Secured Transactions UCC Article 9

Question 1

Secured Party

Answer 1

The creditor who has a security interest in the debtor’s collateral. Can be a seller or a lender or a buyer of accounts or chattels

Question 2

Debtor

Answer 2

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

Question 3

Security Interest

Answer 3

The interest in collateral that secures payment, or performance of an obligation

Question 4

Financing Statement

Answer 4

Referred to as UCC-1 form, is the instrument usually filed to give public notice to third parties of the secured parties security interest

Question 5

Chattel paper

Answer 5

A writing or writings that evidences both a security interest in goods and/or software use in goods and a monetary obligation to pay – such as a security agreement or a security agreement and a promissory note

Question 6

Instrument

Answer 6

A negotiable instrument or other writing that evidences a right to the payment of money and is not a security agreement or lease but a type that can ordinarily be transferred

Question 7

Commercial tort claim

Answer 7

A claim arising out of a tort in which the claimant is an orgnaization or arose in the course of a claimants business or profession and does not include damages for death or personal injury

Question 8

Transactions EXCLUDED from secured transactions law

Answer 8

• Lanlord, Mechanic, and Artisan’s LIENS
• Assignment of wage
• Tort claims
• Insurance
• Judgements
• Leases
• Real Estate Mortgages

Question 9

REQUIREMENTS for a security interest to attach

Answer 9

1. A writing, signed, decription
2. Secured party must give something of value
3. The debtor must have “rights” in the collateral
   * When these three are met, the interest attaches

Question 10

Rights of the creditor UPON attachment

Answer 10

• Right to repossess, sell the repossessed, has priority over unsecured creditors, priority in bankruptcy

Question 11

Perfection of Security Interest (Methods)

Answer 11

1. Filing
2. Possession
3. Automatic
4. Temporary

Question 12

Filing Requirements

Answer 12

• Names of debtor and secured party

- Description of the collateral

Question 13

Perfection

Answer 13

A means by which a secured party gains priority to a debtor’s collateral over other 3rd parties who also claim to have an interest in the same collateral

Question 14

Timing issues with filing

Answer 14

• A financing statement can be filied before a security agreement is made or interest attaches, before debtor authorization is required, or before the authentication of a security agreement
• **ALL requirements for attachment must be met before a financing statement can be effective

Question 15

Filed financing statement

Answer 15

• good for 5 years from the date filed, can be extended 5 years if continuation statement filed in last 6 months

Question 16

Perfection by Possession

Answer 16

• Creditor has physical possession of the goods
• Pawn of goods is possession
• Transfer of instruments or chattel paper from debtor to creditor is possession
• Field warehousing; creditor has agent at debtor’s place of business
  RULES:
  Letter of credit rights, deposit accounts - by CONTROL
  Money - by POSSESSION
  Electronic chattel paper - FILING OR CONTROL
  investment property -by FILING

Question 17

Automatic Perfection

Answer 17

Two most important:

1. PMSI - purchase money security interest - e.g. financing a TV from Best Buy
2. A sale of payment intangibles or promissory notes
   e. g. assignment of health-care insurance receivables to the health care provider

Question 18

Temporary Perfection

Answer 18

W/O filing or possession for certified secrities, negotiable documents, and instruments if new value is given:

• For 20 days from creation of interest
• only appplicable to above

Question 19

Perfected by possession

Answer 19

Only remaims perfected for 20 days w/o filing IF:

• Goods in possession of a bailee or negotiable document where secured party makes goods/docs available to debtor for sale
• for certified security or instrument where secured party delivers the instrument to the debtor for sale
• NEED to take action for post-20 day period in order to retain perfection

Question 20

Debtor moves out of state

Answer 20

State A has priority - state the interest was originally perfected for 4 months from the date the debtor changes location
* where there is a transfer of the collateral to another debtor, the priority period is one year

Question 21

Priorities in Secured Interests (over creditors)

Answer 21

• Perfected secured party vs. unsecured, unperfected = the perfect has priority
• perfected vs. lien, judgment creditors = first to attach has priority

Question 22

Priorities in Secured Interests (over buyers)

Answer 22

• buyers in ordinary course of business: buyer wins
• buyers NOT in the ordinary “: perfected secured party wins
• buyers NOT vs secured creditor = buyer wins unless aware of interest
• buyer NOT in “ of consumer goods = wins over previously perfected interest by attachment if they can prove value, no knowledge of interest, buying for personal use, and before perfection by filing
• buyers who are HDCs, holdlers of negotiable docs or BFPs WIN over previously perfected security interests

Question 23

Priorities between 2 perfected interests

Answer 23

Generally, first in time of perfection = first in priority right
- PMSIs usually have priority

Question 24

What are the 2 key ways to get a Purchase Money Security Interest (PMSI)?

