Secured Transactions

Question 1

General - different areas

Answer 1

Attachment, perfection and priority

Question 2

When does article 9 apply?

Answer 2

Article 9 applies to a transaction that creates a security interest in personal property fixtures, sales of accounts, etc. i.e., a consensual lien on types of property.

Question 3

What is a security interest?

Answer 3

A security interest is an interest in personal property to secure payment of performance of an obligation. Thus, a SI is a property interest in personal property created through an agreement of the parties.

Question 4

Parties?

Answer 4

a secured party is a person who is in favor of a security interest being created. A debtor is a person with the interest in the collateral. An obligor is a person who owes payment or performance.

Question 5

Classifying collateral

Answer 5

Two types of collateral, tangibles and intangibles. Tangibles are goods, which are all things moveable when a security interest attaches.

Question 6

Classifying goods?

Answer 6

types of goods are determined by debotr’s use of the property.

Question 7

Consumer goods -

Answer 7

Personal, family household use

Question 8

equipment

Answer 8

catch all - goods used in business or not included in any other category

Question 9

Inventory

Answer 9

debtor holds goods for sale or uses up or consumes goods in a business.

Question 10

Farm products

Answer 10

held by a farmer engaged in a farming operation.

Question 11

intangibles

Answer 11

intangibles are different than the classification above. There are semi-intangibles, which are collateral that is right evidenced by a writing, e.g., chattel paper, instrucments and documents.

Question 12

Attachment analysis

Answer 12

(1) identify the collateral; (2) classify collateral; (3) determine if article 9 applies AND (4) determine when attachment has occurred.

Question 13

Attachment - when?

Answer 13

Collateral attaches when it becomes enforceable against the debtor with respect to the collateral.

Enforceable against the debtor if: (1) there is a security agreement; (2) value is given in a monetary amount, and (3) debtor has rights in the collateral or power to transfer rights in the collateral.

Question 14

A security agreement, what is it?

Answer 14

an agreement that provides for a security. Must be an authenticated record (2) describe the collateral - all debtor assets or all debtor’s property is not sufficient; (3) granting language; (4) states the obligation to be secured.

Question 15

Exception

Answer 15

Secured party may setisfy security agreement for attachemnt by taking possession or control of certain types of collateral peursuant to an oral or authenticated security agreement. e.g.., deposit accounts, investment property and letter of credit rights, etlectronic chatel paper.

Question 16

Composite document rule

Answer 16

many documents may be compilled to evidence security agreement in the collateral.

Question 17

Proceeds

Answer 17

A secured party need not describe in the security agreement any proceeds becasue a security interest automatically attaches to them. It includes whatever is recieved upon teh sale, lease, license, exchancge or collection of collateral.

Question 18

Additionally?

Answer 18

S.I. only extends to identifiable proceeds. If creditor cannot trace, the security interest is lost.

Question 19

Value

Answer 19

In addition to a security agreement, attachment requires that value be given, i.e., consideration provided in exchange for grant of a security interest.

Question 20

Rights in the collateral.

Answer 20

last requirement is that the debtor must have rights in the collateral or power to convey such rights to the collateral.

Question 21

Distinction between void title and voidable title

Answer 21

thief has void title and never had title so he cannot get good title.

A person with voidable title ma transfer to a title to a good faith purchaser.

Question 22

Merchants

Answer 22

a merchant entrusted with goods has power to sell or to buy in ordinary course of business.

Question 23

Enforcement of a security interest

Answer 23

enforcement is a concept in which the secured party is going to obtain the value of the collateral through securing the obligation and apply that value toward the obligation owed.

Question 24

is perfection nor priority needed for this?

Answer 24

no, all that is needed is to have a proper security interest.

Question 25

What to collect?

Answer 25

article 9 does not cover default - this is governed by the parties. Creditor may seek to collect for lost payments and do so by extracting value from collateral only to extent of missed payments.

