Securities

Question 1

Transferree v. secured party with a SI

Answer 1

The SI generally continues in the collateral unless the secured party authorized the transfer free of the SI

Question 2

Buyer’s rights v. unperfected SI

Answer 2

Buyer takes the collateral free of the SI if the buyer gives value, receives delivery, without knowledge of the SI

Question 3

Buyer’s rights v. perfected SI

Answer 3

The buyer takes the collateral subject to the SI

Question 4

Buyer in the ordinary course of business

Answer 4

Buys goods by giving new value, in the ordinary course, from a seller in the business of selling goods of that kind, in good faith, and without actual knowledge that the sale violates another’s rights in the goods. Takes free of any SI in goods given by buyer’s seller.

Question 5

Garage sale rule

Answer 5

Consumer buyer buys consumer goods for value, for his own personal, family or household use, from a concusmer seller, and without knowledge of the security interest. Takes free of any SI in consumer goods unless a secured party has filed a financing statement covering the goods.

Question 6

Perfected SI v. perfected SI

Answer 6

First to file or perfect has priority, a lapse in filing or perfection restarts the clock

Question 7

Unperfected v. unperfected

Answer 7

first to attach has priority (first in time first in right rule)

Question 8

Perfected SI v. unperfected

Answer 8

Perfected has priority

Question 9

PMSI v. non

Answer 9

Generally PMSI has priority

Question 10

PMSI in goods other than inventory or livestock v. other SI

Answer 10

A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if the secured party perfects before or within 20 days after the debtor receives possession of the collateral.

Question 11

PMSI in inventory or livestock v. any SI

Answer 11

Priority if perfected by the time the debtor receives possession of the collateral and the PM secured party sends an authenticated notice of the PMSI to the holder of any conflicting SI before the debtor receives possession of the collateral.

Question 11

Perfected PMSI v perfected PMSI

Answer 11

First to file, though seller with PMSI has priority over lender with PMSI

Question 12

Proceeds from PMSI in goods

Answer 12

These priorities apply if the SI is perfected with the debtor receives possession of collateral or within 20 days thereafter

Question 13

SI in fixtures v real property interest.

Answer 13

SI in F priority over an interest in the RP with which the fixtures are associated if the SI in fixtures is perfected by a fixture filing before the real property interest is recorded

Question 14

Perfected SI in fixtures v subsequent judicial lien

Answer 14

Perfected SI has priority

Question 15

PMSI in fixtures v prior RP interest

Answer 15

PMSI has priority if it is perfected by a fixture filing before the goods become fixtures or within 29 days thereafter

Question 16

SI in fixtures v prior construction mortgage

Answer 16

Prior has priority if recorded before the goods become fixtures within 20 days

Question 17

To comply with Article 9, the interest must attach. What is required for attachment?

Answer 17

Value must be given by the secured party, the debtor must have rights in the collateral, and the debtor authenticated a security agreement that describes the collateral (or the secured party has possession or control of the collateral pursuant to an agreement).

Question 18

Perfection of a security interest is generally necessary for the secured party to have rights in the collateral superior to any rights claimed by third parties. How is perfection achieved?

Answer 18

By filing a financing statement
Possessing the collateral
Controlling the collateral, or
Perfecting automatically

Question 19

What is required for a security interest to be enforceable against a debtor?

Answer 19

A security interest that is enforceable against the debtor with respect to the collateral is said to have attached to the collateral. Three conditions must coexist:
(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 20

What are accounts?

Answer 20

“Accounts” include the right to payment for goods sold, property licensed, or services rendered.

Question 21

Define inventory

Answer 21

“Inventory” includes goods, other than farm products, that are held for sale or lease and also raw materials, works in process, or materials used or consumed in a business.

Question 22

Define equipment

Answer 22

“Equipment,” a catchall class, consists of goods that are not consumer goods, farm products, or inventory.

Question 23

How does a judicial lien creditor take property with a security interest?

Answer 23

A judicial lien creditor takes the property subject to a perfected security interest but generally has priority over an unperfected security interest. A security interest is perfected upon attachment of that interest and compliance with one of the methods of perfection. A secured party can perfect a security interest by: (i) filing a financing statement; (ii) taking possession of the collateral; (iii) exerting control over the collateral; or (iv) automatic perfection.

Question 24

How does a BOCB take collateral subject to a perfected security interest?

Answer 24

A BOCB takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. A BOCB is a person who (i) buys goods, (ii) in the ordinary course of business, (iii) from a merchant who is in the business of selling goods of that kind, (iv) in good faith, and (v) without knowledge that the sale violates the rights of another in the same goods.

Question 25

What is a proceed?

Answer 25

Proceeds include that which is acquired upon the sale, exchange, or other disposition of collateral. For instance, a computer when a bicycle business exchanged its inventory for that computer. A security interest that forms in that proceed is temporarily perfected for 20 days from the time it attaches.

Question 26

A security interest that forms in a proceed is temporarily perfected for 20 days from the time it attaches. What is required for permanent perfection?

Answer 26

a perfected security interest in proceeds may continue indefinitely when: (i) the filed financing statement covers the original collateral, (ii) the proceeds are collateral in which a security interest may be perfected by filing in the same office as the financing statement, and (iii) the proceeds are not acquired with cash proceeds.

Question 27

When does a PMSI in inventory take priority over other security interests in the same goods?

Answer 27

PMSI in inventory has priority only if: (i) the PMSI is perfected by the time the debtor receives possession of the collateral; and (ii) the purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.

Question 28

What is required for a debtor to give a security interest in future rights?

Answer 28

Generally, this type of interest is created by including an “after-acquired property clause” in the security agreement. The security interest for after-acquired property attaches as soon as the debtor obtains an interest in the property.

Question 29

When does a PMSI in inventory have priority over other security interests in the same inventory?

Answer 29

a PMSI in inventory has priority only if: (i) the PMSI is perfected by the time the debtor receives possession of the collateral; and (ii) the purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.

Question 30

A transaction in the form of a lease is treated as a security interest if…

Answer 30

the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease, the payment obligation cannot be terminated by the lessee, and the lessee is bound to become the owner of the goods upon completion of the lease agreement.