Secured Transactions

Question 1

What governs Secured Transactions?

Answer 1

Article 9 of the Uniform Commercial Code governs security interests and provides rules for their priority.

Question 2

What is attachment?

Answer 2

Attachment gives the creditor rights against the debtor in the collateral.

Question 3

How does an SI attach? (three steps)

Answer 3

To attach a security interest (i) either the debtor must authenticate a SA granting the creditor a SI in collateral that describes the collateral or the creditor must take possession or control of the collateral, (2) the creditor must give value, and (3) the debtor must have rights in the collateral.

Question 4

What must a secured party (SP) do to obtain rights against another claimant in the debtor’s collateral?

Answer 4

To obtain rights against another claimant to a debtor’s collateral, a SP must also perfect its SI.

Question 5

How do you perfect an SI in goods?

Answer 5

A creditor can perfect its SI in goods by (1) filing in the proper public office, a financing statement that is authorized by the debtor in an authenticated record, or (2) taking possession.

Question 6

What is special about a PMSI in consumer goods?

Answer 6

A PMSI in consumer goods is automatically perfected upon attachment.

Question 7

What is a PMSI (purchase money security interest)?

Answer 7

A PMSI is created when a creditor advances credit or provides the funds needed to make a purchase possible and takes an SI in the goods purchased.

Question 8

What are consumer goods?

Answer 8

Consumer goods are goods that are used or bought primarily for personal, family, or household purposes.

Question 9

What governs the classification of a debtor’s collateral?

Answer 9

The original use test states that a debtor’s original intended use of collateral governs the collateral’s classification. (even if that use changes later)

Question 10

What are accessions?

Answer 10

Accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost.

Question 11

What governs accessions?

Answer 11

Article 9’s general priority rules apply to accessions.

Question 12

What happens if the accession becomes part of a whole piece that is subject to a SI?

Answer 12

However, if the accession becomes part of a whole that is subject to a SI perfect in compliance with the requirements of a certificate of title statute, the SI in the whole has priority over the SI in the accession.

Question 13

What is an after-acquired collateral clause?

Answer 13

If a SA includes an after-acquired collateral clause, the SI attaches when the debtor obtains an interest in the property.

Question 14

What is special about a PMSI in equipment?

Answer 14

A PMSI in equipment has priority over conflicting security interests if the PMSI is perfected when the debtor receives possession of the goods (or within 20 days thereafter).

Question 15

Under Article 9

Answer 15

Under Article 9 a creditor can gain certain rights to take goods of a debtor upon default by attaching a SI to the goods (called collateral).

Question 16

How is collateral categorized?

Answer 16

Collateral is categorized based on the primary use to which the debtor puts it at the time of attachment.

Question 17

What is the garage sale rule?

Answer 17

Generally, a perfected SI in goods is good against subsequent buyers.

However, if a buyer of consumer goods resells them to another consumer for value, that second consumer takes free of SI of which he has no knowledge, provided he makes the purchase before any financing statement covering the goods has been filed.

Question 18

How can a transferee take free of a secured party’s SI?

Answer 18

If a secured party consents to a sale, lease, or other transfer of the collateral free of the SI, the transferee will take free of the secured party’s SI.

Question 19

What is a buyer in the ordinary course of business? (BIOC)

Answer 19

A buyer in the ordinary course of business (BIOC) buys goods in the ordinary course of business from a seller engaged in the business of selling them.

BIOCs can take goods free of nonpossessory SIs created by the seller unless they know the sale violates a SA.

Question 20

A SI may be perfected by filing as to all kinds of collateral except

Answer 20

A SI may be perfected by filing as to all kinds of collateral except deposit accounts and money.

Question 21

How is an SI in a nonconsumer deposit account (NDA) perfected?

Answer 21

Rather an SI in a nonconsumer deposit account (NDA) is perfected by control.

The bank in which the non-consumer deposit account is maintained automatically has control over a deposit account.

Question 22

How else do you gain control of an NDA?

Answer 22

Other means of gaining control over a NDA are: (1) putting the deposit account in the Secured party’s name, or (2) agreeing in an authenticated record with the debtor and bank in which the deposit account is maintained that the bank will comply with the secured party’s orders regarding the deposit account without the debtor’s further consent.

Question 23

What is an demand account?

Answer 23

A demand account under Article 9 is a deposit account.

Question 24

What makes an account an NDA?

Answer 24

An account is a NDA because it is for the corporation’s use and not for personal use.

Question 25

What does a financing statement need to be effective? (3 things)

Answer 25

For a financing statement to be effective it must contain 3 pieces of information: (1) the name and mailing address of the debtor; (2) the name and mailing address of the secured party. And (3) an indication of the collateral covered by the financing statement.

Question 26

What do minor errors do to a FS?

Answer 26

Minor errors in the debtor’s name will not render the FS ineffective unless those errors make the FS “seriously misleading.”

Question 27

What name do you have to use if the debtor is a registered organization?

Answer 27

If the debtor is a registered organization, (a corporation, LP, LLC) the debtor’s name must match the name on the organization’s public organic record.

• Use of the debtor’s trade name is insufficient.

Question 28

What is the search logic exception?

Answer 28

However, an incorrect name is not seriously misleading if the FS would be discovered in a filing office search under the debtor’s correct name using the filing office’s standard search logic, if any.

Question 29

How do you perfect an SI in a small-scale assignment of an account or payment intangible?

Answer 29

Perfection may occur automatically, without filing, in the case of a SI in a small-scale assignment of an account or payment intangible.

• This rule applies to an assignment of accounts or payment intangibles that does not alone, or in conjunction with other assignments to the same assignee, transfer a significant part of the assignor’s outstanding accounts or payment intangibles to the creditor.

Question 30

What types of collateral can you perfect by doing a FS?

Where do you file it?

Answer 30

• The UCC provides for perfection by simple “notice” filing for all kinds of collateral except deposit accounts and money.
• For collateral other than real estate, a FS is filed centrally with the Secretary of State.

Question 31

In the case of conflicting perfected SIs…

Answer 31

In the case of conflicting perfected SIs, the party that files or perfects first has priority.

Question 32

Perfected SI vs. Unperfected SI (in the same collateral)

Answer 32

Generally a perfected SI prevails over an unperfected SI in the same collateral.