Secured Transactions - Terms and General Rules

Question 1

UCC Article 9 applies to:

Answer 1

any transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract; agricultural liens; sales of accounts receivable, chattel paper, negotiable instruments, promissory notes, and payment intangibles; consignments; and certain lease-purchase agreements

Question 2

UCC Article 9 generally is not applicable to:

Answer 2

landlords’ liens; assignment of a claim for wage, salary, or other compensation of an employee; assignment of a right to payment under a K to an assignee that is also required to perform under the K; an interest in or lien on real property

Question 3

Types of collateral:

Answer 3

Goods (consumer goods, inventory, farm products, equipment, fixtures, accessions, and commingled goods); Tangible Intangibles (instruments, documents, chattel paper, electronic chattel paper); Intangible Intangibles (accounts, deposit account); and Investment Property

Question 4

Consumer Goods are:

Answer 4

Goods bought for use primarily for personal, family or household purposes

Question 5

Inventory is:

Answer 5

goods, other than farm products, leased by a person as lessor; held for sale or lease or to be furnished under a K of service; are furnished under a K of service; or consist of raw materials, work in process or materials used or consumed in business (ex: Accounting firm w/ pens that they use - counts as inventory). Also includes timber to be cut.

Question 6

Equipment is:

Answer 6

a catchall category, defined merely as goods “other than inventory, farm products, or consumer goods”. A debtor may use the same goods in more than one capacity, but it is the primary use that determines the characterization.

Question 7

Fixtures are:

Answer 7

Goods that become so related to particular real estate that an interest in those goods arises under real property law

Question 8

Accessions are:

Answer 8

Goods that are physically united with other goods in such a manner that the identity of the original goods is NOT lost (Ex: Lance Armstrong buys a specialized seat for his bike. The bike and the seat are individually identifiable).

Question 9

Commingled goods:

Answer 9

Goods that are physically united with other goods in such a way that their identity is lost in a product or mass. A security interest does not exist in the specific goods that have become commingled, but may attach to the a product or mass that results when goods become commingled.

Question 10

Tangible Intangibles are:

Answer 10

Things such as contractual obligations to hold or deliver goods or to pay money, and ownership in goods or business entities, which are reduced to writing. The intangibles are transferred by transferring the writing and include negotiable instruments, documents, or chattel paper.

Question 11

Documents include:

Answer 11

Bills of lading; dock warrants and receipts; warehouse receipts; any other document that, in the regular course of business or financing, is treated as adequately evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers.

Question 12

Chattel paper:

Answer 12

A record evidencing both a monetary obligation and a security interest in, or a lease of, specific goods. Ex: Car Dealer sells a car to Consumer. Consumer signs a promissory note for $20k and a security agreement granting Car Dealer a security interest in the car. This package of note and security agreement, when used by Car Dealer as collateral for a loan to Consumer, is chattel paper.

Question 13

Intangible Intangibles:

Answer 13

Intangibles that, while possibly evidenced by writings, are intangible because the writings take on no commercial significance of their own. Includes monetary obligations, literary rights, accounts, deposit accounts, commercial tort claims

Question 14

Accounts:

Answer 14

Rights to “payment of a monetary obligation, whether or not earned by performance”

Question 15

Investment property:

Answer 15

Includes certified and uncertified securities, securities accounts, and entitlements

Question 16

Proceeds:

Answer 16

Whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral. Two kinds: Cash and noncash.

Question 17

A security interest is created by:

Answer 17

a written security agreement or by the secured party’s taking possession, delivery, or control of the collateral with the intent to secure the debt and attachment of the security interest to the collateral.

Question 18

A security agreement must:

Answer 18

be in writing; contain a granting clause; contain a description of the collateral (reasonably identify what is described); and authenticated by the debtor - signing a written document or executing a symbol or encrypting.

Question 19

When is a written security agreement not necessary for the creation of a security interest?

Answer 19

When the secured party has possession of the collateral.

Question 20

Possession may also give rise to:

Answer 20

Perfection of the security interest

Question 21

Attachment:

Answer 21

is the process by which the security interest is created. The security interest attaches when three elements are met: 1) The secured party gives value; The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and the debtor has authenticated a security agreement that sufficiently describes the collateral.

Question 22

A description of collateral is sufficient if:

Answer 22

it reasonably identifies what is described (i.e., “equipment”). For consumer goods, a more specific description is required.

Question 23

Can a security agreement provide for an interest in after-acquired collateral?

Answer 23

Yes. Should have a clause explicitly stating that it applies to after-acquired collateral, unless it is inventory, and then it is expected that it will apply to inventory because inventory is often depleted and replenished.

Question 24

Can a security agreement provide that collateral secures future advances?

Answer 24

Yes.

Question 25

A security interest in collateral automatically extends to:

Answer 25

identifiable proceeds.

Question 26

A secured party’s interest in collateral will continue regardless of: (default rule)

Answer 26

sale, lease, or other disposition of collateral, unless the secured party authorized disposition of the property free of the security interest.

Question 27

A secured party may end up with a security interest in both:

Answer 27

the original collateral and the identifiable proceeds of the collateral.

Question 28

Purchase money collateral is:

Answer 28

goods or software securing a purchase-money obligation that a debtor incurs to purchase the goods

Question 29

2 ways a debtor incurs a purchase-money obligation:

Answer 29

1) if the obligation is incurred as all or part of the price of the collateral (as when a seller finances the purchase); or2) for value given to enable the debtor to acquire rights in, or the use of, the collateral, if the value is in fact so used (as when a 3d party, such as a bank, finances the purchase).

