Secured Transactions (fuck me)

Question 1

What is a secured transaction?

Answer 1

Agreement between debtor and creditor that debtor’s PERSONAL PROPERTY will serve as collateral for a loan.

Question 2

What are the four big buckets of secured transactions?

How do they fit together?

Answer 2

Attachment: is a secured interest created?

Perfection: did you provide notice?

Priority: who wins and loses the fight over property?

Enforcement: rights and duties of secured party

IF attached –> enforcement rights

IF attached AND perfected –> good standing in priority dispute

Question 3

What are the six steps to approaching a priority question?

Answer 3

1) Determine this is a secured transaction problem. (“SECURITY AGREEMENT”/”SECURITY INTEREST”)
2) ID and classify the property (look at CALL of question)
3) Determine which parties have a CLAIM

4) For each security interest:
- -has security interest ATTACHED? to which collateral? when?
- -has secured party PERFECTED its security interest? when?

5) find appropriate priority RULE
6) APPLY priority rule and resolve dispute

Question 4

What’s the difference between an obligor and a debtor?

Answer 4

Obligor is the one who has to pay/perform; debtor is OWNER of collateral

Very often the same person

Question 5

What is the effect of the labels parties use in creating a secured transaction?

Answer 5

NADA! even if they call it something else, if the substance is a secured transaction, that’s what it is, regardless of label

Question 6

Sales of which type of collateral are treated like secured transactions?

Answer 6

Chattel Paper

Promissory Notes

Accounts

Payment Intangibles

(cruel poodles poking needles at peaceful iguanas)

Question 7

What are the main general categories of collateral?

Answer 7

Goods

Rights to payment

documents (of title)

investment property (stocks and bonds)

deposit accounts (bank accounts)

commercial tort claims

letter of credit rights

general intangibles

Question 8

What are the subcategories of collateral classified as “goods”?

Answer 8

Consumer goods

farm products

Inventory

Equipment

Question 9

What are the subcategories of collateral classified as “rights to payment”?

Answer 9

Instrument (promissory note, check)

Chattel paper (record with monetary obligation + security interest/lease)

Accounts

Payment intangible (right to be repaid a loan of money that isn’t instrument or chattel paper)

Question 10

What is required for a security to attach?

Answer 10

VALUE (loan) given by secured party

Debtor must have RIGHTS (property interest) in collateral

SECURITY AGREEMENT (either authenticated or possession/control)

Question 11

For the value requirement of attachment, does there need to be new value given?

What re: binding commitment to extend credit?

Answer 11

NO! not like consideration

Lines of credit count as value

Question 12

What is required of a security agreement so that the secured interest can attach?

Answer 12

Authenticated

Describe collateral

must reasonably identify collateral

Question 13

What alternatives exist to an authenticated record to create attachment?

Answer 13

Possession pursuant to agreement (if you can hold in your hands)

control pursuant to agreement (if you can’t hold in hands)

NEEDS AGREEMENT PIECE

Question 14

What is required for property acquired after attachment to be part of the collateral that the creditor has an interest in?

Answer 14

MUST have an AFTER-ACQUIRED PROPERTY CLAUSE.

Otherwise, only have interest in collateral existing AT TIME OF EXECUTION
–UNLESS INVENTORY OR ACCOUNTS: then implied

Question 15

What’s the difference between accessions and commingled goods?

What is the effect of both?

Answer 15

Accession = when goods physically united with other goods DO NOT LOSE their identity (e.g., stereo in car)
–Look to TERMS OF AGREEMENT to decide if lender who has interest in car gets interest in stereo

Commingled goods = goods physically united with other goods such that their identity IS LOST (e.g., flour into cookies)
–Security interest doesn’t continue in original goods, but attaches to LARGER PRODUCT (interest in portion of cookies)

Question 16

What happens when collateral is sold, leased, licensed, exchanged, or otherwise disposed of?

Answer 16

The security interest attaches to PROCEEDS AUTOMATICALLY, regardless of agreement’s absent language.

Question 17

What is a purchase money security interest (PMSI)?

Answer 17

only applies to GOODS or SOFTWARE

value given allows debtor to ACQUIRE goods/software; and

goods/software acquired SECURE the loan

Question 18

What’s the Dual-Status rule?

Answer 18

For NON CONSUMER GOODS TRANSACTIONS (e.g., business transactions only): PARTIAL PMSIs are allowed

Question 19

What is the difference between attachment and perfection?

Answer 19

Attachment is step ONE; it’s about debtor’s and creditor’s relationship.

Perfection is step TWO (attachment required first); it’s about creditor and anyone else who claims an interest in the collateral

Question 20

What are the six methods of perfection, once attached?

Answer 20

Filing (most common)

Possession

Control

Alternate perfection systems (see state law)

Perfection under a state’s certificate of title law (cars/motorcycles)

Automatic perfection

Question 21

What is required for perfection by filing?

Where do I file?

Can I always perfect by filing?

Answer 21

File financing statement in CENTRAL FILING OFFICE of APPROPRIATE STATE

Appropriate state = debtor’s location

• -corporation –> state of incorporation
• -biz not registered –> state where it operates
• -individuals –> principal residence

Wrong state = NO PERFECTION

ESSENTIAL info:
name of DEBTOR
name of SECURED PARTY
DESCRIPTION of collateral

Required NONESSENTIAL info:
addresses for both debtor and secured party, and
indication of whether debtor is individual or organization

DEBTOR MUST AUTHORIZE FINANCING STATEMENT

FILING NOT ALLOWED FOR DEPOSIT ACCOUNTS OR CARS

Question 22

In order to perfect via filing, what name must be used for the debtor?

Answer 22

CORRECT LEGAL NAME

majority rule for individual: use active DRIVER’S LICENSE/ID. if none, use legal name

minority rule: ID is safe harbor, but legal names are okay too often

Question 23

What result if collateral is described in:

Security agreement but not in financing statement?

Not in security agreement but in financing statement?

In both security agreement and financing statement?

Answer 23

SA but NO FS = attached, NOT perfected

NO SA but FS = NOT attached; NOT perfected

BOTH = ATTACHED & PERFECTED

Question 24

How long does a financing statement last?

Answer 24

Lapses five years after date of filing, unless continued

Question 25

What is the only way to perfect a security interest in money?

Answer 25

Possession!

Question 26

What is the only way to perfect a security interest in deposit accounts and letter of credit rights?

Answer 26

CONTROL

Question 27

How does one perfect an interest in a car?

Answer 27

CERTIFICATE OF TITLE STATUTE –> NOTE interest ON TITLE

UNLESS inventory: then not necessary

Question 28

When does an interest automatically perfect?

Answer 28

PSMI in CONSUMER GOODS

Question 29

What happens if a debtor changes his name from the one on a filing statement that properly perfected the interest?

Answer 29

Four month window to amend

If failure to amend:
Property acquired after that window is not perfected, everything else remains perfected

Question 30

What happens if a debtor moves after a filing statement that properly perfected the interest?

If collateral is transferred to a new debtor?

Answer 30

Debtor moves: four months to refile

Transferred to new debtor out of state: one year to refile

Question 31

When can a secured party, perfected by possession, give the property back to debtor without losing perfection?

Answer 31

If INSTRUMENT, NEGOTIABLE DOC, CERTIFICATED SECURITY, OR GOODS STORED WITH BAILEE:

sell it

exchange it

enforce debtor’s rights in it

then TWENTY DAYS