Secured Transactions

Question 1

Article 9 of the Uniform Commercial Code applies to what?

Answer 1

ANY transaction intended to create a security interest in personal property or fixtures.

Question 2

^Define

Collateral

Answer 2

The property in which a security interest is created

Question 3

True or False

Security interests extend to identifiable proceeds?

Answer 3

True

Question 4

^Define

Goods

Answer 4

Goods are all things that are moveable when a security interest attaches

Question 5

^Define

Consumer Goods

Answer 5

Goods that are used mainly for personal, family or household purposes

Question 6

^Define

Inventory

Answer 6

Goods that kept by a person for sale or lease

Note: Does not include goods that are being held for repair

Question 7

^Define

Equipment

Answer 7

Catch all. Anything that is not inventory or consumer goods

Question 8

^Define

Accounts

Answer 8

Any right to payment of monetary obligation, whether or not earned by performance, for property that has been or is to be sold (i.e., accounts receivable)

Question 9

Elements of Attachment

Answer 9

1. There is a valid security agreement memorializing the security interest;
2. The debtor possesses rights in the collateral; AND
3. The creditor extends value to the debtor.

Question 10

True or False

The debtor has to authenticate the security agreement?

Answer 10

True

Question 11

What is the standard the description of the collateral must meet on the security agreement?

Answer 11

The debtor must authenticate the security agreement by providing the creditor with a reasonable description of the collateral in writing

Question 12

What are some examples of acceptable authentication by the debtor?

Answer 12

• Signature
• Thumbprint
• Initials
• Mechanical reproductions

Question 13

What is the standard of rights in collateral the debtor must meet?

Answer 13

The debtor must have rights in the collateral beyond mere possession

Question 14

True or False

Interest can still perfect absent an appropriate attachment of the interest?

Answer 14

False

If the security interest does not attach, then it CANNOT be perfected no matter what the creditor does

Question 15

What are the different methods in which a security interest may be perfected?

Answer 15

• Filing a Financing Statement
• Taking possession
• Automatically

Question 16

What will invalidate a financing statement?

Answer 16

Minor errors will not invalidate the financing statement unless the error makes it seriously misleading

Question 17

What must a filing statement contain?

Answer 17

1. The debtor’s name;
2. The secured party’s name
3. An adequate description of the collateral; AND
4. The filing fee

Question 18

What name must the financing statement match if the debtor is a registered organization?

Answer 18

The name on the debtor’s public organic record

Question 19

What instruments automatically perfect upon attachment?

Answer 19

1. A purchase-money security interest in consumer goods; AND
2. An assignment of accounts which does NOT by itself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor’s outstanding accounts

Question 20

What is the Hierarchy of Priorities?

Answer 20

1. BICO (Buyer in the Ordinary Course of Business)
2. PAC (Perfected Attached Creditor)
3. LC (Lien Creditor)
4. NOCB (Non-Ordinary Course Buyer)
5. AUPC (Attached Unperfected Creditor)
6. GUC (General Unsecured Creditor)

Question 21

Who wins if its PAC v PAC

Answer 21

Whoever filed first

Question 22

^Define

Buyer in the Ordinary Course of Business

Answer 22

A person who:

1. In good faith and without knowledge that the sale to him is in violation of the security interest of a third party;
2. Buys in the ordinary course from a person in the business of selling goods of that kind.

Takes collateral free of the security interest created by the seller.

Question 23

When is a transaction a PMSI?

Answer 23

When either:

1. A security interest held by the seller of collateral to secure payment of all or part of the price; OR
2. A security interest of a person that gives value to a debtor so that the debtor may acquire rights in or the use of collateral.

Question 24

True or False

A consumer buying from another consumer takes free of the security interests

Answer 24

True

Question 25

Elements of Consumer Buying from Consumers

Answer 25

A buyer of consumer goods takes the goods free of a security interest, even if perfected if the buyer buys:

1. Without knowledge of the security interest;
2. For value;
3. Primarily for buyer’s personal, family, or household purposes; AND
4. Before the filing of a financing statement covering the goods.

Question 26

True or False

A PMSI perfects automatically in:

1. Inventory
2. Non-Inventory
3. Consumer Goods

Answer 26

1. False - Perfects at the time the debtor receives possession and gives notice to prior creditors
2. False - Perfects at the time the debtor receives possession and gives notice to prior creditors or within 20 days thereafter
3. True - perfects automatically

Question 27

How long is the grace period for a PMSI in non-inventory for a creditor to file upon receipt of the collateral?

Answer 27

20 Days

Question 28

^Define

Non-Ordinary Course Buyer

Answer 28

A party that purchases collateral outside the ordinary stream of commerce (e.g., buying a stereo from a florist).

Takes collateral subject to a perfected security interest. Takes free from unperfected security interests if no knowledge

Question 29

How can one perfect a security interest in a car?

Answer 29

Notation of lien on certificate of title

Question 30

How long does a perfected security interest in proceeds last absent action?

Answer 30

20 days, then must take steps to perfect

Question 31

When does a PAC not need to take steps to perfect a security interest in proceeds past the 20-day mark?

Answer 31

1. Its identifiable cash proceeds; OR
2. Non-cash proceeds:
   
   1. The security interest in the original collateral perfected by filing,
   2. Security interest for the new collateral/proceeds would be filed in the same place as the financing statement for the original collateral,
   3. The proceeds were not purchased with cash proceeds of collateral

Question 32

True or False

After default, a party can repossess the collateral without judicial proceedings

Answer 32

True

So long as they do not breach the peace

Question 33

What are examples of “breaching the peace”

Answer 33

• Breaking into locked property
• Any opposition to the entry or seizure
• Presence of Debot plus verbal objection
• Entering D home without consent

Question 34

Two ways to dispose of collateral

Answer 34

• Sale (Non-Judicial Foreclosure)
• Strict Foreclosure (Purchase Rule)

Question 35

^Define

Non-Judicial Foreclosure/Sale

Answer 35

Upon default, a secured party may dispose of collateral in its possession by way of sale so long as it is commercially reasonably as to the manner, time, place and terms.

Question 36

Requirements for Non-Judicial Foreclosure/Sale

Answer 36

1. Send reasonable notice of the time and place of public sale to
2. The debtor and secondary obligor in;
3. A timely manner such that the parties have sufficient time to
4. Take appropriate steps to protect their interests

Question 37

Can a secured party purchase collateral at a public or private sale?

Answer 37

Yes, only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations.

Question 38

Three ways a debtor can recover when the creditor makes a non-complying disposition of collateral under Article 9

Answer 38

1. Actual damages (claimant in position that it would have occupied)
2. Statutory damages (at least the credit loan interest + 10% of the loan principal amount AND $500 per statutory violation)
3. Be subjected to a judicially mandated disposition

Question 39

^Define

Absolute Defense

Answer 39

Some jurisdictions deny the secured party ANY deficiency if they violate Article 9 for consumer goods

Question 40

^Define

Rebuttable Presumption Rule

Answer 40

It is presumed that the proceeds from the disposition are equal to the debt owed. Creditor has to rebut this presumption and show the collateral is worth less than the amount owed on the debt by the debtor to collect the deficiency.

Question 41

Surplus and Deficiency do not apply to what areas?

Answer 41

1. Sale of accounts
2. Chattel paper
3. Payment intangibles
4. Promisor notes