Terminology

Question 1

Secured Transaction

Answer 1

A transaction intended to create a security interest in personal property or fixtures.

Look for (1) a credit transaction and (2) an agreement that creates a lien in favor of the creditor in the debtor’s personal property to secure the loan.

Question 2

Debtor

Answer 2

The person who owes payment or performance of the obligation secured.

Question 3

Secured Party

Answer 3

A lender, seller, or other person in whose favor there is a security interest.

Question 4

Security Agreement

Answer 4

The agreement between the debtor and the secured party that creates the security interest.

Question 5

Security Interest

Answer 5

An interest in personal property or fixtures which secures payment or performance of an obligation. It is a contingent property interest in the debtor’s collateral that that debtor grants the creditor. When there is a default, the contingent property interest springs to life and the creditor has rights in the debtors collateral.

Question 6

Collateral

Answer 6

The property subject to a security interest. It is property that the secured party can repossess upon default to ensure that the debt is paid.

Question 7

Purchase Money Security Interest (PMSI)

Answer 7

There are two kinds.

Seller Financed PMSI: The secured party sells debtor collateral on credit and retains a security interest in the item sold.

Financer Financed PMSI: A loan to a debtor to buy specific collateral. The creditor takes a security interest in the specific collateral. Furthermore, the loan or credit proceeds must actually be used to purchase the collateral.

Question 8

Seller Financed PMSI

Answer 8

The secured party sells debtor collateral on credit and retains a security interest in the item sold.

Question 9

Financer Financed PMSI

Answer 9

A loan to a debtor to buy specific collateral. The creditor takes a security interest in the specific collateral. Furthermore, the loan or credit proceeds must actually be used to purchase the collateral.

Question 10

After-Acquired Property Clause

Answer 10

Occurs when a secured party wishes to obtain a security interest not only in the debtor’s present property but also in property that the debtor will obtain in the future.

Usually must be explicit, but may be implied when the collateral is the type that is rapidly depleted and replenished (i.e. inventory or accounts).

If the after-acquired clause applied to goods, the debtor must acquire rights to the good within 10 days after the secured party gives value.

Finally, an after-acquired property clause is ineffective as to commercial tort claims.

Question 11

Future Advance Clause

Answer 11

Occurs when a secured party contemplates making future loans to the debtor and wants to secure those future loans in the present security agreement.

Question 12

Attachment

Answer 12

Deals with those steps legally required to create a security interest that can be used against the debtor.

Question 13

Perfection

Answer 13

Deals with those steps legally required to create a security interest that can be effective against the world (especially other creditors).

Question 14

Financing Statement

Answer 14

A document that is used to provide public notice of a security interestest, usually to perfect the security interest.

Question 15

Retention of Title

Answer 15

If the buyer and seller agree that the seller will retain title to the goods after they are delivered until the buyer has paid for them, the agreement will be treated as the seller’s retention of a security interest.

Question 16

Pledge

Answer 16

A type of security agreement where the collateral is in the possession of the creditor and there is an oral security agreement.

Question 17

Defining Value for Purposes of a Security Agreement

Answer 17

Any consideration sufficient to support a simple contract is enough (including a mere promise). Even past consideration will work. The debtor always gives value because he or she, at a minimum, promises to pay. So the question is whether the secured party gave value.

Question 18

Proceeds

Answer 18

Includes whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds.

Unless otherwise agreed, a security interest automatically gives the secured party a right to identifiable proceeds. Identifiable means that the secured creditor can prove that the proceeds can be traced back to the creditors original collateral-thereby making it their burden.

Question 19

Automatic Perfection

Answer 19

Occurs when there is a PMSI in consumer goods only (does not apply to farm goods etc. ). It also does not apply to items that are covered by title.

Question 20

Ipso Facto Authorization

Answer 20

When the debtor automatically authorizes a filing statement by authenticating a security agreement coving the same collateral.

Question 21

Continuation Statement

Answer 21

A statement which extends a financing statement past the 5-year expiration date. It must be filed in the last five months of the 5-year life of the financing statement.

Question 22

Termination Statement

Answer 22

A form stating the security party no longer claims a security interest under the financing statement. Must be filed within 20 days of receiving an authenticated demand by the debtor.

Question 23

Self-Help Repossession

Answer 23

After a default, a secured party is entitled to take possession of the collateral, without judicial process, if he can do so without breaching the peace.

If he breaches the peace, he may be liable for conversion, assault, battery, trespass, as well as actual and frequently punitive damages.

Question 24

Breach of the Peace

Answer 24

Any conduct by the secured party that has the potential to lead to violence. Generally, physical presence by the debtor or a representative of the debtor and verbal objection is enough to create a breach of the peace.

Question 25

Replevin

Answer 25

Use of the judicial process by a secured party to get collateral when self-help repossession is unavailable or not the preferred method for the creditor.

Question 26

Strict Foreclosure

Answer 26

aka retention of the collateral

After default and repossession, the secured party may propose retaining the collateral in full or partial satisfaction of the debt. This can only be done so long as the debtor and other creditors don’t object.

Question 27

Reasonable Resale of Collateral

Answer 27

Timely written notice which states the time and place of public sale (not required for private sales) to the debtor and any sureties on the debt as well as any other secured parties who have perfected by filing a financing statement or by certificate of title. As long as the collateral isn’t perishable or rapidly deteriorating in value.

The sale must be commercially reasonable and in most cases, the secured party has the option of buying the collateral back.

The money should be used to pay the cost of repossession and sale, then to pay off the foreclosing creditor, then to pay off the debt of lower priority creditors (high priority creditors get nothing bc they did not lose their liens during the sale), then any leftover money goes to the debtor.

Any failure to comply with the resale rules leaves the foreclosing creditor liable.

Question 28

Fixture

Answer 28

Goods that have become so related to a particular real property that an interest arises under real property law. Generally, personal property attached to real estate with the intent that it become a permanent part of the real estate is a fixture. The distinctive aspect of a fixture is that interests in it may arise under both the code and under the law of real estate.

Question 29

Perfecting a Fixture

Answer 29

A fixture filing must be made in the office where a mortgage on the real estate would be fixed. In addition to the usual requirements for a financing statement, a fixture financing statement must reasonably identify the real estate and must show the name of the owner if the debtor does not have an interest of record in the real estate.

Question 30

Accessions

Answer 30

Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost (e.g. tires on a car).

A security on an accession is subordinate to a security interest in the whole.