Secured Transactions

Question 1

A security interest is enforceable if it has…

Answer 1

… attached to the collateral

Question 2

What are the requirements for a security interest to attach?

Answer 2

(i) the secured party must have given value;

(ii) the debtor must have rights in the collateral; and

(iii) the debtor must have authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.

Question 3

No new security agreement is necessary when the collateral is acquired later if…

… If the security agreement includes after-acquired property, then the interest in that party is perfected

Answer 3

…the original security agreement provides that it applies to after-acquired collateral.

… upon attachment.

Question 4

Equipment consists of goods that are not…

Answer 4

… consumer goods, farm products, or inventory.

Question 5

What are the 4 ways by which a party can perfect a security agreement?

Answer 5

(1) filing a financing statement
(2) possession of the collateral
(3) control over the collateral
(4) automatic perfection

Question 6

Generally, when there are two or more perfected secured parties with rights to the same collateral, the ___ has priority.

Answer 6

… the first to file or perfect its security interest …

Question 7

What types of goods can a PMSI apply to?

Answer 7

Goods or software.

Question 8

A PMSI in goods other than inventory or livestock prevails over…

A PMSI in inventory prevails over all other security interests in the collateral, if (1) and (2).

A PMSI in consumer goods is ___ perfected upon ___ and prevails over all other security interests in the collateral without ___.

Answer 8

all other security interests in the collateral, even if they were previously perfected, if the secured party perfects before or within 20 days after the debtor receives possession of the collateral.

Knowledge by the purchase money secured party of the conflicting prior security interest does not prevent the priority of the PMSI over the earlier perfected security interest.

… (1) the PMSI is perfected by the time the debtor receives possession of the collateral; and (2) the purchase money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.

… automatically …. attachment … the secured party having to take action to perfect

Question 8

A PMSI exists in goods for which:

Answer 8

(i) a secured party gave value to the debtor to enable the debtor to acquire rights in or use of the goods, and the value given was so used; OR

(ii) a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the security party all or part of the purchase price.

Question 9

Who prevails with respect to the debtor’s collateral between a secured party and a general creditor?

Answer 9

A secured party will always prevail over a general creditor with respect to the debtor’s collateral.

Question 10

What is a general creditor?

Answer 10

A general creditor is one who has a claim, including a judgment, but who has no lien or security interest with respect to the property in question (i.e., the collateral).

A general creditor has no interest to assert under Article 9; this type of creditor does not have a claim to particular property owned by the debtor.

Question 11

Perfection has no relevance to…

Answer 11

…the secured party’s rights against the debtor.

Question 12

What is the only way to perfect a deposit account?

Answer 12

A security interest in a deposit account can be perfected only by control.

A secured party has control of a deposit account if:
(1) the secured party is the bank with which the deposit account is maintained;
(2) the bank, secured party, and debtor agreed in writing to follow the instructions of the secured party; or
(3) the secured party becomes the bank’s customer with respect to the deposit account.

Question 13

What are the requirements of a financing statement?

Answer 13

A financing statement must contain:
(1) the debtor’s name;
(2) the name of the secured party; and
(3) the collateral covered by the financing statement.

Question 14

When the collateral is related to real property, what must a financing statement must include (in addition to normal requirements)?

Answer 14

(1) an indication that it covers this type of collateral;
(2) an indication that it is to be filed in the real property records;
(3) a description of the real property to which the collateral relates; and
(4) the name of a record owner, if the debtor does not have an interest of record in the real property.

Question 15

What is an agricultural lien?

Answer 15

An agricultural lien is an interest in farm products such as crops or livestock that secures payment for either goods or services with respect to the debtor’s farming operation, or rent on real property leased in connection with a farming operation.

Question 16

Are growing or unharvested crops covered by Article 9?

Answer 16

yup.

Question 17

Where must a party generally file its financing statement?

Answer 17

at Virginia’s State Corporation Commission (SCC)

Question 18

A secured party’s possession of tangible (e.g., goods) or quasi-intangible (e.g., chattel paper) collateral [satisfies/does not satisfy] the Article 9 Statute of Frauds for attachment and perfection of the secured party’s security interest if the secured party’s possession is pursuant to the security agreement.

Answer 18

satisfies.

As a general rule, this security interest remains perfected only while the secured party retains possession.

Question 19

When one security interest is perfected and the other is not, which has priority?

Answer 19

the perfected security interest

Question 20

Who has a right to redeem collateral?

Answer 20

A debtor, secondary obligor, or any other secured party

Question 21

What is required to redeem collateral?

Answer 21

The redeemer must fulfill all obligations secured by the collateral and reasonable expenses, including attorney’s fees, incurred by the secured party in retaking the collateral or preparing for its disposition.

Question 22

The test for the timeliness of a notification is […].

Answer 22

Reasonableness.

The notification should be sent sufficiently far in advance of the disposition to allow the notified party to act on the notification.

Question 23

A statutory or common-law lien creditor is a creditor…

Answer 23

…who obtains a possessory lien on the property of another by operation of a statute or common-law rule.

Unlike an Article 9 security interest, these are nonconsensual liens.

Question 24

A mechanic is entitled to a mechanic’s possessory lien of up to and including […] that is…

Answer 24

[$1,000]

…superior to prior security interests, including perfected security interests.

The remainder of the mechanic’s lien is inferior to all prior security interests and liens.

Question 25

Chattel paper consists of…

Answer 25

…a record that evidences both a monetary obligation and a security interest in specific goods.

Question 26

Upon default, a secured party may notify an account debtor (a person obligated on an account or chattel paper) to…

Answer 26

…make payment to the secured party.

In a commercially reasonable manner, the secured party may collect from the account debtor, and, if the account debtor does not pay, the secured party may enforce the obligation of the account debtor.

Question 27

A bona fide purchaser of the property who lacks notice of the conversion can acquire good title if:

Answer 27

(i) the property is money or a negotiable instrument,
(ii) the converter acquired title by fraud in the inducement, OR
(iii) the true owner entrusted goods to a seller of goods of that kind and the purchaser is a buyer in the ordinary course of the seller’s business.

Question 28

The debtor’s signature is not required on the financing statement, though the debtor must […].

Answer 28

[authorize the filing of a financial statement]

If the debtor has authenticated the security agreement, this authentication constitutes an authorization to file the financing statement with respect to the collateral covered by the agreement (i.e., an “ipso facto authorization”).

Question 29

Inventory includes …

A security interest in inventory may be perfected by …

Answer 29

… goods that are held for sale in a business.

… filing a financing statement with the VA State Corporation Commission.

Question 30

A buyer in the ordinary course of business (BOCB) takes ___.

A BOCB is a person who …

Answer 30

… free of a security interest created by the buyer’s seller.

… (1) buys goods (other than farm products); (2) in the ordinary course; (3) from a seller who is in the business of selling goods of that kind (4) in good faith; and (5) without knowledge that the sale violates the rights of another in the same goods.

Question 31

If collateral is transferred, and the transferee of the collateral is ___, the security interest generally ___.

Answer 31

… not a buyer … continues in the collateral unless the secured party authorized the transfer free of the security interest.