Secured Transactions

Question 1

What does UCC Article 9 apply to?

Answer 1

UCC Article 9 applies to:
* consensual security interests in personalty & fixtures
* agricultural liens
* sale of accounts, chattel paper, payment intangibles, or promissory notes
* certain consignments
* secured sales disguised as a lease

Only applies to voluntary collateralizations – not statutory or mechanics liens.

Question 2

How is a security interest perfected when possession is involved?

Answer 2

A security interest is perfected as soon as the secured party takes possession of physical collateral.

Question 3

What is meant by ‘control’ in the context of security interests?

Answer 3

‘Control’ refers to the secured party having control when collateral is investment property and electronic chattel paper.

Question 4

What does notation of lien on a certificate of title refer to?

Answer 4

Notation of lien on a certificate of title applies where collateral is an automobile.

Question 5

What is the most common method for a secured party to file notice?

Answer 5

The most common method is for the secured party to file notice in public records, providing simple and sparse information.

Question 6

What information must be included in the notice filed by the secured party?

Answer 6

The notice must include:
* debtor’s name and address
* creditor’s name and address
* description of collateral

Filed with the secretary of state where the debtor is located.

Question 7

How is automatic perfection achieved in purchase money security interests (PMSI) for consumer goods?

Answer 7

Automatic perfection occurs for purchase money security interests (PMSI) in consumer goods.

Question 8

What happens to a secured party’s interest in proceeds if they have perfected security interest in collateral?

Answer 8

They automatically have perfected security interest for 20 days in proceeds received in exchange for collateral.

Question 9

What must a secured party do after 20 days regarding proceeds?

Answer 9

After 20 days, the secured party must take steps to perfect a new interest unless it involves identifiable cash proceeds.

Question 10

Does a change in the use of collateral affect the effectiveness of a filed financing statement?

Answer 10

No, a change in the use of collateral does not change the effectiveness of the filed financing statement.

Question 11

What is the general rule regarding priority among multiple secured parties?

Answer 11

The first to file OR perfect has priority.

Question 12

Who has the highest priority according to the hierarchy of priorities?

Answer 12

Buyer in Ordinary Course (BIOC) has the highest priority.

Question 13

What is a Perfected Attached Creditor (PAC)?

Answer 13

A Perfected Attached Creditor (PAC) is an Article 9 creditor who attains perfection.

Question 14

What defines a Lien Creditor (LC)?

Answer 14

A Lien Creditor (LC) is a general creditor who obtains a judicial lien on the collateral.

Question 15

What is the status of a Non-Ordinary Course Buyer (NOCB) regarding security interests?

Answer 15

A Non-Ordinary Course Buyer (NOCB) takes collateral subject to perfected security interests but free from un-perfected security interests if they have no knowledge.

Question 16

What is an Attached Un-perfected Creditor (AUPC)?

Answer 16

An Attached Un-perfected Creditor (AUPC) is an Article 9 creditor who attaches a security interest but either never perfects or fails in the perfection process.

Question 17

Define General Unsecured Creditor (GUC).

Answer 17

A General Unsecured Creditor (GUC) is a lender that fails to take collateral.

Question 18

Who is considered the debtor (D) in a secured transaction?

Answer 18

The debtor (D) is the entity that owes payment or performance.

Question 19

What is a secured party or secured creditor?

Answer 19

A secured party or secured creditor is the entity that has a security interest.

Question 20

What is a security interest?

Answer 20

A security interest is an interest in personal property or fixtures that secures payment or performance of an obligation.

Question 21

What is collateral in the context of a security interest?

Answer 21

Collateral refers to fixtures or personalty subject to a security interest.

Question 22

What are the two kinds of purchase money security interests (PMSI)?

Answer 22

The two kinds of PMSI are:
* Seller financed PMSI
* Enabling loan

Seller financed PMSI involves the secured party selling the debtor collateral on credit, while enabling loan involves a loan to the debtor enabling them to buy specific collateral.

Question 23

What is an after-acquired property clause?

Answer 23

An after-acquired property clause allows the secured party to obtain a security interest in the debtor’s future property.

Question 24

What is a future advance clause?

