Secured Transactions

Question 1

Six methods of perfection

Answer 1

Famous People Can’t Avoid Attention
- Filing
- Possession
- Control
- Alternate Perfection Systems
- Perfection under a state’s certificate of title law (car or motorcycle)
- Automatic perfection

Question 2

Perfection

Answer 2

Process that stakes the secured party’s claim, so that the secured party might have priority over a later party

Question 3

Attachment

Answer 3

Process by which a security interest becomes enforceable against the debtor with respect to the collateral

Question 4

What is a Seller PMSI?

Answer 4

Goods bought on credit

Question 5

What is a Lender PMSI?

Answer 5

Lender loans money to the debtor so that the debtor can acquire goods
*Value is actually used to acquire goods and lender takes security interest in those same goods to secure the loan

Question 6

Two types of collateral that qualifies as a PMSI

Answer 6

goods and software

Question 7

Proceeds

Answer 7

Whatever results when collateral is sold, leased, licensed, exchanged, or otherwise disposed of

Question 8

Commingled goods

Answer 8

Goods that are physically united with other goods to the point that their identity is lost in a product or mass

Question 9

What happens to security interest in commingled goods?

Answer 9

security interest discontinues in original goods and attaches to the larger product or mass that results

Question 10

Accessions

Answer 10

Goods that are physically united with other goods so that the identity of the original goods is not lost

Question 11

What happens to the security interest in collateral that becomes an accession?

Answer 11

The security interest continues in the accession

Question 12

Where to file a financing statement

Answer 12

In the central filing office, often the secretary of state’s office in the state where the debtor is located

Question 13

Where is a corporation located for purposes of filing a financing statement

Answer 13

in its state of incorporation

Question 14

Where is an individual located for purposes of filing a financing statement?

Answer 14

in the state of their principal residence

Question 15

Where is a business that is not a registered organization located for purposes of filing a financing statement?

Answer 15

In the state in which it operates its business
*If multiple states –> where the chief executive office is located

Question 16

For which type of collateral is perfection by filing inapplicable?

Answer 16

Deposit accounts

Question 17

How long is a financing statement valid before it lapses?

Answer 17

Five years, unless continued

Question 18

How to continue a financing statement

Answer 18

By filing a continuation statement within 6 months before the financing statement lapses

Question 19

Perfected Security Interest v. Perfected Security Interest. Who wins?

Answer 19

First in time to file or perfect takes priority

Question 20

Perfected Security Interest v. Unperfected Security Interest. Who wins?

Answer 20

Perfected security interest

Question 21

Unperfected security interest v. Unperfected security interest

Answer 21

First security interest to attach or become effective takes priority over

Question 22

Perfected Security Interest v. Lien Creditor. Who wins?

Answer 22

Perfected security interest

Question 23

Lien Creditor v. Unperfected Security Interest. Who wins?

Answer 23

Lien creditor

Question 24

Security Interest v. Statutory Lien. Who wins?

Answer 24

Statutory lien wins, as long as
(1) the effectiveness of the lien depends on the lienholder’s possession of the goods
(2) the lien secures payment or performance of an obligation for services or materials furnished in the ordinary course of business
(3) statute doesn’t provide otherwise

Question 25

Buyer v. Perfected Security Interest

Answer 25

Buyer takes collateral subject to perfected security interest unless the secured party authorizes the sale free and clear of its security interest

Question 26

Buyer in the ordinary course of business exception

Answer 26

-buyer buys goods from a merchant
-in the ordinary course of the merchant’s business
-buyer acts in good faith and without knowledge that the sale violates the rights of others in the same goods
-seller is engaged in the business of selling goods of this kind, and the seller is not a pawn broker

Question 27

Garage sale exception (Consumer to consumer)

Answer 27

Buyer of consumer goods will take free of a security interest, even if it is perfected if
-the buyer buys consumer goods for value
-for their own personal use
-from a consumer seller
-without knowledge of the security interest, and
-the secured party did not file a financing statement covering the goods before the purchase occurred

Question 28

General rule re Buyer v. Unperfected Security Interest. Who wins?

Answer 28

Buyer takes subject to a security interest unless a secured party authorizes the sale free and clear of the security interest

Question 29

Exception to general rule re: Buyer v. Unperfected Security Interest

Answer 29

Buyer
-gives value
-receives delivery of the collateral
-without knowledge of the preexisting interest