Answer 24

1. Collateral sale: creditor sells goods to debtor (e.g. an appliance) and retains a PMSI in the goods themselves to secure the debt
2. Loan to acquire specific collateral: E.g. bank loans debtor money to acquire something specific e.g. a car – bank has a PMSI in the car

Question 25

What is “Attachment”?

Answer 25

Attachment establishes the creditor’s rights against the debtor and is necessary for the secured party to repossess the collateral or related proceeds from the debtor.

Question 26

What is required for attachment to occur?

Answer 26

The creditor must have (1) a security interest, (2) the debtor has rights in the collateral, and (3) the creditor gives value

Question 27

What are the five methods to reach “perfection?”

Answer 27

1. Attachment + possession
2. Attachment + control
3. Attachment + filing
4. Mere attachment + PMSI in consumer goods
5. Attachment + title certificate

Question 28

There are four types of tangible goods that qualify as collateral - what are they?

Answer 28

i. Inventory
ii. Equipment
iii. Consumer goods
iv. Farming products

Question 29

What is the boilerplate FIRST thing you should say introducing a UCC 9 essay?

Answer 29

UCC Article 9 controls a creditor’s security interest in a debtor’s collateral. Creditors can reduce their monetary risk if a debtor defaults on repayment by the designation of specific collateral to satisfy the obligation.

Question 30

If there is a question as to what type of use the collateral is used for, what controls?

Answer 30

Whatever the primary use in the debtor’s hands is

Question 31

What is required in a security agreement?

Answer 31

a. Written or authenticated record
b. Debtor must sign/agree
c. Creditor need not sign
d. Collateral described in reasonable detail

Question 32

What are a security agreement “proceeds?”

Answer 32

The proceeds are whatever is received by the debtor upon the sale/exchange or disposition of primary collateral.

Question 33

What is the result of an “after-acquired property” clause in a security agreement?

Answer 33

Future, “after-acquired” collateral the debtor may acquire/manufacture – this creditor gets a security interest in it

1. May create conflict w/creditor who finances that after-acquired piece of collateral
2. “After-acquired property interest” < the PMSI interest in the new collateral

Question 34

What is the effect of a “future advances” clause in a security agreement?

Answer 34

1. Further cash advances may be secured by the collateral – security interest is automatic
2. Ex: bank gives a new loan under existing collateral, old collateral counts as security for the new loan

Question 35

What are the logistics of filing in order to “perfect” a security interest?

Answer 35

a. What do you file?
i. “Financial statement” that sufficiently describes collateral covered
b. Where do you file it?
i. In the location of the debtor’s state/agency
c. What/why do you file it?
i. Filing provides notice to al other creditors and is affective at the time of filing
d. When do you file it?
i. Perfection is effective on the date of filing, but a PMSI gets a 20-day grace period (for non-inventory collateral) in which to file

Question 36

What is different about filing a financial statement for a PMSI? What is the exception to that difference?

Answer 36

A PMSI gets a 20-day grace period to file and perfect. However, this does not apply to inventory.

ii. For inventory – notice required and no grace period:
1. If another secured party previously filed, new PMSI must sent a notification to the other person (who likely has an “after-acquired” inventory interest). Plus, no 20-day grace period.

Question 37

A security interest may be perfected by filing as to most kinds of collateral. Which kinds of collateral are the exceptions?

A Interests in forests to be cut as timber.

B Equipment used in hospitals and other healthcare settings.

C Personal property.

D Deposit accounts and money.

Answer 37

D Deposit accounts and money.

A security interest may be perfected by filing as to all kinds of collateral, except deposit accounts and money. The filing must contain (i) the name and mailing address of the debtor; (ii) the name and mailing address of the secured party; (iii) an indication of the collateral. If the collateral is real-property-related (e.g., minerals, timber to be cut, or fixtures), the filing must also (i) indicate that it is to be filed in the real property records, (ii) provide a description of the real property to which the collateral relates, and (iii) name the record owner if the property belongs to someone other than the debtor.

