Secured Transactions

Question 1

A secured transaction must

Answer 1

In order for a creditor to gain full protection of a secured transaction they must attach and perfect.

Question 2

Attachment

Answer 2

Creating a valid security interest in the collateral. There must be value given by the creditor, the debtor must have rights to the collateral, and there must be an authenticated security agreement or the creditor must take possession or control.

Question 3

Security agreement

Answer 3

Written an agreement that certifies that personal property is being used as collateral on the loan it must describe the collateral. Can’t be super generic description, has to be normal language or language of types of collaterals. Must intend to be a security agreement and be authenticated (signed) by the debtor.

Question 4

Exceptions to Security Agreement ELement of ATtachemnt

Answer 4

Possession and/or control of the collateral

Question 5

After Acquired Property

Answer 5

A secured party can add a clause in the security agreement that allows for attachment in after-acquired property. This is not assumed unless for quickly revolving inventory - think a grocery store. Doesn’t apply to consumer goods or commercial tort claims

Question 6

Future Advance Clause

Answer 6

A secured party can add a clause in the security agreement that allows for money to be given.

Question 7

Perfection

Answer 7

Can’t be perfect unless you have attached it. This makes the interest superior to those that come after. The general rule is that when you file a financing statement in the filing location in the state where the debtor is located you are perfected against all subsequent creditors.

Question 8

Financing Statement

Answer 8

A Document that identifies the debtor and the creditor by name and mailing address and described the collateral. Doesn’t have to specifically describe collateral like in a security agreement. If the name is in error it is fine unless it is seriously misleading. A name is not seriously misleading if the agreement could be discovered when searching for the correct name and the search logic brings up the name in error. This needs to be filed in the state of the debtor. THe name needs to be the name on the person drivers license or the name of the corporation as the name is shown in the public record, trade names are not allowed.

Question 9

How to perfect an interest in a car?

Answer 9

Notation on the vehicle’s title

Question 10

How to perfect an interest in timber or fixtures?

Answer 10

Statements that describe the land and filed in the county where the land is located.

Question 11

How to perfect an interest in another way than filing a statement?

Answer 11

Possession

Question 12

How to perfect an interest in a deposit account?

Answer 12

Control (best way being named on the account, the second way being in control of the account because it’s at your bank, third best way is control agreement)

Question 13

Purchase Money Security Interest (PMSI)

Answer 13

These are automatically perfected when in consumer goods. When the lender loans money to the borrower specifically for the buyer to purchase certain goods and the lender takes a security interest in those goods or when the security party sells goods on credit and retains and interest on the goods sold.

Question 14

Priority

Answer 14

Buyer in the ordinary course takes free of any security interest

Holder in due course and the like of a negotiable instrument

Transferee if money or funds from deposit accounts

Purchase of Chattel paper or instruments with possession or control

Possessory lien holder

PMSI (super priority)

Perfect Security Interest by Control and judicial liens that are attached. For judicial lien looks at when the sheriff levies on the collateral and when the interest is perfected.

Perfected Security Interest {non-PMSI}(first to file or first to attach) NOT THE DAY OF ATTACHMENT! (However, the day of attachment is sometimes the day of perfection)

Unperfected Security Interests

Creditor

Debtor

Question 15

Consumer goods

Answer 15

goods used or bought for personal or household purposes

Question 16

Inventory

Answer 16

goods held for sale or lease and supplies/materials quickly used up in
business

Question 17

Equipment

Answer 17

any physical goods other than consumer goods, inventory, or farm
products

Question 18

Accounts

Answer 18

a right to payment (accounts receivable)

Question 19

Deposit Account

Answer 19

ONLY commercial business accounts can be attached too. a bank account

Question 20

Rights of a Secured Party on Default

Answer 20

a secured party has a right to sell the collateral and use the funds from the sale to pay
itself the amount remaining on the loan. They can’t self-help with possession or breach of the peace. Breach of the peace is doing anything that could cause violence to ensure. They can also file an action in court to force a public sale.

Question 21

Secured Leases

Answer 21

A security agreement can be disguised as a lease. The terms have the lease being equal to or greater than the economic life of the goods, the lessee is bound to purchase the goods at the end of the lease or renew longer than the economic life, or at the of the lease the lessee has the option to purchase the goods or renew the lease for remaining economic life od grounds for no or nominal consideration

Question 22

Proceeds

Answer 22

whatever is received upon the sale or exchange or other disposition of collateral or proceeds of collateral. Must be identifiable for secured party to claim

Question 23

Methods of Perfection

Answer 23

Filing - everything except deposit accounts and money

taking possession - can simultaneously satisfy attachment and perfection for certain items. The only way to perfect money is through possession.

control - only for nonconsumer deposit accounts, electronic chattel, and investment property.

automatic perfection - PMSI in consumer goods, small-scale assignment of an account or payment intangible.

temporary perfection - proceeds from the sale of collateral, effective for 20 days for proceeds, when a new value is given, and four months when a debtor moves from one state to another or name change

Question 24

How to attach and perfect money?

Answer 24

Possession

Question 25

How to perfect a PMSI in equipment?

Answer 25

File with in 20 days after debtor has possession

Question 26

How to perfect a PMSI in inventory?

Answer 26

filing when the debtor gets the inventory

Question 27

when do you take an item without the security interest still attached?

Answer 27

Sale is authorized by secured party
Buyer in the ordinary course of business when the security interest was created by the seller (also applies to leases)

Question 28

When selling collateral

Answer 28

The notice must be sent to the debtor and other secured parties in a reasonable time and the sale must be commercially reasonable, the secured party is allowed to buy collateral, and money paid on collateral is used to pay off debt.

if there is a question of reasonableness, keep in mind the secured party must show they made an effort to obtain the best price for the collateral. Look at
Sufficient of advertising
the market for the collateral
whether the collateral needed cleaning or repair
if the sale was by public auction and where the auction was held

Price alone is not enough to make something reasonable

Question 29

Accession

Answer 29

Accessions are goods physically untied with an item, but they don’t lose their actual identity

Question 30

Fixture

Answer 30

Items become so attached to the property that interest forms under real estate law. There is an intent it becomes permanent property. TO perfect you must file a fixture filing in the office where a mortgage would be filed. Must reasonably identify the real estate and must name the owner. On default, you can remove the fixture but all damages from removing must be paid. Prior filings and PMSI takes priority over fixture filing.

Question 31

Accession priority rules

Answer 31

when an accession becomes part of the whole, the interest in the full item takes priority over the accession itself. Must pay for the cost of removal if default and taking the item.

Question 32

Garage Sale Rule

Answer 32

If there is a security interest in consumer goods and the buyer resells the item to another consumer the second consumer takes free of the interest when he has no knowledge of the secured party’s interest and there is no financing statement filed. Only applies when purchased for value.

Question 33

Sale with Consent of Secured Party

Answer 33

New buyer takes free

Question 34

Buyer in the Ordinary Course of Business Exception

Answer 34

someone who buys goods in the ordinary course of their business from a seller engaged in the business of selling them. (A Chef buys a knife from a knife dealer). Take free of security interest made by the seller unless they know the sale violates the agreement.

Question 35

Inventory

Answer 35

goods held for the sale or lease and materials to be used or consumed in a business in a short period of time

Question 36

Disguised Security Agreements

Answer 36

If a seller portends to keep title to a good that is then given to a buyer on a basis where the buyer makes payments on the goods at the end of the arrangement and owes non nominal amount in order to obtain title there is a security interest.