Secured Transactions

Question 1

When does a security interest attach; or become legally enforceable?

Answer 1

Secured interest must be supported by consideration given. Debtor must actually own the rights to the collateral or have possession. Secured interest much be recorded

It is effective as soon as certain steps are taken to “attach” the interest.

Question 2

What are the characteristics of perfection of interest in a secured transaction?

Answer 2

Gets higher priority over others claiming rights to collateral after the perfection takes place

Attachment must take place BEFORE perfection

Question 3

How does perfection occur in a secured transaction?

Answer 3

By filing a financing statement

By possessing the collateral

Question 4

When does automatic perfection occur in a secured transaction?

Answer 4

Store sells a consumer good on credit - Store retains security interest

A bank finances the purchase of a consumer good - Bank retains security interest

Question 5

What are the priority rules for payment in a secured transaction?

Answer 5

If two parties are perfected; then the first one to file wins

If neither party is perfected; then the first one to attach wins

Question 6

What are the advantages of a creditor holding a lien in a secured transaction?

Answer 6

Creditor holds priority over claims to collateral vs. unperfected security interests

Beats perfected security interests filed after lien attachment

Exceptions: Purchase money security interest; which has a 10 day grace period to be filed

Buyers purchasing in the ordinary course of business are immune from security interests held by merchants

Question 7

Article 9

Answer 7

Governs secure transactions.

Applies to most contractual security interests in personal property or fixtures and sales of AR.

Does not apply to land or real estate.

Cocerns with secured party’s rights against both the debtor and third parties.

Question 8

” Perfect”

Answer 8

Attachment does not provide the creditor with rights against third parties who might also have an interest in the collateral. To gain rights over third parties, a creditor must take added steps to “ perfect” the security interest.

Serves as a former of notice.

Question 9

PMSI

Answer 9

Has priority over all other types of security interest in the same collateral, if the PMSI is properly perfected.

PMSI is when a creditor sells the collateral to the debtor on credit, retaining a security interest for the purchase price.

Or the creditor gives the debtor an advance to secure the collateral.

PMSI is automatically perfected when there is a PMSI in consumer goods.

PMSI in inventory or a equipment collateral must be filed to be valid.

Question 10

Collateral Types

Answer 10

Goods, intangibles, investment property, and proceeds( what is received from disposal of collateral)

Question 11

Three requirements of attachment

Answer 11

• must have an agreement creating the security interest.
• value must be given by secured party
• the debtor must have rights in the collateral

All three must be satisfied.

Question 12

Five methods of perfection

Answer 12

Filing, taking possession of the collateral, control, automatic perfection and temporary perfection.

Must first attach in order to perfect.

Attachment and perfection can occur at the same time.

Can be done to all kinds of collateral except deposit account and cash by financing statement. This is just a notice filing.

Question 13

Temporary Perfection

Answer 13

20 days for proceeds

move of debtor - 4 mth grace - creditor must perfect time in new state.

Question 14

Order of priority for collateral

Answer 14

• buyer in ordinary course of business, hdc of negotiable instruments and holders of lien.
• holder of properly perfected PMSI
• holder of perfected security
• holder of unperfected security in interest.
• the debtor

Question 15

Replevin

Answer 15

Secured party may take possession by replevin - judicial action