Secured Transactions

Question 2

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

Answer 2

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

Question 3

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

Answer 3

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

Attachment must take place BEFORE perfection

Question 4

How does perfection occur in a secured transaction?

Answer 4

By filing a financing statement

By possessing the collateral

Question 5

When does automatic perfection occur in a secured transaction?

Answer 5

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 6

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

Answer 6

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 7

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

Answer 7

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 8

What is a secured transaction?

Answer 8

Debt secured by collateral

Question 9

What is a security interest?

Answer 9

Right of creditor to repossess upon default

Question 10

What is attachment

Answer 10

When secured trans is effective between cr & dr
Think: creditor attaches hand to property to protect against debtor

Legally enforceable

Question 11

What is perfection?

Answer 11

When secured trans is effective against 3rd parties

Gives cr rights in collateral superior to certain 3rd parties

Question 12

Creation of security interest - steps

Answer 12

1. Attachment

2. Perfection

Question 13

3 requisites for attachment

Answer 13

1. Signed by debtor or creditor takes possession
2. Value given
3. Debora has rights in collateral

Question 14

5 methods to perfection

Answer 14

1. Filing
2. Take possession of collateral
3. Control
4. Automatic perfection
5. Temp perfection

Question 15

When does automatic perfection happen?

Answer 15

• PMSI in consumer goods (for personal use)

- small scale assignment of accounts

Question 16

Order of priorities for creditors

Answer 16

1. Buyer in ordinary course of business
2. Perfected PMSI
3. Perfected non-PMSI
4. Unperfected security interest (attachment only)
5. Debtor