Weak Areas

Question 1

What transactions does Article 9 apply to?

Answer 1

1. Contractual security interests

2 Sales of accounts, chattel paper, payment intangibles, and promissory notes

3. Commercial consignments
4. Agricultural liens (only perfection and priority)
5. Leases that are intended to serve as security arrangements
6. A seller’s retention of title to delivered goods (treated as security interest for the price)

Exception: Doesn’t apply to most transfers of interests in land.

Question 2

How does a PMSI arise?

Answer 2

1. creditor sells the goods to the debtor on credit, retaining a security interest in the goods for the urchase price; or
2. the creditor advances the debtor the funds used to buy the goods, and the creditor takes a security interest in the goods

Question 3

Dual Status Rule

Answer 3

A security interest in nonconsumer goods does not lose its status as a PSMI if:

1. the security interest also is secured by property that was not purchased with the loan money or credit,
2. the collateral also secures advances that were not made for the purchase of the collateral, or
3. the PMSI has been refinanced, consolidated, etc.

MD DISTINCTION: The dual status rule applies to PMSIs in consumer goods as well as nonconsumer goods.

Question 4

Types of Collateral

Answer 4

1. Tangible collateral or goods
2. intangible or semi-intangible collateral
3. Proceeds

Question 5

Requirement for Attachment

Answer 5

Establishes secured party’s rights in the collateral as against the debtor:

1. An agreement to create a security interest evidenced by possession, by the debtor’s authorization of the security agreement, or by control
2. value given by secured party; and
3. debtor has rights in the collateral.

Question 6

What types of collateral can a creditor obtain control over?

Answer 6

1. nonconsumer deposit accounts
2. electric chattel paper
3. rights and duties of secured party in possession or control

Question 7

Requirements for Attachment?

Answer 7

1. all three requirements for attachment must be present
2. authenticated security agreement, or creditor must take possession or control

Note: Financing statement s not necessary for attachment; it relates to perfection

Question 8

What types of future property can a creditor acquire interest in?

Answer 8

1. after-acquired property: security interest attaches as soon as the debtor acquires an interest in the collateral. Generally, such an interest may be created only by including an after-acquired property clause in the security agreement.

Exception: A security interest will attach automatically to proceeds from the disposition of collateral and to accounts and new items of inventory without the clause. AAPC doesn’t apply to consumer goods unless Debtor acquires rights in the goods within 10 days after the creditor gives value Doesn’t apply to commercial tort claims.

2. future advances: a security agreement may provide that the collateral will serve as security not only for the present obligation, but also for advances the creditor makes to the debtor in the future.

Question 9

Requirements for perfection

Answer 9

Maximizes secured party’s rights in the collateral as against third paties

1. Attachment, and
2. one of the following:
   a. filing of a financing statement decribing the collateral
   b. taking posession of the collateral
   c. taking control of the collateral
   d. automatic perfection (PMSI in consumer goods); or
   e. temporary perfection (SI in proceeds received from the sale of collateral)

Question 10

What must a financing statement contain?

Answer 10

1. debtor’s name and mailing address
2. secured party’s name and mailing address;
3. indcation of the collateral covered by the financing statement; and
4. if the financing statement covers real property related collateral, a description of the related real property, the name of the record owner, and an indication that it is to be filed int he real property records.

MD DISTINCTION: Not required for FS to have words expressly granting a security interest. However, an authenticated financing statement will be effective as an authenticated security agreement only if it contains language tat indicates an intent to create a security interest.

Question 11

What happens to security interest if a debtor changes his name?

Answer 11

if debtor’s name as indicated on a filed financing statement becomes insufficient and thus seriously misleading, the financing statement is effective only against collateral acquired by the debtor before the name became insufficient and within 4 monhs after. After 4 months, secured party must refile using the debtor’s correct name.

Question 12

Where must a financing statement be filed?

Answer 12

General: Filing must be done centrally n te office of the secretary of state.

Exception: Filing for security interests in timber to be cut, minerals, and fixtures is local in the country where a mortgage on real estate is filed. In the case of fixture filing, it is safest to file both in real estate records and at the place that would be proper if the goods were not fixtures.

MD DISTINCTION: State Department of Assessment and Taxation (SDAT)

Question 13

How long is filing effective?

Answer 13

5 years. A continuation statement may be filed, good for an additional 5 years. Can only be filed within 6 months before the lapse of the filed statement. Authorization of debtor not needed for continuation.

Question 14

Temporary perfection period for proceeds?

Answer 14

A secuity interest in proceeds from original collateral is continously perfected for 20 days from the debtor’s receipt of the proceeds. Unperfected after 20 days unless statutory requirements are met.

Question 15

Perfection period when new value is given for instruments, negotiable documents, and certificated securities

Answer 15

Where new value is given under an authenticated security agreement for instruments, negotiable documents, or certificated securities, perfection is valid for 20 days after attachment; neither filing nor possession is necessary.

Question 16

Perfection period when delivery of collateral to debtor for disposition?