Question 30

Purchase money security interest is:

Answer 30

a security interest in goods if it pertains to goods that are purchase-money collateral.

Question 31

Perfection is:

Answer 31

The process by which the secured party gives notice to the entire world of its security interest. Perfection is necessary for priority purposes.

Question 32

When is a security interest perfected?

Answer 32

If the interest has attached and if all the requirements for perfection have been met. If the requirements are met before attachment, then upon attachment, the security interest is perfected.

Question 33

Methods of perfection:

Answer 33

Filing, possession, control, or automatic perfection.

Question 34

Perfection by possession only applies to:

Answer 34

negotiable documents; goods; instruments; money; or tangible chattel paper

Question 35

If collateral is in the possession of a third party:

Answer 35

the person in possession must authenticate a record acknowledging that it holds possession of the collateral for the secured party’s benefit

Question 36

Perfection by control applies to:

Answer 36

investment securities; letter of credit rights; deposit accounts; and electronic chattel paper

Question 37

Control of investment securities (certificated security in bearer form; certificated security in registered form; uncertificated security)

Answer 37

Control of a certified security in bearer form if he has possession of the security; Control of a certificated security in registered form if he has possession of the security and the certificate is indorsed to the purchaser or registered in the name of the purchaser;Control of an uncertificated security if he has possession of the security or the issuer agrees that it will comply with instructions from that person (think 3-way contract)

Question 38

Control of deposit accounts (3 ways):

Answer 38

“Home bank rule” - if the secured party is the bank with which the deposit account is maintained, nothing else has to be done;Debtor, secured party, and bank have agreed in an authenticated record that bank will follow the secured party’s instructions; orThe secured party becomes the bank’s customer with respect to the deposit account.

Question 39

Control of electronic chattel paper:

Answer 39

if a single authoritative copy that is unique, identifiable and unalterable exists; the authoritative copy identifies the secured party as the assignee of the records; and hte authoritative copy is communicated to and maintained by the secured party or its designated custodian; copies are readily identifiable as copies; and any revision of the authoritative copy is readily identifiable as an authorized or unauthorized revision. *In Florida, copies that add or change an identified assignee of the authoritative copy can be made only with the participation and consent of the secured party.

Question 40

Automatic Permanent Perfection applies to:

Answer 40

Purchase Money Security Interest in consumer goods (perfection is automatic and permanent);The assignment of accounts or payment intangibles that does not, by itself or in conjunction with other assignments to the same assignee, transfer a significant part of the assignor’s outstanding accounts or payment intangibles

Question 41

Automatic Temporary Perfection applies to:

Answer 41

Identifiable proceeds of collateral upon disposition of the collateral.Continues for only 20 days after attachment unless 1) a filed financing statement covers the original collateral; 2) the proceeds are identifiable cash proceeds; 3) security interest in proceeds is otherwise perfected when the security interest attaches to the proceeds or within 20 days thereafter.Purchase Money Security interests (not consumer goods): 20-day grace period where the security interest is a PMSI to perfect with filing and relate-back to the purchase date.

Question 42

Multiple Methods of perfection:

Answer 42

Can be perfected in different ways so long as it is perfected continuously

Question 43

Notice Filing:

Answer 43

A filing that provides notice that a person may have a security interest in the collateral indicated. The security agreement itself does not need to be filed; instead, the financing statement is filed.

Question 44

Place for filing of Notice Filing:

Answer 44

In Florida - with the Florida Secured Transaction Registry, including cases in which the collateral is fixtures but the financing statement is not filed as a fixture filing.

Question 45

Agricultural liens place of notice filing:

Answer 45

in the office of the clerk of the circuit court of Florida

Question 46

Necessary information for a filing of a financing statement:

Answer 46

1) The name of the debtor2) The name of the secured party or the secured party’s representative; and3) A description of the collateral covered by the financing statement

Question 47

Special rules for filing notice of fixtures:

Answer 47

Need to contain all the info required in a financing statement, PLUS:1) Indicate it covers fixtures;2) Indicate that it is to be filed in the real property records;3) Provide a description of the real property to which the fixture is related; and4) If the debtor does not have an interest of record in the real property, provide the name of the record owner.

Question 48

Error or Omissions in financing statement will still be effective if it “substantially” satisfies or complies with statutory requirements, unless error is seriously misleading. Example of misleading errors:

Answer 48

Failure to sufficiently provide the name of the debtor is seriously misleading. HOWEVER, if a search of the records of the filing office under the debtor’s correct name, using the office’s standard search logic, would disclose a financing statement that fails sufficiently to provide the name of the debtor, the financing statement is not seriously misleading.

Question 49

If a debtor changes his name, resulting in a financing statement that is seriously misleading, the statement will only be effective:

Answer 49

within four months of the name change, unless an amendment to the financing statement correcting this is filed within four months of the name change.

Question 50

If a debtor moves out of the state where the financing statement is filed, there is a grace period for updating the address:

Answer 50

four months.

Question 51

Florida requires certificates of title for motor vehicles, which means:

Answer 51

a record that evidences ownership of a vehicle, whether a paper certificate authorized by the dept. of motor vehicles or information stored in electronic form in the department’s database.

Question 52

How long is a filed financing statement effective?

Answer 52

Five years after the date of filing.