Secured Transactions

Question 1

Purchase money security interest

Answer 1

arises when
- the secured party sells goods to the debtor on credit and retains SI on goods sold, OR
- the creditor advances funds that are used by the debtor to purchase the goods

Question 2

types of collaterals - tangible

Answer 2

Assessed at the time the goods attach
- farm products
- consumer goods (personal use)
- inventory (goods held for sale or lease)
- equipment (business use, default rule)

intangibles assessed based on their nature
- instruments (promissory notes, checks)
- documents (represents the right to receive something)
- accounts
- deposit accounts

Question 3

Attachment

Answer 3

(1) parties agree to create SI, as evidence by a security agreement, possession, or control
(2) value must be given by both parties
(3) the debtor must have rights in the collateral

Question 4

Security agreement

Answer 4

Must be evidenced by a record that show intent to create a SI, be authenticated by the debtor by signature, and contain a description of the collateral that is not supergeneric (reasonably identifies it)

Question 5

Perfection

Answer 5

Occurs when there is both perfection + attachment

methods:
- Filing
- taking possession
- automatic perfection for PMSI for consumer goods
- control
- temporary perfection

Question 6

Perfection method - filing

Answer 6

debtor must authorize financing statement containing the debtor and secured party’s info and collateral

Question 7

Perfection method - Control

Answer 7

Applies to SIs in investment prop, non-consumer deposit accounts, and electronic chattel papers

Question 8

Perfection method - notation of certificate of title

Answer 8

The only way to perfect an SI on a vehicle is by notation of certificate of title

Question 9

Perfection method - temporary perfection

Answer 9

if the party has perfected SI on the collateral, they have perfected SI in any proceeds of the collateral for 20 days after receipt of the proceeds. otherwise, they have a perfected SI if the proceeds are identifiable cash, if the new financing statement would be filed in the same office, or if perfected by other means

Question 10

scope of security interest

Answer 10

The security interest can apply to future acquired prop if the agreement expressly states so. The SI also applies to future collateral that is of the type that is rapidly depleted and replenished (inventory) and to identifiable proceeds of collateral.

Question 11

Priority rules between parties with an SI

Answer 11

Between two unperfected SI = first to file or attach wins

perfected vs perfected SI = the first to file or perfect wins, unless
- super-priority PMSIs in inventory and livestock - if perf at the time the debtor gets possession and any other SI receives an authenticated notification of the PMSI before debtor receives possession
- super-priority to other PMSIs - if their interest is perf before or within 20d after debtor receives possession
- For investment prop and non-consumer deposit accounts, a SI perfected by control has priority
- Purchasers of chattel papers/instruments have priority over others if purchased in good faith + possession

Question 12

Priority between buyers and SI creditors

Answer 12

Buyer may take free of SI if purchases if:
- Buyer vs unperf secured party – buyer will prevail if they give value, receive delivery, and doesn’t know of SI
- Buyer vs perfected secured party – perfected SI prevails unless
* Secured party authorized the sale
* BIOC – Buyer has no knowledge of SI, acts in good faith, and bought in the ordinary course of business from a seller in such a business (BIOC)
* PMSI for consumer goods – no knowledge of SI, for value, and before financing stat. covering the goods is filed

Question 12

Secured party vs judicial lien creditors (JLC)

Answer 12

perf secured party prevails if filed before lien attaches. Also applies to future advances made w/out knowledge of the lien or within 45d if the lien.

Unperfected secured parties vs JLC – JLC prevails
* PMSI grace period – 20d grace period after debtor receives collateral allows unperf party to prevail

Question 13

Secured party vs statutory lien

Answer 13

Possessory lien has priority over all SIs as long as the good or services were provided in the ordinary course of business and the collateral remains in the lien holder’s possession

Question 14

Strict foreclosure

Answer 14

Foreclosing party keeps the collateral to fully or partially satisfy the debt > no deficiency judg.
(1) Secured party must send notice of intent to keep collateral to debtor and any other known secured party
(2) Debtor must consent to strict foreclosure in authenticated writing or by failure to respond within 20d
(3) No notified party objects in 20d (if they do, collateral must be sold)

Question 15

Resale of collateral

Answer 15

(1) Notice – authenticated writing to notify of the sale, time, and place to debtor and any known parties with SIs within reasonable time (10d).
(2) Every aspect of the sale must be commercially reasonable = made a reasonable effort to obtain the best price

Proceeds – first to pay cost of repossession and sale, then to pay foreclosing creditor, then subordinate creditors

right to redeem