Answer 16

Where the crditor who has perfected her security interest by possession delivers instruments, negotiable documents, certificated securities, or goods in the possest or lose his perfection. sion of a bailee to the debtor for disposition, perfection is valid for 20 days, after which the creditor must reperfect

Question 17

Continuation of perfection of interest in proceeds

Answer 17

1. Original collateral was perfected by filing a FS, a security interest in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral;
2. proceeds are identifiable case proceeds
3. the SI in the proceeds is perfected within 20 day period

Question 18

Priority between unperfected secured parties

Answer 18

First to attach has priority

Question 19

Priority between unperfected and perfected secured parties?

Answer 19

A perfected security interest generally prevails over an unperfected security interest.

Date of perfect, NOT attachment detrmines priority

Question 20

Priority between perfected secured parties?

Answer 20

rank in priority according to time of filing or perfection.

Date of perfect, NOT attachment detrmines priority

Question 21

What are the special priority rules for conflicting security interests in investment property?

Answer 21

A security interest perfected by control has priority over a security interest perfected by any other method.

Question 22

Priority of PMSIs?

Answer 22

Superpriority; they re superior to prior security interest in the same collateral if certain conditions are met.

Question 23

When does a PMSI has priority in inventory?

Answer 23

In chattel paper, instruments, or cash if:

1. perfected at the time the debtor gets possession; and
2. ay secured party who has perfected his security interest int he same inventory received written notification of the PMSI before the debtor received money party has or expects to take a PMSI in inventory of the debtor described by kind or type.

Note: Similar rule for PMSIs in livestock.

Question 24

PMSI in goods other than nventory and livestock?

Answer 24

A PMSI in goods other than inventory and livestock has priority over conflicting security interests in the same goods or their proceeds if the interest is perfected before or within 20 days after the debtor receives possession of the goods.

Question 25

PMSI holder v. PMSI holder priority

Answer 25

1, A secured party who has a PMSI in collateral as a seller has priority over a secured party who has a PMSI in the same collateral as a lender.

2. Otherwise, the first secured party to file or perfect prevails

Question 26

Priority of Chattel Paper purchasers

Answer 26

if a purchaser of chttel paper in good faith gives new value and takes possession of the chattel paper in the ordinary course of business, he purchaser will have priority over:

1. Interest in chatte paper that ariss merely as proceedsof inventory, as long as chattel apper does not indicate that it has been assigned to anyon other than the purchaser, and
2. any other security interest in the chattel paper, as long as the chattel paper purchaser acquired its interest without knowledge that its purchase violated the rights of the secured party

Priority in proceeds if:

1. would have had priority under general priority rules, or
2. the proceeds are the specific goods covered by the chattel paper or cash proceeds o the specific goods.

Question 27

Priority of instrument purchasers?

Answer 27

Priority over a perfected security interest in the instrument f the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violated the rights of the secured party.

Question 28

General priority in proceeds

Answer 28

A perfected security interest in proceeds will have the same sate of priority as the perfected security interest int he original collateral as long as the perfection of the security interest in the proceeds extends beyond the 20 day temporary perfection period.

Question 29

Priority in fixtures

Answer 29

First to file a fixture filing or record its real property interest prevails.

Exception: PMSI secured party who makes a fixture filing within 20 days after affixation will prevail over any real property interest in the same fixture that was recorded prior to affixation.

Exception: if the accession, becomes part of whle that is a subject to a security interest int he whole has priority over the security interest i the accession.

Exception: when there is priority, holder may, upon default, remove the fixture from the real property or goods.

Exception: perfected interest in crops has priority over a conflicting interest int he real property on which the crops are growing, regardless of the time of filing or perfection.

Question 30

Unperfected secured party v. buyer or lessee priority

Answer 30

a person who buys or leases the collateral from the debtor generally has an interest int he collateral superior to a person who has an unperfected security interest in the collateral if the buyer lessee, without knowledge of the security interest, gives value and receives delivery of the collateral.

Question 31

Creditors right to take possession and sell collateral?

Answer 31

Right to either:

1. sure on the debt itself, or
2. take possession of the collateral, sell it by ublic or private sale, and then sue to collect the deficiency,

• Sale must be commercally reasonable
• other secured parties generallye ntitled to notice 10 days before sale

Question 32

Factors to consider that make a sale reasonable?

Answer 32

1. sufficiency of advertising
2. if the colletal has a limited market, whether prople in that market were contacted
3. whether the collateral needed cleaning or repair; and
4. if the sale was public action, the convenience of the time and place.

Question 33

Retention of collteral in satisfaction of debt?

Answer 33

If the debtor has paid 60% of the cash price on a PMSI in consumer goods, or 60% of the loan on a non-PMSI in consumer foods, the secured party must dispose of the colalteral within 90 days after repossession, or the detor may recover it in converion.

With respect to anny other collateral, the secured party may propose to retain the collateral in full saisfaction of the obligation, but:
1. dbtor must consent to the retention in authenticated record after default or in cases where the debt is being fully satisfied, not object to the retention within 20 days after notice is sent bu the secured party, and

2. the secured party must send wrtten notice of such proposal to the debtor, and ifa person entitled to notice objects in writing within 20 days of sending of such notifictation, the secured party must dispose of the collateral and properly disburse the proceeds.

Question 34

MD Date of Filing

Answer 34

When the secured party presents the financing statement for filing and tenders the filing fee or the date on which the statement is accepted by the filing officer. The fact that the statement is stamped as having been received o another date does not affect the filing date.