Secured Transactions

Question 1

scheme of secured transactions

Answer 1

a transaction intended to create a security interest in personal property or fixtures
debtor, creditor, secured interest, collateral

Question 2

leases

Answer 2

Secured sale disguised as a lease: leases that are intended to serve as security arrangements

Ask: does the leasor regain the property almost in its entirety at the end of contract? If not, it is a security

Question 3

purchase money security interests

Answer 3

special form of security
Seller-financed PMSI: the creditor sells the goods to the debtor on credit and retains a security interest in sold goods

Financier-financed PMSI: the creditor loans the funds to the debtor so that the debtor can purchase specific collateral, those funds are used to acquire the collateral, and the creditor takes a security interest in the collateral

Question 4

types of collateral

Answer 4

Tangible collateral: consumer good, inventory, farm product, equipment

Intangible collateral: instruments, accounts, documents, chattel paper, investment property, deposit accounts, commercial tort claims, general intangibles (patent, trademark, copyrights)

Question 5

consumer goods

Answer 5

goods bought and used for personal, familial, or household purposes

Question 6

equipment

Answer 6

tangible good default; goods bought and used for business

Question 7

inventory

Answer 7

goods held for sale or lease, and materials used or consumed in business for a short period of time

Question 8

accounts

Answer 8

intangible good; right to payment

Question 9

attachment

Answer 9

process where secured interest becomes enforceable against debtor; requires (1) evidenced security agreement, (2) creditor gives debtor value, and (3) debtor has rights to collateral

Question 10

authenticated security agreement

Answer 10

requirement: (1) written and signed by debtor, (2) intended to be a security agreement, and (3) reasonable description of collateral (Art. 9 categorization sufficient)

Question 11

perfection

Answer 11

process where creditor’s security interest becomes enforceable against other creditors with security interests in the same property

Question 12

perfection by filing

Answer 12

Financing Statement
real property interest: file locally w/county recorder officer
all other: file with Secretary of State
Document must include: (1) name and address of debtor (cannot be seriously misleading), (2) name and address of creditor, and (3) description of collateral (supergeneric OK)

Question 13

perfection by control

Answer 13

control is the only way nonconsumer deposit accounts, chattel paper, and investment property, and electronic chattel paper is perfected

nonconsumer deposit accounts: (1) bank that has deposit account has control, (2) debtor puts account in creditor’s name, (3) debtor gives bank an authenticated record directing the bank to comply with secured party’s orders

investment property: creditor takes necessary steps to have investment property sold w/o owner’s action

chattel paper: system establishes secured party as assignee

Question 14

automatic perfection

Answer 14

PMSI in consumer goods

Question 15

priorities

Answer 15

1. Buyer in ordinary course of business, if security interest is created by buyer’s seller
2. Holder in due course and the like in a negotiable instrument
3. Transferee of money or funds from deposit accounts
4. Certain purchasers of chattel paper or instruments who have possession or control
5. Possessory lienholder
6. Article 2 claimant
   w/possession of goods
7. PMSI
   - Except that a consumer purchaser from a consumer has priority over automatically perfected PMSI in consumer goods (garage sale rule)
8. Perfected security interests and judicial liens that have attached to collateral
   - Perfected v. perfected: first to file or perfect
   - Perfected security interest vs. attached lien: lien has priority if attached before security instrument’s perfection
9. Purchaser of collateral who buys for value and receives delivery w/o notice
10. Unperfected security interests
11. Debtor

Question 16

unsecured vs. secured interest

Answer 16

secured interest has priority

Question 17

perfected secured vs. perfected secured

Answer 17

first to file OR perfect

Question 18

PMSI in goods other than inventory

Answer 18

PMSI superpriority if interest is perfected before or within 20 days after debtor possesses goods

Question 19

perfected secured party vs. buyer

Answer 19

security interest stays with buyer
exceptions:
- authorized sales
- unauthorized sales to Buyers in the Ordinary Course

Question 20

buyer in ordinary course of business

Answer 20

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

one who buys goods (1) in good faith, (2) without knowledge the sale violates a creditor’s rights, and (3) in the ordinary course of business from a seller in the business of selling goods of a kind purchased who created security interest

Question 21

perfected creditor vs. judicial lien creditor

Answer 21

Judicial lien creditor PREVAILS over holder of security interest if lien creditor becomes such before security interested is perfected

Question 22

self-help possession

Answer 22

After default, creditor is entitled to take possession of collateral w/o judicial process (self-help) if this can be done without breach of the peace

Question 23

breach of the peace

Answer 23

any conduct that has the potential to lead to violence

breaking and entering can be breach of the peace (more likely if residential)

usually breach of the peace is debtor’s presence + debtor’s verbal objection

Question 24

failure to comply with UCC Art. 9

Answer 24

Creditor’s liability for actual damages

statutory penalty for consumer goods: If collateral is consumer goods and secured creditor violates rules, debtor is entitled to a minimum of 10% cash price of goods plus total amount equal to interests charges to be paid over life of loan

Possible loss of deficiency judgment if creditor fails to follow code rules
Rebuttable presumption that sale proceeds equal the amount of debt

Question 25

deposit account

Answer 25

intangible good; account held in bank (art. 9 applies to non-consumer deposit accounts and account monies)

Question 26

evidenced security agreement

Answer 26

• creditor takes possession of collateral
• authenticated security agreement
• creditor takes control of non-consumer deposit account, electronic chattel paper, or investment property

Question 27

debtor name requirement in financing statement

Answer 27

Person: must match debtor’s license
Registered organization: must match most recent public organic record

Question 28

motor vehicle perfection

Answer 28

must be perfected by notation on the certificate of title issue by state

Question 29

motor vehicle perfection of dealers

Answer 29

filling financial statement under ordinary code rules

Question 30

PMSI in inventory or farming product

Answer 30

PMSI superpriority if perfected when debtor takes possession AND creditor issues authenticated notification of PMSI before debtor takes possession

Question 31

Perfected security interest vs. attached lien

Answer 31

lien has priority if attached before security instrument’s perfection