Question 38

A security interest in which of the following items of collateral may be perfected by possession? (Select all that apply)

A Equipment.

B Accounts receivable.

C Promissory notes.

D Negotiable warehouse receipts.

Answer 38

A, C, & D: Equipment, Promissory Notes, & Negotiable warehouse receipts

A security interest in accounts, certificates of title goods, deposit accounts, nonnegotiable documents, electronic chattel paper, or general intangibles cannot be perfected by possession, even if tangibly represented. Security interests in all other types of collateral may be perfected by possession.

Question 39

A buyer in the ordinary course of business generally takes free of any nonpossessory perfected security interest created by the seller _____________________________.

A Only if the buyer does not know of the perfected security interest.

B Only if the buyer does not know that the sale is in violation of the terms of that security agreement.

C Only if the seller informs the buyer of the existence of the perfected security interest.

D Only if the security interest is not a PMSI.

Answer 39

B Only if the buyer does not know that the sale is in violation of the terms of that security agreement.

Generally, a perfected security interest in goods will defeat a subsequent sale of those goods. However, a buyer in the ordinary course of business – that is, one who buys goods in the ordinary course of business from one whose business is selling goods of the kind purchased – will take free of any nonpossessory perfected security interest created by the seller in the goods sold, even if the buyer knows of the security interest, unless the buyer also knows that the sale is in violation of the terms of the agreement creating that security interest.

Question 40

Each of the following is a category of intangible collateral under Article 9 except:

(A) Instruments
(B) Documents
(C) Investment property
(D) Inventory

Answer 40

(D) Inventory

Tangible collateral, or “goods,” includes fixtures and all thins movable at the time the security interest attaches, except money. There are 4 types of tangible collateral under Art. 9; consumer goods, equipment, inventory, and farm products. In contrast, intangible or semi-intangible collateral includes items such as instruments (i.e., pieces of paper that represent the right to be paid money), documents (i.e., pieces of paper that represent the right to receive goods), and investment property (e.g., stocks, bonds, mutual funds, and brokerage accounts).

Question 41

How may a security interest in equipment be perfected?

Answer 41

Either by filing a financing statement or by the creditor’s possession of the collateral.

Security interests in every kind of collateral except deposit accounts and money (unless either is claimed as proceeds of other collateral) may be perfected by filing. Security interests in tangible collateral, such as equipment, also may be perfected by the secured party taking possession (i.e., by pledge). However, only security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by the creditor’s control of that collateral.

Question 42

Tami lives in Hillsborough County. Tami grants Mia a security interest in taxi’s necklace in exchange for $200.

To perfect her security interest, where must Mia file a financing statement?

(A) With the clerk of the circuit court of Hillsborough county.
(B) With the clerk of the court of any Florida county.
(C) With the Florida Secured Transaction Registry.
(D) With the office of the Florida Secretary of State.

Answer 42

(C) With the Florida Secured Transaction Registry.

Security interests in goods may be perfected by filing a financing statement that contains the names and addresses of the debtor and secured party as well as an indication of the collateral. In FL, generally (i.e., for items other than minerals, timber, fixtures, and utility poles), filing is done with the Florida Secured Transaction Registry - not with the secretary of state’s office, as in most states.

Question 43

Tami lives in Hillsborough County. Tami grants Mia a security interest in taxi’s necklace in exchange for $200.

If Mia also takes a security interest in fixtures owned by Deb, where must Mia file the fixture filing?

(A) With the clerk of the circuit court of the county where the land sits.
(B) With the office of the Florida Secretary of State.
(C) With the Florida Secured Transaction Registry.
(D) Any of the above.

Answer 43

(A) With the clerk of the circuit court of the county where the land sits.

A fixture filing is required in order to perfect a security interest in fixtures. This is accomplished by filing a financing statement in the office where a mortgage on the real property would be recorded. In FL, this means with the clerk of the circuit court of the county where the land sits. In addition to the usual requirements off a financing statement, a fixture filing must provide description of the real property to which the fixture is attached.

Question 44

Which of the following types of collateral cannot be described by type alone?
I. Commercial tort claims.
II. Consumer goods.
III. Consumer securities accounts.

