods. An instrument + a security interest = chattel paper

Question 62

What characteristics are required for something to be an instrument?
What are the requirements of a negotiable instrument?

Answer 62

Instrument Requirements:
1. A promise - a written undertaking to pay money, signed by the person undertaking to pay
OR
2. An order - a written instruction to pay money signed by the person giving the instruction

A “negotiable instrument” is thus limited to a signed writing that orders or promises payment of money
Negotiable Instrument Requirements:
1. The promise or order must be “unconditional”
2. The amount of money must be a “fixed amount” with or without interest or other charges described in the promise or order
3. The promise or order must be “payable to bearer or to order”
4. The promise or order must be payable “on demand or at a definite time”
5. The promise or order may not state “any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money”

Question 63

What type of collateral would a conditional sales contract be?

Answer 63

Tangible Chattel Paper

Question 64

What are pure intangibles?

Answer 64

Pure intangibles are rights that have no physical embodiment, no corporeal existence that is legally significant

1. Accounts -
2. General intangibles - anything that is a pure intangible that does not fall into another category

Question 65

Sui Generis collateral

Answer 65

Sui Generis collateral is collateral that falls into no other class

1. Deposit Account
2. LOC right
3. Commercial tort claim
4. Investment property
5. Oil, gas, other minerals
6. Fixtures
7. Sui generis can be tangible, semi-tangible, or pure-intangible

Question 66

Security Interest Identification Flowchart

Answer 66

1. Does Article 9 Apply?
2. Is the Collateral Sui Generis?
   YES> then what is it?
   NO…
3. Is it a good?
   YES> what kind?
   NO…
4. Is it a right to goods?
   YES> Either Document of Title or General Intangible
   NO…
5. Is it a right to Payment? And is it in writing?
   YES> Does it include a security interest in goods?
   …>YES> Chattel Paper
   …>NO> Is it an instrument?
   ……»YES>Instrument
   ……»NO>Account
   NO>Account

Question 67

Rollover Collateral, where no “after-acquired” clause is required to assume an after-acquired security interest in the collateral:

IICA

Answer 67

IICA

Instruments
Inventory
Chattel Paper
Accounts

Question 68

When does something become a “good?”

Answer 68

When it becomes existing and identified

Future goods are irrelevant to Article 9

Question 69

What two things does a court look for in a security agreement to determine its validity, beyond the technicalities?

Answer 69

1. The legally sufficiency of the description
2. The parties’ intentions to encumber the property

**Security interests do not evidence a monetary obligation, they only evidence and create the security interest

Question 70

What are the only non-consensual security interests?

Answer 70

Agricultural liens

Question 71

What is required for attachment?

Answer 71

Attachment means the security interest is enforceable against the debtor. It requires:

Value given
Debtor’s rights in the collateral
AND EITHER
-Authenticated Security agreement
-Non-certificated security is in secured party’s possession
-Collateral is certificated and certificate delivered to secured party
-Secured party has control over collateral if collateral is deposit accounts, electronic chattel paper, investment property, or LOC rights

Question 72

What types of collateral must be specifically identified in a security agreement, beyond just naming the class of collateral and some identifying details?

Answer 72

1. Commercial tort claim
2. (in a consumer transaction): Consumer goods, security entitlement, securities account, or commodity account
3. Tax refunds

In other words, the security agreement cannot use language like “all personal property” if tort claims or tax refunds are included as collateral

Question 73

When filing a financing statement to perfect, what location matters when choosing the correct central office / Secretary of State’s office?

Answer 73

The location of the debtor. This is established as:
1. Debtor individual is located at their principal residence
2. Debtor organization with one place of business, at that place of business
3. Debtor organization with multiple places of business, at its chief executive office
4. Debtor registered business at its registered state

Question 74

Which law governs rules of perfection

Answer 74

Non-possessory security interest: laws of the state where debtor is located (except as stated below)

Possessory security interest: laws of the state where the collateral is located

Negotiable documents, goods, instruments, money, tangible chattel paper: of the state where the collateral is located, if it is located in a state

Question 75

Where to file a financing statement

Answer 75

In the central filing office / with Secretary of State in the state where the DEBTOR is located

Except collateral related to real property and collateral that requires a certain certificate, like a car

Question 76

Choice of Law in Secured Transactions when debtor and collateral are in two different locations and the collateral COULD be possessed?

Answer 76

Debtor Locale = perfection choice of law
Collateral Locale = priority choice of law

Otherwise, debtor’s location is generally the choice of law for perfection and priority

Question 77

What determines whether a debtor’s name on a financing statement is sufficient?

Answer 77

A mistake that is seriously misleading will cause the financing statement to be defective and unenforceable. The general rule is that if a search with debtor’s correct name would reveal the defective financing statement, it will be valid

Question 78

Which security interests are perfected upon attachment (automatically perfect)?

