Secured Transactions

Question 0

When is perfection automatic?

Answer 0

Automatically perfected security interest when consumer goods (personal use) are attached –> don’t have to file, but they should in case the consumer sells the goods to his neighbor (garage sale scenario)

Automatic perfection upon attachment only when it’s a PMSI in personal use consumer goods

Question 1

Requirements for a security interest to attach

Answer 1

1) security agreement signed by the debtor (or oral agreement is okay if the creditor takes possession of the collateral)
2) value must be given by the creditor (give debtor a loan)
3) debtor must have rights in the collateral (possession or ownership)

Question 2

Which purchaser will own consumer goods free of perfected security interest in the goods?

Answer 2

Buyers in the ordinary course of business

(GR: buyer takes subject to security interests in the goods bought, but one large exception to this rule is that any buyer from a merchant in the ordinary course of business usually takes free from a security interest previously given by the merchant)

Question 3

Equipment (exception)

Answer 3

20 day grace period for filing a financing statement (has 20 days to perfect by filing, if does so in 20 days– can use date of attachment as perfected date)

Question 4

Inventory

Answer 4

Goods held for resale

Question 5

Consumer goods

Answer 5

Personal use

Question 6

Noninventory goods

Answer 6

Equipment

• use date debtor got possession of collateral (attached) as date to compare to other interests, not date perfected because it’s in equipment, so use date attached as the perfection date as long as perfected by filing within 20 days of attaching

Question 7

It a debtor defaults, what can the secured party do?

Answer 7

• peacefully repossess the goods without judicial process
• reduce the claim to a judgment (deficiency judgment - get a judgment if the property value is not enough to satisfy the debt)
• sell the goods and apply the proceeds toward the debt (or can keep the goods, unless they’re consumer goods and debtor already paid 60% of the loan or more, then creditor must sell the goods)

Question 8

Deficiency Judgment

Answer 8

Creditor takes debtor to court to get a judgment because the property value is not enough to satisfy the debt

Question 9

Merchant buyer who purchases goods for use in its own business owns:

Answer 9

Equipment

Question 10

A consumer who purchases goods from another consumer purchaser who gave the security interest:

Answer 10

GR: that a buyer takes goods subject to security interests existing in the goods. There’s an exception to this rule for consumers who, in good faith, and without notice of any security interest, purchase the goods from consumers, but the exception only applies when the security interest is perfected automatically

Question 11

Filing

Answer 11

= perfecting

Filing does not have anything to do with attaching

Question 12

Possession of collateral by creditor is

Answer 12

Perfecting by possession

Question 13

Are antecedent debts considered value for secured transactions?

Answer 13

Yes, antecedent (old) debts ca be considered value

Value is not limited to present consideration*

Question 14

After-acquired property

Answer 14

A secured party may take a security interest in both after-acquired inventory and equipment. The only limits on the effect of after-acquired property clauses involve consumer goods and commercial tort claims.

Question 15

After-Acquired Property

Answer 15

A secured party sometimes wants to obtain a security interest by only in the debtor’s present property, but also in property that the debtor will obtain in the future .

*most often used with inventory and equipment (or consumer goods)

Security interest attaches to the property as soon as the debtor acquires an interest in the property

Question 16

Best perfect a security interest in a negotiable instrument against any other party

Answer 16

Taking possession of an instrument.

Bc a holder in due course of a negotiable instrument has priority over a prior perfected security interest, the best way to perfect a security interest in a negotiable instrument is to take possession of it, because taking possession of the instrument prevents a later person from becoming a holder in due course**

Question 17

Order of priority

Answer 17

Unofficially:

1) buyer ordinary course OR HDC
2) Perfected (first in time)
- -PMSI, then nonPMSI
3) Attached (first in time)
- -PMSI, then nonPMSI

Question 18

When a security interest in collateral is perfected and the collateral is subsequently moved to another state:

Answer 18

The collateral is temporarily perfected for 4months in the state in which the collateral is moved

(secured creditor has 4 months to perfect in the new state when collateral in which the creditor has a perfected security interest is moved to the second state)

**4 month temporary period of perfection when collateral subjected to a perfected security interest is moved to another state

Question 19

If consumer goods and more than 60% of the purchase price has already been paid to creditor:

Answer 19

After the consumer goods are repossessed, unless the debtor agrees otherwise, the collateral must be sold (within 90 days) (unless debtor agrees otherwise), and the creditor can hold the debtor liable for any deficiency (through a deficiency judgment)

(After the sale any surplus must be given to debtor)

Question 20

Must a secured party generally notify the debtor of the sale (after repossession)?