Question 26

How to collect?

Answer 26

1. article 9, 2. agreement, 3. judicially.

Question 27

Repossession

Answer 27

Parties may repossess collateral from a defaulting debtor without resort to judicial process so long as they do so through peaceful means.

Question 28

Default redemption

Answer 28

here, note that lender has right to tender entire amount owed and this is not waived through default. he has the right to do so any time before foreclosure.

Question 29

Foreclosure

Answer 29

process of terminating the debtor’s rights of redemption and debtor’s interest in the collateral.

Question 30

How?

Answer 30

(1) disposition of collateral; (2) acceptance of collateral in partial or full satisfaction of the obligation or (3) collection of the collateral.

Question 31

Disposition

Answer 31

Creditor may sell or dispose of collateral but must send written notice with the exception of perishable items, or those on a recognized market.

Question 32

Notice includes

Answer 32

providing an authentication, right to accounting and describing the collateral. Notification requires only to send. Additional rule is that for non-consumer goods, notificaiton must be sent at least within 10 days before disopsition.

Question 33

How is disposition conducted?

Answer 33

All must be done in a reasonable matter, including method, manner, time and place.

Question 34

Effects?

Answer 34

amount of the cost for disposition gets paid first and foremost. Then a party who conducted the disposition pays themself. if any subordinate interest makes a demand and if there is a surplus, they may make ad emand and be entitled.

Question 35

Discharge?

Answer 35

Conductor of disposition’s interest is extinguished, and all subordinate interest is discharged. Note taht interest in the collateral may be discharged but obligation owed by the debtor stays intact.

Question 36

Acceptance

Answer 36

Creditor, after default, may accept collateral in full or partial satisfaction of debt owed. This is called a strict foreclsoure and secured party must send a proposal to the debtor and debtor must consent to it.

Question 37

In part?

Answer 37

debtor must consent which is manifested through an authenticated record.

Question 38

Not received?

Answer 38

only required to send. Some jurisdictions require affirmative steps if sender is notified that it was not correctly sent.

Question 39

Application of proceeds of collection.

Answer 39

There are three steps to this: (1) proceeds of collection may be applied first to the cost of collection and the party conducting disposition; (2) after that is satisfied, collection applied to any obligations owed to any subordinate lienors who have demanded a share of the collection from the secured party; (3) if it does not satisfy an obligation, obligor owes a deficiency.

Question 40

Perfection

Answer 40

Attachment is all a secured party needs to have a security interest that is enforceable against a debtor. Perfection is what a secured party needs to establish priority of its security interest against the world. In general, perfection requires attachment plus satisfaction of an applicable step. The method of perfection depends on the type of collateral.

Question 41

Filing

Answer 41

apporpriate place to file is the debtor’s location.

Question 42

What does it include?

Answer 42

Name of debtor, name of secured party and indication of the collateral. unlike a security agreement, a FS may be more generic and lits all assets. Its merely to give notice of an interest. FS is only effective for up to 5 years. Must contiously refile.

Question 43

possession is the only way to perfect inrest in money collateral

Answer 43

also for goods instruments, tangible chatel paper, etc. p

Question 44

Automatic attachment and pefection

Answer 44

abandons any pretense of providing notice. attachment of a security interest laone is sufficent for a PMSI. two requirements: (1) security interest must be a PMSI AND (2) collateral must be consumer goods that are not subject to a certificate of title.

Question 45

name change?

Answer 45

to perfect collateral acquired by teh debtor more than four months after name change, Secured party must amend FS.

Question 46

Address

Answer 46

4 months

Question 47

new debtor?

Answer 47

generally, a security interest remains attached to teh colalteral despite a transfer to a new owner, unless the secured party authorized free and clear of the security interest itself. there are some exceptions to this.

Question 48

Priority?

Answer 48

There are three basic rules:

1. unattached vs attached - attached 2. first to perfect vs unperfected.