Secured Transactions

Question 1

When is a security interest enforceable against a debtor?

Answer 1

When it attaches to the collateral

Question 2

What does attachment require?

Answer 2

Attachment requires that i) value has been given by the secured party, ii) the debtor has rights in the collateral, and iii) the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement

Question 3

What does perfection of a security interest give the secured party?

Answer 3

Superior rights in the collateral to an unperfected secured party

Question 4

When is a security interest perfected?

Answer 4

Upon attachment of that interest and compliance with one of the methods of perfection: i) filing a financing statement, ii) possessing the collateral, iii) controlling the collateral, or iv) automatically perfecting.

Question 5

How must the collateral be described?

Answer 5

The collateral must be sufficiently described, ie. reasonably identify the collateral (not a generic description)

Question 6

What is a purchase money security interest?

Answer 6

A PMSI is a special type of security interest that may be accorded special rules with respect to attachment and priority. A PMSI may exist only with respect to two types of collateral - goods (including fixtures) and software.

Question 7

When does a PMSI with respect to goods exist?

Answer 7

A PMSI in consumer goods may exist if a secured party gives value to the debtor in order to enable the debtor to acquire rights in or use of the goods, and the value given is used for that purpose. (PMSI’s in consumer goods are automatically perfected upon attachment) (PMSI’s in non-consumer goods must be perfected w/i 20 days)

Question 8

What is a buyer in the ordinary course of business?

Answer 8

A BOCB is a person who buys goods in the ordinary course of business from a merchant who is in the business of selling goods of that kind in good faith and without knowledge that the sale violates the rights of another in the same goods

Question 9

What are the rights of a BOCB?

Answer 9

A BOCB takes free of any security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence

Question 10

Security Interest =

Answer 10

A security interest is an interest in personal property or fixtures that secures payment or performance of an obligation

Question 11

Attachment (VRA)

Answer 11

Value, Rights, Authenticated (possession or control)

For a security agreement to be enforceable against a debtor it must attach to the collateral. Attachment requires that (i) value has been given by the secured party; (ii) the debtor has rights in the collateral; and (iii) the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.

Question 12

Description of the Collateral (property subject ot a security interest)

Answer 12

1. Reasonably Identify Collateral
2. Can’t be Super Generic

The description of the collateral in a security agreement need only reasonably identify the collateral. A description of the type of the collateral (e.g., “all debtor’s equipment” or “all debtor’s inventory”) is usually sufficient unless the collateral is consumer goods or a commercial tort claim. However, a super generic description of collateral as “all the debtor’s assets” or “all the debtor’s personal property” is not sufficient

Question 13

Types of Collateral (property subject to the security interest)

Answer 13

1. Tangible Property

• Goods (anything moveable at the time that a security interest attaches
  
  • Consumer Goods (acquired primarily for personal, family, or household purposes)
  • Farm Products (crops/livestock/farming supplies)
  • Inventory (held for sale or lease, or otherwise consumed in a business)
  • Equipment (catchall, usally used in business)

2. Intangible property

• Chattel Paper (record that evidences a montetary obligation and a security interest in specific goods)
• Instrument (negotiable instrument)
• Investment property (stocks, etc.)
• Accounts (right to payment for goods sold or services rendered)
• Commercial tort claims
• Deposit Accounts (savings accounts)

Question 14

Eligible Transactions

Answer 14

1. Lease (lessee has an option to become the owner of the goods, for no additional consideration or nominal additional consideration upon completion of the lease agreement)
2. Agricultural Lien (interest in farm products that secure goods or services with respect to farming operation or rent on real property for farming operation)
3. Real Property (applies to security interest in secured obligation (promissory note)