Secured Transactions

Question 1

What is a security interest?

Answer 1

An interest in personal property of fixtures that secures payment of performance of an obligation

Question 2

What are the attributes of a secured interest agreemnet?

Answer 2

A consensual agreement that provides for the SI; the substance of the transaction controls, not the form

Question 3

Explain the different parties involved in a SI?

Answer 3

Secured Party - the person in whose favor the SI is created under the security agreement
Obligor - the person who must pay (or otherwise perform) with respect to the obligation that is secured by the SI
Debtor- the person who has interest, other than the SI, or other lien, in the collateral, such as its sole owner (the debtor is usually also the obligor)

Question 4

What is collateral?

Answer 4

Property subject to the SI

Question 5

What is tangible collateral and what are goods?

Answer 5

Consumer Goods, Inventory, Farm Products, Software, and Equipment

Goods are anything that is moveable at the time that the SI attaches the debtor’s principal use at the time the SI attaches determines the class of the goods

Question 6

What are consumer goods?

Answer 6

Goods acquired primarily for personal, family, or household purposes

Question 7

What are farm products?

Answer 7

Goods that are crops or livestock and include supplies that are used or produced in farming

Question 8

What are inventory?

Answer 8

Goods, other than farm products, held for sale of lease; are furnished under a service contract; or consist of raw materials, works in progress, or materials used or consumed in a business; usually refers to goods that are consumed in a business

Question 9

What are equipment?

Answer 9

Catchall class; consists of goods that are not consumer goods, farm products, or inventory

Question 10

What are software?

Answer 10

Software embedded in goods is treated as part of goods in which it is embedded; software not embedded in goods is treated as a general intangible

Question 11

What are other types of collateral?

Answer 11

Chattel Paper - one or more records that evidence both a monetary obligation and a security interest in specific goods or a lease of specific goods
Document - document of title, which confers on the holder the ownership rights in goods held b a bailee
Instruments - encompasses both negotiable and nonnegotiable instruments
Investment Property - both certified and uncertified and security accounts
Accounts - right to payment for property sold, leased, or licensed, or services rendered
Commercial Tort Claims - excludes tort claims by an individual for personal injury of death
Deposit accounts, Letter-of-Credit Right, and General tangibles

Question 12

What are eligible transactions and what is and is not covered by this article?

Answer 12

Article 9 - governs a transaction that creates a SI in personal property or a fixture

Leases are covered when the transaction is in the form of a ST, Consignments, Agricultural Liens

Liens, Personal Property Purchases, and Real property transactions

Question 13

Explain what it means to attach a SI?

Answer 13

An SI that is enforceable against the debtor with respect to the collateral is said to have “attached” to the collateral

Question 14

What are the requirements to attach a SI?

Answer 14

There must be value given by the secured party, the debtor has the rights in the collateral, and the debtor has authenticated a security agreement that describes the collateral or the secured party has possession or control of the collateral

Question 15

What is the value given by the secured party?

Answer 15

Can be consideration sufficient to form a contract, extending credit, accepting delivery under a preexisting contract, or in satisfaction of a preexisting claim

Question 16

What are some types of value that can be given to a secured party?

Answer 16

Future advances, new value such as when new value is required to perfect a security interest or have priority, it can consist of money, money’s worth in property, services or new credit or release by a transferee of an interest in property previously transferred to the transferee

Question 17

What are the debtor’s rights in collateral?

Answer 17

The SI attaches only to the rights that the debtor has in the collateral and if the consignor retains title to the consigned goods, the consignee does not have rights in them

Question 18

Are SI ruled by the Statute of Frauds?

Answer 18

Yes. The security agreement must be in a record, contain a description of the collateral, and be authenticated by the debtor

Question 19

Explain after -acquired collateral

Answer 19

The SI may cover collateral owned when the security is granted an also collateral that the debtor acquires after the SI is given. Exception - An after-acquired clause is not effective for consumer goods, unless the debtor acquires them within 10 days after the secured party gives value, or a commercial tort claim