Additional CPA Topics

Question 1

Fixtures

Answer 1

Goods that have become attached to real estate

When a contractor installs an elevator in a new building, it becomes a fixture

Question 2

Security Interest

Answer 2

An interest in personal property or fixtures that secures the performance of some obligation

If an auto dealer sells you a new car on credit and retains a security interest in the car, it means it is keeping legal rights to your car, including the right to drive it away if you fall behind on your payments

Question 3

Secured Party

Answer 3

The person or company that holds the security interest

The auto dealer who sells you a car on credit is the secured party

Question 4

Collateral

Answer 4

The property subject to a security interest

When a dealer sells you a new car and keeps a security interest, the vehicle is the collateral

Question 5

Debtor

Answer 5

Refers to a person who has some original interest in the collateral

Example: If Alice borrows money from a bank and uses her Mercedes as collateral, she is the debtor because she owns the car

The obligor and debtor will generally be the same person

Question 6

Obligor

Answer 6

A person who must repay money or perform some other task

The obligor and debtor will generally be the same person

Question 7

Security Agreement

Answer 7

The contract in which the debtor gives a security interest to the secured party

This agreement protects the secured party’s rights in the collateral

Question 8

Default

Answer 8

Occurs when the debtor fails to pay money that is due

Also includes other failures by the debtor, such as failing to keep the collateral insured

Question 9

Repossession

Answer 9

Occurs when the secured party takes back collateral because the debtor has defaulted

Typically, the secured party will demand that the debtor deliver the collateral and if the debtor fails to do so, the secured party may find the collateral and take it

Question 10

Perfection

Answer 10

A series of steps the secured party must take to protect its rights in the collateral against people other than the debtor

To perfect its rights in the collateral, the secured party will typically file specific papers with a state agency

Question 11

Financing Statement

Answer 11

A document that the secured party files to give the general public notice that it has a secured interest in the collateral

Question 12

Record

Answer 12

Refers to the information written on paper or stored in an electronic or other medium

Question 13

Authenticate

Answer 13

To sign a document or to use any symbol or encryption method that identifies the person and clearly indicates that they are adopting the record as their own

One authenticates a security agreement when signing papers at an auto dealership

Question 14

Scope of Article 9

Answer 14

Applies to any transaction intended to create a security interest in personal property or fixtures

§ 9‐109. SCOPE:

(a): except as otherwise provided in following subsections (c and d), Article 9 applies to:
-a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract
-an agricultural lien
-a sale of accounts, chattel paper, payment intangibles, or promissory notes
-a consignment
-security interests arising under Section 2-401, 2-505, 2-711(3), or 2A-508(5), 9-110. 4-210, and 5-118

Question 15

Types of Collateral

Answer 15

1. Instruments
2. Investment Property
3. Documents of Title
4. Account
5. Deposit Accounts
6. Commercial Tort Claims
7. General Intangibles
8. Chattel Paper
9. Goods
10. Software

Question 16

Instruments (collateral)

Answer 16

Drafts, checks, certificates of deposit, and notes may all be used as collateral, as may stocks, bonds, and other securities

Question 17

Investment Property (collateral)

Answer 17

Refers to primarily securities and related rights

Question 18

Documents of Title (collateral)

Answer 18

These are papers used by an owner of goods who ships or stores them

The documents are the owner’s proof that they own the goods no longer in possession

Bill of Lading: a receipt indicating where the goods will be shipped and who get them when they arrive

Warehouse Receipt: owner’s receipt for goods stored at a warehouse

Question 19

Account (collateral)

Answer 19

A right to receive payment for goods sold or leased

This includes, for example, accounts receivable, indicating various buyers owe a merchant money for goods they have already received

Also includes health-insurance receivables

Question 20

Deposit Accounts (collateral)

Answer 20

Article 9 also covers security interests in money held in bank accounts

Question 21

Commercial Tort Claims (collateral)

Answer 21

An organization that has filed a tort suit may use its claim as collateral

Personal injuries to individuals are NOT covered by this article

Question 22

General Intangibles (collateral)

Answer 22

This is considered to be a catchall category, designed to include many kinds of collateral that do not appear elsewhere on the list, such as intellectual property rights or goodwill

Question 23

Chattel Paper (collateral)

Answer 23

This is a record that indicates two things:

1. An obligor owes money; and
2. A secured party has a security interest in specific goods

Most commonly occurs in a consumer sale on credit

Electronic chattel paper is the same thing, except that it is an electronic record rather than a written one

Question 24

Goods (collateral)

Answer 24

Movable things, including fixtures, crops, and manufactured homes

The Code divides goods into additional categories:

-Consumer Goods
-Farm Products: goods, other than standing timber, which are part is a farming operation
-Inventory
-Equipment

Question 25

Software (collateral)

Answer 25

A program embedded in a product counts as goods in two ways:

1. If it is customarily considered part of those goods, and
2. If, by purchasing the goods, the owner acquires the right to use the program, such as the operating system included in a personal computer purchase

Question 26

Attachment

Answer 26

A three-step process that creates an enforceable security interest

The secured party has taken all of the following steps to create an enforceable security interest:

-two parties made a security agreement, and either the debtor has authenticated a security agreement describing the collateral or the secured party has obtained possession or control;
-the secured party has given value to obtain the security agreement
-the debtor has rights in the collateral

Question 27

Control

Question 28

Possession

Question 29

Secondary Obligor

Answer 29

Usually a guarantor or surety of the debt