Answer 20

Yes

Question 21

Security interest in accounts receivable can be automatically perfected upon attachment, but only if

Answer 21

The accounts receivable do not make up a significant part of the assignor’ accounts recivable

(“Small scale assignment of accounts” is one of the 2 ways to automatically perfect (the other way is a PMSI in consumer goods “personal use”)

Question 22

Generally, financing statements are filed with

Answer 22

The Secretary of State (in your state)

Question 23

Period for which filing is effective

Answer 23

5 years and it can be renewed by filing a continuation statement

Question 24

If consumer retains a security interest for the sale price of consumer goods

Answer 24

**for the sale price = for the whole amount
And consumer goods = personal use

then the security interest is automatically perfected (perfected at the time of attachment**)

Question 25

Noninventory goods

Answer 25

Equipment

*PMSI in Noninventory goods has priority over all other security interests in the same collateral if the PMSI is perfected within 20 days of the debtor’s getting possession

(GR among competing security interests: creditor who was first to file or perfect has priority, a PMSI in Noninventory goods has priority over all other security interests in the same collateral if the PMSI Is perfected within 20 days of the debtor’s getting possession of the Noninventory goods.

Question 26

Attachment:

Answer 26

Security agreement signed by debtor

*nothing filed

Question 27

A creditor can perfect it’s security interest in VCRs it manufactures and sells if it sells on credit to whom:

Answer 27

Consumers (personal use) – a seller who sells goods in credit and retains a security interest in the goods to secure the purchase price* has a PMSI (a PMSI in consumer goods is automatically perfected; no need to file (but you should- due to garage sale rule)

Question 28

Example of a secured party perfecting it’s security interest by taking possession of the collateral

Answer 28

A pawnbroker lending money

Question 29

Not within article 9

Answer 29

-Mortgages on real estate
( or any real property)
- wage claims

Question 30

Is a perfected security interest subject to prior perfected liens?

Answer 30

Yes.

Liens could be: mechanic’s lien

Question 31

When two security interests in the same collateral conflict:

Answer 31

The first to be filed or perfected has priority

Question 32

Upon disposition of collateral by a secured creditor after a debtor’s default

Answer 32

Good faith purchaser for value and without knowledge of any defects in the sale takes free of any subordinate liens or security interests

Question 33

Included within the scope of secured transactions article of the code:

Answer 33

Outright sale of accounts receivable

Question 34

UCC article 9 excludes

Answer 34

• landlord’s lien
• assignment of claim for wages
• sale of chattel paper of as a part of the sale of business out of which it arose

Question 35

Secured party must generally comply with each of the following duties:

Answer 35

• filing or sending to debtor a termination statement when the debt is paid
• if the debtor sends a creditor a statement of the amount of unpaid debt, creditor must confirm the correctness of the unpaid debt within two weeks of receipt
• req creditor to use reasonable care in storing and preserving collateral in the creditor’s possession

Question 36

Who has the right to assign debt?

Answer 36

Only the creditor has the right to assign debt, not the creditor

(assigning security interest to another party)

Question 37

For which type of collateral must a financing statement be filed in order to perfect a PMSI

Answer 37

Inventory

(With stocks, bonds, and negotiable instruments (like promissory notes), the creditor can perfect by possession or control)

Question 38

What secured transaction document must be signed by the debtor

Answer 38

Security agreement (must be signed or authenticated by the debtor)

Question 39

Termination Statement

Answer 39

Terminates a security interest in collateral (must be signed by the creditor, not debtor)

Question 40

Attachment

Answer 40

The process whereby a security interest is created to give the creditor rights against the debtor

Question 41

Perfection of a security interest permits the secured party to protect its interest by:

Answer 41

Establishing priority over the claims of most subsequent debtor’s

Question 42

What must be included in a financing statement?

Answer 42

• A listing or general description of the collateral
• creditor’s name and address, but the financing statement need not be signed by either the creditor or the debtor
• if collateral is related to real property, must contain a description of that real property
• authentication (signature or electronic substitute) by the debtor
• name and address of the debtor
• description of collateral (type sufficient)

(After-acquired property clause is permitted)
(location of collateral- permitted, not required)
(Not need: the amount of the obligation secured by the debtor)

Question 43

*financing statement must contain

Answer 43

• name and address of debtor and the secured party
• indication of the collateral covered by the financing statement (description of type)
• if it covers collateral related to real property, a description of that real property

(I thought the secured trans article of the UCC couldn’t include real property… Just tangible, moveable (personal) property?)