Answer 78

1. PMSI in consumer goods
2. Accounts by assignment, payment intangibles by sale or assignment
3. Promissory note by sale
4. Investment property created by intermediary
5. Decedent estate bequest
6. Lottery winnings

Question 79

Which security interests can be perfected by control?

Answer 79

Investment property
Deposit accounts
LOC rights
Electronic chattel paper

Question 80

Breakdown of all security interests’ perfection methods

1. Chattel Paper
2. Account
3. Instrument
4. Money
5. Inventory
6. Equipment
7. PMSI
8. Goods w/ Certificate of Title
9. Investment Property
10. Software

Answer 80

1. Chattel Paper
   -Possession
   -Filing
2. Account
   -Filing
3. Instrument
   -Possession
   -Filing
4. Money
   -Possession
5. Inventory
   -Filing
   -Possession
6. Equipment
   -Filing
7. PMSI
   -Automatic when goods
   -Filing
8. Goods w/ Certificate of Title
   -Filing in correct office
9. Investment Property
   -Filing
   -Control of certain subtypes
   -Possession of certain subtypes
10. Software
    -Copyrighted - file with copyright office
    -Not Copyrighted - filing

Question 81

What action must the debtor take with regard to a financing statement?

Answer 81

The debtor must “authorize” the financing statement. However, creation of a security agreement is implicit authorization of a subsequent financing statement

Question 82

Financing Statements must include:

Answer 82

Name of Debtor
Name of Secured Party or Rep
Indication of collateral

Debtor’s signature not required, and in fact there is nowhere to sign

Question 83

What is the life of a financing statement, when must it be amended, etc.?

Answer 83

1. A financing statement is good for 5 years, and can then be renewed.
2. Can only be renewed within 6 months before the 5 year period ends, but renewal start date is the date the 5 year life would have expired, even if renewing early.
3. If a financing statement expires, the security interest is deemed never to have been perfected against a purchaser of the collateral for value, except against a judgment creditor

Question 84

What are the consequences of a financing statement being refused/rejected by the office for lack of an address?

Answer 84

The office can refuse for lack of an address, but if the office accepts it without an address the financing statement is still valid. It does create a potential risk of later subordination, though.

Question 85

What is the effect of a disposition on a financing statement?

Answer 85

A filed financing statement remains effective with respect to collateral that is sold, exchanged, leased, licensed, or otherwise disposed of and in which a security interest or agricultural lien continues, even if the secured party knows of or consents to the disposition.

Question 86

What is the effect of a real-world change that causes the financing statement to become seriously misleading?

Answer 86

The financing statement is not ineffective if a real-world change causes the financing statement to become seriously misleading, unless it is because there is a new debtor or the debtor’s name changes.

Question 87

What is the effect on a financing statement if the debtor’s name changes?

Answer 87

If the debtor’s name change renders the financing statement seriously misleading:
1. the financing statement is effective to perfect a security interest in collateral acquired by debtor before or within 4 months after the financing statement becomes seriously misleading;
AND
2. the financing statement will remain effective to perfect a security interest in collateral acquired by debtor after 4 months IF the financing statement is AMENDED before the 4 months has passed

Question 88

What is required for a person to become a New Debtor

Answer 88

The new person that is bound as a debtor by a security agreement entered into by another person must AGREE to be bound. In that case, a new security agreement is not required, but if the financing statement becomes seriously misleading, it may need to be amended.

Question 89

How long does a secured party have to refile a financing statement if the debtor moves or some other event occurs that causes the current financing statement to no longer apply to the collateral?

Answer 89

The secured party has four months to refile in the new state.

If collateral is tranfserred to a new debtor in a different state, though, the secured party has one year.

If the financing statement would have expired during these grace periods, that will negate the grace period.

Question 90

What must be done for a PMSI in inventory to gain super-priority status?

Answer 90

To achieve non-temporal super priority, the PMSI in inventory must be perfected when the debtor receives possession of the inventory. The PMS creditor must also give notice to the holder of a conflicting SI who filed against the same item or type of inventory before the PMS creditor filed.

Question 91

What effect does a PMSI have on CASH proceeds from the collateral?

Answer 91

CASH proceeds from the sale of a PMSI collateral will also have priority over an earlier creditor with SI in the same inventory.

Question 92

What is a future advance clause?

Answer 92

A future advance clause is a clause in a security agreement that secures future advancements (loans) with the collateral described in that agreement

Question 93

Which debts are not dischargable by bankruptcy?

Answer 93

Spousal/child support obligations
Student loans
Liability for drunk driving
(and others)

Question 94

If a secured party files its financing statement before the security interest attaches, what is the date of perfection for the purposes of priority?

Answer 94

The date that the financing statement was FILED is the relevant date for purposes of priority.