(A) I and II only
(B) I and III only
(C) II and III only
(D) I, II, and III

Answer 44

(D) I, II, and III

An authenticated security agreement is sufficient if it reasonably identifies the collateral. Collateral generally may be described by category, type, quantity, formula, or any other method by which its identity is objectively determinable. However, the 3 types of collateral listed here cannot be described by type alone. Commercial tort claims, consumer goods, and consumer security accounts must be described more specifically in a security agreement (e.g., “all the debtor’s commercial tort claims” is insufficient).

Question 45

On 9/15, Ella applies for a $4,000 loan from Bank to buy furniture and signs a security agreement granting Bank a security interest in the furniture. On 9/20, Bank properly files a financing statement covering the furniture to be purchased. On 9/25, the loan is approved, and Ella receives the funds. On 9/28, Ella buys the furniture.

When did the security interest attach?

(A) 9/15
(B) 9/20
(C) 9/25
(D) 9/28

Answer 45

(D) 9/28

There are 3 requirements for attachment of a security interest: (1) the parties must agree to create a security interest, which may be evidenced through an authenticated security agreement or the creditor’s possession or control of the collateral; (2) the secured party must give value; and (3) the debtor must have rights in the collateral. The 3 requirements may occur in any order but attachment does not occur until all 3 coexist.

Question 46

On 9/15, Ella applies for a $4,000 loan from Bank to buy furniture and signs a security agreement granting Bank a security interest in the furniture. On 9/20, Bank properly files a financing statement covering the furniture to be purchased. On 9/25, the loan is approved, and Ella receives the funds. On 9/28, Ella buys the furniture.

When was the security interest perfected?

(A) 9/15
(B) 9/20
(C) 9/25
(D) 9/28

Answer 46

(D) 9/28

A security interest is not enforceable against any party until it has attached to the collateral. Thus, a security interest cannot be perfected until it has attached. If a party completes all steps necessary for perfection (e.g., filing) before the security interest has attached,the security interest will be perfected on attachment. although Bank filed on 9/20, its security interest was perfected by filing on 9/28 because that is when attachment was complete.

Question 47

On 9/15, Ella applies for a $4,000 loan from Bank to buy furniture and signs a security agreement granting Bank a security interest in the furniture. On 9/20, Bank properly files a financing statement covering the furniture to be purchased. On 9/25, the loan is approved, and Ella receives the funds. On 9/28, Ella buys the furniture.

Which of the following was not required for Bank’s financing statement to be effective?

(A) A specific description of the furniture.
(B) Bank’s name and address.
(C) Ella’s name and address.
(D) Ella’s written authorization.

Answer 47

(A) A specific description of the furniture.

Security interests in goods may be perfected by filing a financing statement hat contains the names and addresses of the debtor and secured party as well as an indication of the collateral. This indication need not be specific, so long as the identity of the collateral is objectively determinable. Furthermore, unlike descriptions of collateral in authenticated security agreements, the financing statement may include supergeneric descriptions such as “all assets” or “all personal property.” For a financing statement to be effective, the debtor must authorized it in an authenticated record. This record may be the financing statement itself, or a security agreement covering the same collateral as the financing statement.

Question 48

On 5/15, Lupe applies for a $10,000 loan from First Bank. Lupe signs a financing statement and a security agreement granting First Bank a security interest in Lupe’s office equipment. On 5/18, First Bank files the financing statement. On 5/20, Lupe receives $5,000 from Second Bank, signing a security agreement granting Second Bank a security interest in the same office equipment. That day, Second Bank files an authorized financing statement covering the equipment. On 5/25, First Bank gives Lupe the $10,000 she applied for on 5/15. On 6/1, Lupe sells all her office equipment to Jan. Who has a superior interest in the office equipment?

(A) First Bank
(B) Second Bank
(C) Lupe
(D) Jan

Answer 48

(A) First Bank

As between conflicting security interest that were perfected by filing, priority goes to the first party to either file or perfect. Perfection does not occur until a security interest has attached to collateral, which happens when the last of the following occurs: (1) the parties agree to create a security interest; (2) the secured party gives value; and (3) the debtor has rights in the collateral. Although Second Bank perfected its security interest after First Bank perfected, First Bank has priority because First Bank filed its financing statement before Second Bank filed or perfected. This security interest is good as against both Lupe and Jan. A perfected security interest in goods is good against subsequent buyers unless (1) the secured party consents, (2) consumer goods are sold to a consumer, or (3) the goods are sold in the ordinary course of burins from a seller engaged in the business of selling goods of that kind and the buyer lacks knowledge that the sale violates the security agreement.

