Security Interest in General

Question 1

Secured Transaction

Answer 1

A transaction intended to create a security interest in personal property (moveable) or fixtures. Usually involves: credit transactions OR an agreement that creates a lien in favor of the creditor in the debtor’s personal property to secure the debt.

Question 2

Purchase Money Security Interest

PMSI

Answer 2

2 Kinds:

1. Credit was advanced or a loan was made for the purpose of enabling the debtor to acquire the collateral, and
2. The credit or loan proceeds were actually used to acquire the collateral - “Enabling loan”

Note: No filing necessary to protect against other creditor’s liens, BUT filing IS necessary to protect against subsequent buyers.

Question 3

Future Advance Clause

Answer 3

Where a debtor gets additional loan secured on the same security interest. No need to recreate a security agreement; it just relates to the original security interest.

Question 4

After-Acquire Property Clause

Answer 4

Clase that allows secured party to obtain a security interest not only in debtor’s present property, but also in property that the debtor will obtain in the future.

Question 5

Attachment

Answer 5

Steps legally required to give the secured party a security interest in the collateral that is effective against the debtor

A security interest is not enforceable unless it has attached. 3 things must happen in order for the security interest to attach:

1. The parties must have an agreement to attach the security: (i.e., security agreement)
2. Value must be given by the secured party, and
3. The debtor must have rights in the collateral.

Question 6

Perfection

Answer 6

Steps legally required to give the secured party an interest int he collateral that is effective against the world.
4 Different Methods of Perfection:
1. Automatic
2. Possession
3. Control
4. Filing

Question 7

Financing Statement

Answer 7

Document generally used to provide public notice of the security interest, so as to perfect the security interest.

Question 8

General Intangibles

Answer 8

Any personal property not coming within the scope of the other definitions (e.g., software, patent and trademark rights, copyrights, goodwill)

Question 9

Inventory

Answer 9

Held by a person who holds them for sale or lease or to be furnished under service contracts. Materials used or consumed by a business in a short amount of time.

Examples: Guitar bought by musician to use on tour; Automobiles held by a local car rental agency; pencils, pens, and stationary used by Sears or some other large retailer.

Question 10

Semi-Intangible and Intangible Property Used as Collateral

Answer 10

1. Instruments - Negotiable instruments, promissory notes, etc.
2. Documents - Bill of lading, warehouse receipt (Proof of ownership in course of business)
3. Chattel Paper
4. Investment Property- Stocks, bonds, mutual funds
5. Accounts: A right to payment not evidenced by instrument or chattel paper
6. Deposit Accounts
7. Commercial Tort Claims
8. General Intangibles

Question 11

Chattel Paper

Answer 11

A record or records which evidence both:

1. Monetary obligation and
2. Security interest in or a lease of specific goods.

A “record” is information stored in either a tangible medium (e.g., written on paper), or an intangible medium (e.g., electronically stored)

Ex: Contract where car buyer purchasing on credit promises to pay the dealership for the car AND grants the dealership a security interest in the car.

Question 12

Commercial Tort Claim (For use as collateral)

Answer 12

1. A claim arising in tort with respect to which the claimant is an organization (e.g. partnership or corp.), or
2. Where the claimant is an individual and the claim arose in the claimant’s business or profession and does not include damages for personal injury or the death of an individual.

Question 13

Article 9 Applies To

Answer 13

1. Any transaction that creates a security interest in personal property or fixtures by contract
2. An agricultural lien
3. A sale of accounts, chattel paper, payment intangibles, or promissory notes (unless sale is for the purposes of collection only, or part of the sale of a biz
4. Most consignments
5. A secured sale disguised as a lease

Question 14

When does Article 9 apply to consignments?

Answer 14

1. The goods are worth more than $1,000,
2. The consignor didn’t use them for personal, family, or household purposes; and
3. The consignee is a person who deals in goods of that kind under a name other than cosignor’s,
4. The consignee is not an auctioneer
5. The consignee Is not generally known by her creditors to sell in the goods of others.

• Under Article 9 a consignor’s interest in the consigned goods is considered to be a PMSI in inventory.

Question 15

Classifications of Goods for Collateral

Answer 15

1. Consumer goods
2. Equipment
3. Farm Products
4. Inventory

Question 16

Payment Intangible

Answer 16

A general intangible under which the account debtor’s principal obligation is a monetary obligation

Question 17

Attachment vs. Perfection

Answer 17

1. Attachment- enforceable SI b/w debtor and secured party

2. Perfection- Deals with right b/w secured party and 3rd parties