Secured Transactions 2

Question 1

Three requirements for attachment (VAC).

Answer 1

a. Value must be given by the secured party.
b. Agreement (creates the security interest) evidenced by either an authenticated record (such as written security agreement or a computer file) or creditor taking possession of the collateral.
c. Collateral—Debtor must have rights in the collateral.

Question 2

After-Acquired Property Clause

Answer 2

A provision in the security agreement giving the secured party a security interest in property acquired by the debtor after the security agreement is executed.

Question 3

Perfection sets

Answer 3

secured party’s rights in collateral against third parties who may also have an interest in the same collateral.

Question 4

Timing of Perfection

Answer 4

Perfection cannot be completed until there is attachment, but attachment and perfection may be simultaneous.

Question 5

Ways to Perfect

Answer 5

a. Filing — Filing a financing statement.
b. Possession — Not intangibles.
c. Control — Investment property.
d. Automatic Perfection — PMSI in consumer goods and small scale assignments of accounts.
e. Temporary Perfection
(1) Twenty-Day Period—A security interest in proceeds from original collateral is continuously perfected for 20 days.
(2) Interstate Shipments—A four month grace period. Collateral is taken from one state to another; perfection in the first state is valid for four months in the second state. If not perfected in the second state during the four-month period, it becomes unperfected.

Question 6

Priorities

Answer 6

Buyer of seller’s inventory in the ordinary course of business has the highest priority in the collateral—first place.

Properly Perfected PMS - 2nd place. PMSI in consumer goods is automatically perfected upon attachment.

Perfected security interests and judicial liens that have attached — third place. If there is a conflict between perfected security interests—the first to file or perfect wins.

Unperfected Security Interest — fourth place. If two unperfected security interests conflict, then the first to attach has priority.

Debtor—last place.

Question 7

Rights on Default

Answer 7

1. The creditor may take possession of collateral and keep it or sell it.
2. Self-help is OK if no breach of peace.
3. Replevin—A judicial action seeking the transfer of personal property.
4. The sale can be public or private as long as commercially reasonable.
5. Proceeds—Pay expenses of repossession and sale, then pay creditors in the order of priority, and any surplus goes to the debtor.
6. The creditor may retain the collateral in satisfaction of the debt. If the debtor is a consumer it will be considered full satisfaction. If a nonconsumer, the secured party can still collect any deficiency—the secured party cannot retain the collateral if the debtor has paid at least 60 percent; creditor must sell.