Answer 24

A future advance clause allows the secured party to contract to make future advances secured by the present security agreement.

Question 25

What are the three requirements for attachment of a security interest?

Answer 25

The three requirements for attachment are: * Value must be given by creditor * Contract must evidence secured transaction * Debtor must have rights to encumber collateral ## Footnote This is summarized as VCR (Value, Contract, Rights).

Question 26

What is perfection in the context of a security interest?

Answer 26

Perfection involves steps legally required to give the secured party an interest in collateral effective against the world.

Question 27

What is a financing statement?

Answer 27

A financing statement is a document used to provide public notice of a security interest.

Question 28

What is the outcome of AUPC v. the World?

Answer 28

Enforceable against D and defeats subsequent AUPC and any GUC. ## Footnote AUPC loses to PAC, to LC, and any buyer without knowledge of security interest.

Question 29

What defeats all except for certain exceptions in secured transactions?

Answer 29

PAC defeats all except: * another PAC who filed first * certain PMSI-holders * BIOC. ## Footnote PMSI-holders include after-acquired collateral financiers and holders enabling D to purchase goods.

Question 30

What occurs when D breaches a security agreement?

Answer 30

Secured party has the right to proceed against D.

Question 31

What are the required contents of notice for Non-Consumer Goods?

Answer 31

Must include: * description of D & secured party * description of collateral * method of sale * statement about accounting for unpaid debt * time and place of sale.

Question 32

What additional information is required in notice for Consumer Goods?

Answer 32

How D can calculate D's deficiency and redeem collateral.

Question 33

What is self-help repossession?

Answer 33

Allowed to repossess collateral without judicial process as long as creditor doesn’t breach the peace.

Question 34

What constitutes a breach of peace during repossession?

Answer 34

Physical presence of D + verbal objection is generally enough.

Question 35

What must happen if collateral is in D's home during repossession?

Answer 35

Creditor may not enter without voluntary and contemporaneous consent.

Question 36

What is required for repossession by judicial action?

Answer 36

Secured party can obtain a judicial writ ordering sheriff to obtain possession.

Question 37

What is strict foreclosure?

Answer 37

Upon default or repossession, secured party retains collateral in full satisfaction of debt.

Question 38

Who must be notified if collateral is consumer goods during strict foreclosure?

Answer 38

Notice must be given to: * debtor * any secondary obligors.

Question 39

What happens if any party objects within 20 days after notice of strict foreclosure?

Answer 39

No strict foreclosure; collateral must be disposed of by sale.

Question 40

What is the 60% rule in relation to consumer goods?

Answer 40

No strict foreclosure if D paid at least 60% of cash price in the case of a PMSI.

Question 41

What rights does a secured party have upon default?

Answer 41

May sell, lease, or license collateral and apply profit to the debt.

Question 42

What are the requirements for the sale of collateral?

Answer 42

Sale must be commercially reasonable and reasonable authenticated notice must be sent.

Question 43

What is the debtor's right to redeem?

Answer 43

Right to redeem before collateral is resold or strict foreclosure by tendering amount owed.

Question 44

What are fixtures?

Answer 44

Goods that have become so attached to real property that an interest arises under real property law.

Question 45

What is required to perfect a security interest in fixtures?

Answer 45

Make a fixture filing in the office where mortgage on real estate would be filed.

Question 46

What is the priority of a secured party versus subsequent real estate interest in fixtures?

Answer 46

Security interest in fixtures > real estate interest arising after perfection.

Question 47

When is no fixture filing required?

Answer 47

If fixtures are readily removable, such as factory equipment or replacements of domestic appliances.

Question 48

What are accessions?

Answer 48

Goods physically united with other goods in a manner that the identity of original goods is not lost.

Question 49

What happens to a security interest in an accession?

Answer 49

If perfected when collateral becomes accession, it remains perfected.

Question 50

What is the priority rule for security interests in accessions?

Answer 50

Subordinate to security interest in the whole which is perfected by compliance with certificate of title requirements.

Question 51

What rights does a secured party have regarding the removal of an accession?

Answer 51

May remove accession if security interest has priority over claims of every person with interest in the whole.