Question 49

How may a security interest in a non consumer deposit account be perfected?

(A) By filing a financing statement indicating the deposit account as collateral.
(B) By the secured party taking possession of the deposit account.
(C) By the secured party exercising control of the deposit account.
(D) All of the above.

Answer 49

(C) By the secured party exercising control of the deposit account.

Security interests in intangible collateral such as investment property, non consumer deposit accounts, and electronic chattel paper may be perfected by control. The bank where a nonconsumer deposit account is maintained automatically has control over the deposit account. Alternatively, the secured party may obtain control by either: (i) putting the deposit account in the secured party’s name, or (ii) agreeing in an authenticated record with the debtor an the bank in which the deposit account is maintained that the bank will comply with the secured party’s orders regarding the deposit account. Security interests in deposit accounts and money may not be perfected by filing a financing statement covering these items. Note, however, that if a deposit account is claimed as proceeds of other collateral, a filed security interest in the original collateral automatically perfects a security interest in the proceeds. Only security interests in tangible collateral, such as equipment may be perfected by the secured party taking possession.

Question 50

If a secured party violates Art. 9’s rules regarding default in FL, when will the value of the collateral be presumed to equal the amount of debt?

(A) In consumer transactions only.
(B) In nonconsumer transactions only.
(C) In both consumer and nonconsumer transactions.
(D) Never.

Answer 50

(C) In both consumer and nonconsumer transactions.

In FL, the rebuttable presumption rule applies to both consumer and nonconsumer transactions. Thus, if a secured party violates Art. 9’s default rules, the value of the collateral is presumed to equal the amount of the debt unless she proves otherwise.

Question 51

Who has greater priority to collateral than the holder of an unperfected security interest?
I. A buyer in the ordinary course of business who does not know that the sale violates a security interest.
II. A party who perfected its security interest after the unperfected security interest arose.
III. The holder of a possessory lien.
IV. The debtor.

(A) I and II only
(B) I, II, and III only
(C) I, III, and IV only
(D) I, II, III, and IV

Answer 51

(B) I, II, and III only

When the debtor defaults and a number of persons have an interest in the same item of collateral, the person with the highest priority has first rights in the collateral; if any part of the collateral or its proceeds is left, the next person can recover. With the exception of the debtor, the holder of an unperfected security interest has the lowest priority of any claimant. If 2 competing security interests are unperfected, the first to attach has priority.

Question 52

How to perfect SI in
Accounts

Answer 52

Filing financing stmt

Question 53

How to perfect SI in
Certificated Securities

Answer 53

filing FInancial stmt, possession, or control

Question 54

How to perfect SI in
Electronic Chattel Paper

Answer 54

filing financial stmt, or control

Question 55

How to perfect SI in
tangible chattel paper

Answer 55

filing financial stmt, or possession

Question 56

How to perfect SI in
commercial tort claim

Answer 56

filing financial stmt

Question 57

How to perfect SI in
consumer goods

Answer 57

Automatically (PMSI), or filing financial stmt, or possession

Question 58

How to perfect SI in
Deposit account

Answer 58

control only

Question 59

How to perfect SI in
documents

Answer 59

filing financial stmt, or possession

Question 60

How to perfect SI in
equipment

Answer 60

filing a financial stmt, or possession

Question 61

How to perfect SI in
farm products

Answer 61

filing financial stmt, or possession

Question 62

How to perfect SI in
fixtures

Answer 62

filing financial stmt only

Question 63

How to perfect SI in
general intangibles

Answer 63

filing financial stmt only

Question 64

How to perfect SI in
goods

Answer 64

filing financial stmt or possession

Question 65

How to perfect SI in
health care receivables

Answer 65

filing financial stmt only

Question 66

How to perfect SI in
Inventory

Answer 66

filing financial stmt or possession

Question 67

How to perfect SI in
investment property ( other than certificated securities)

Answer 67

filing financial stmt, or control

Question 68

How to perfect SI in
letter of credit rights

Answer 68

control only

Question 69

How to perfect SI in
money

Answer 69

possession only