UCC-Article 9: Secured Transactions

Question 1

Define “security agreement.”

Answer 1

Agreement which creates a security interest.

Question 2

Define “collateral.”

Answer 2

Subject of the security interest.

Question 3

Define “intangibles.”

Answer 3

Any personal property other than goods, accounts, chattel paper, documents, instruments, money, deposit accounts, letters of credit, and investment property - examples, oil or book royalties, patents, copyrights

Question 4

Define “security interest.”

Answer 4

The interest in the collateral which secures payment or performance of an obligation.

Question 5

Define “secured party.”

Answer 5

The creditor who has a security interest in the debtor’s collateral.

Question 6

Define “attachment.”

Answer 6

Time when security interest becomes valid: requires security agreement and debtor with interest in the property and creditor gives value

Question 7

Define “chattel paper.”

Answer 7

Writing(s) which evidence both a security interest in good(or software) and a monetary obligation to pay - example of a security agreement.

Question 8

Describe what happens to a security interest when a debtor has signed and executed a security agreement, but the collateral has not been shipped to the debtor from the seller

Answer 8

The security interest does not attach until the debtor has an interest in the goods; i.e., identification has occurred.

Question 9

Define “debtor.”

Answer 9

The person who owes payment.

Question 10

What type of property is subject to a security interest?

Answer 10

Personal property, Fixtures, Sales of accounts, Chattel, Paper, Promissory notes, General Intangibles.

Question 11

Describe the criteria necessary for a security interest attachment when the collateral is not in possession of the secured party.

Answer 11

Written or authenticated agreement describing collateral, signed or authenticated by the debtor;
Secured party must give debtor something of value;
Debtor must have rights in the collateral.

Question 12

Describe when a creditor can have a valid oral security agreement.

Answer 12

When the creditor is in possession of the collateral.

Question 13

Define “perfection.”

Answer 13

A means by which a secured party gains priority to a debtor’s collateral over other third parties who also claim to have an interest in the same collateral.

Question 14

List the two situations in which perfection by attachment is automatic upon creation of a security interest.

Answer 14

Purchase money security interest in consumer goods;

Security interest created by assignment of a beneficial interest in a decedent’s estate.

Question 15

Explain when a creditor has temporary perfection.

Answer 15

When a debtor has moved to another state, the creditor has four months of perfection in the new state, which can be continued with filing a financing statement in the debtor’s new state.

Question 16

List the methods of perfection.

Answer 16

Attachment (automatic upon creation of security interest);
Possession - Control;
Filing;
Automatic;
Temporary.

Question 17

Describe possession as a means of perfection.

Answer 17

Instruments can be perfected by possession; creditor can be in possession by controlling when title can be passed (field warehousing).

Question 18

Describe filing locations.

Answer 18

Central (state level) except for fixtures and crops (local with property records).

Question 19

Define “financing statement.”

Answer 19

Document that is filed; needs adequate description; names of debtor and secured party.

Question 20

List the priorities for the following:
Unsecured vs. secured
Secured vs. secured
Secured vs. perfected
Perfected vs. perfected

Answer 20

Unsecured vs. secured: Secured.
Secured vs. secured: First to attached.
Secured vs. perfected: Perfected.
Perfected vs. perfected: First to perfect (Exceptions: buyer in ordinary course; inventory; fixtures).

Question 21

What is the general rule of priority between two perfected security interests?

Answer 21

First in time of perfection is first in right.

Question 22

What types of buyers takes precedence over perfected secured interests?

Answer 22

Buyers in the ordinary course of business

Question 23

What is the general rule when there are two perfected secured parties and something other than inventory is used as collateral?

Answer 23

If collateral other than inventory - if first in time is a nonpurchase security interest and second in time is a purchase money security interest, the second in time purchase money interest prevails if the purchase money security interest holder perfects before or within 20 days after debtor takes possession of the collateral.

Question 24

What parties do perfected security interests give priority to?

Answer 24

Unsecured creditors;
Unperfected secured parties;
Subsequent lien creditors;
Trustees in bankruptcy;
Most buyers.

Question 25

What is the general rule when there are two perfected secured parties and inventory is used as collateral?

Answer 25

If collateral inventory - if first in time is a nonpurchase security interest and second in time is a purchase money security interest, the second in time purchase money interest prevails if the nonpurchase secured party receives written or authenticated notice of the purchase money security interest before debtor receives possession of the collateral.

Question 26

List the order of distribution of proceeds from the sale of collateral.

Answer 26

Expenses in repossession, keeping, and resale;
Balance of debt owed to secured party;
Junior lien holders who have made written demands;
Debtor unless collateral is accounts or chattel paper.

Question 27

Explain what a breach of the peace is.

Answer 27

A violation of the law in repossessing collateral, such as a trespass to take the property.

Question 28

Describe the right of redemption.

Answer 28

If the secured party is not allowed to keep the collateral in possession in full satisfaction of the debt, until there is a sale the debtor or any other secured party has a right of redemption and by doing so can regain possession of the collateral.

Question 29

List the rights of peaceful possession upon the debtor’s default.

Answer 29

Possession without committing:
Trespass;
Assault and/or battery;
Breaking and entering.

Question 30

What are the debtor’s rights when the debt is paid in full?

Answer 30

The debtor can demand that the creditor file a release of the collateral.

Question 31

What is the purpose of the Soldiers and Sailors Relief Act?

Answer 31

Creditor cannot repossess goods from active duty military debtors.

Question 32

Describe the 60% rule as it relates to a secured party.

Answer 32

If the collateral is consumer goods and 60% or more of the debt or price has been paid then creditor must sell the goods.

Question 33

List the rights upon possession by a secured party

Answer 33

Secured party with proper notice to Debtor and others and no objection can keep the collateral in satisfaction of the debt. Cannot keep if collateral is consumer goods and debtor ahs paid 60% or more;
Can always sell in a reasonable commercial manner.