Secured Transactions

Question 1

Application of UCC art. 9

Answer 1

(1) transaction that creates security interest in property or fixture; (2) agricultural liens; (3) sale of accounts receivable, chattel paper, negotiable instruments, promissory notes, and payment intangibles; (4) consignments; (5) certain lease-purchase agreement (not real property)

Question 2

Attachment

Answer 2

(1) secured party gives valuable consideration; (2) debtor has rights in collateral or power to transfer rights to secured party; and (3) debtor has authenticated a security agreement that sufficiently describes the collateral

Question 3

Types of collateral

Answer 3

Goods, tangible intangibles, intangible intangibles, and investment property

Question 4

Security agreement

Answer 4

Must be in writing authenticated by debtor, containing a granting clause, and with a description of the collateral.

Question 5

Perfection

Answer 5

Commonly done by filing a finance statement; possession (for tangible negotiated documents, goods, instruments, money, or tangible chattel paper); control (investment securities, letter of credit rights, deposit accounts, and electronic chattel paper); or automatic possession (PMSI in consumer goods).

Question 6

Priorities–general rule

Answer 6

Unperfected securities: first interest to attach prevails

Perfected and unperfected security: Perfected interest prevails

Perfected securities: Interest with the earliest time of filing which has continued without interruption (based on date of filing, not date of perfection)

Question 7

Priority rules for PMSI

Answer 7

Perfected PMSI prevails over conflicting interest if perfected when debtor receives possession of collateral or within 20 days thereafter.

For inventory, purchase-money secured party must notify first secured party in authenticated record that it expects to obtain PMSI, and PMSI must be perfected at time debtor receives possession.

Question 8

Priority between lien creditors and security interests

Answer 8

First in time rule applies: secured party has priority over lien creditor if secured party before lien creditor’s interest arises (1) perfects or (2) files financing statement and evidences security agreement.

Question 9

Priority: Buyer v. secured parties

Answer 9

Security interest survives sale of collateral unless exception applies

(1) secured party authorizes sale free of security interest

(2) buyer is a buyer in the ordinary course of business: buys in good faith, without knowledge that sale violates rights of another person in the goods, in the ordinary course of business, from a person in the business of selling goods of that kind

(3) sale qualifies as consumer-to-consumer (garage sale exception): buys goods for household use from someone who used goods for that purpose, buys for value, without knowledge of security interest, before financing statement is filed

(4) buyer of chattel paper has priority over security interest in proceeds of inventory subject to security interest if buyer buys in good faith, gives value and takes control of chattel paper, and chattel paper does not indicate that it has been assigned to another party.

Question 10

Priority for fixtures

Answer 10

Creditor obtains priority over mortgagee only if creditor files fixture filing before mortgage is recorded. But, if security interest in fixture is PMSI, creditor has priority as long as security interest is perfected by fixture filing before goods become fixtures or within 20 days thereafter.