DebtorCreditor Flashcards
(104 cards)
1
Q
Define: Debtor Creditor Unsecured Creditor Unsecured Debtor In personam In rem Secured credit Secured Creditor Security Interest Security Agreement
A
Debtor – person who owes the obligation.
Creditor – person who is owed the obligation.
Unsecured creditor – only has debtor’s promise to pay.
Unsecured debt – debtor has personal obligation to pay.
In personam = personal obligation
In rem = an obligation secured by a thing (usually personal property or real property.)
Secured credit – extend credit collateralized by property.
Secured creditor – creditor who can collect from debtor against property.
Security interest – secured creditor’s interest in subject property. Vol. lien where exchange credit for prop./services
Sec. Agree - requires authentication
2
Q
Creation of Security Interest elements
A
- Creation
- Perfection
- Enforcement
3
Q
Collecting Debt: Unsecured Debt Collection
A
seller not paid for good must sue in order to get paid; cannot take good back b/c is conversions since no rights in goods
4
Q
Collecting Debts Judicially: Judicial Lien, writ of execution, writ of garnishment, sheriff’s sale, Judgment Deb. examination, public records
A
JL-file lein in county where debtor owns prop.; good for 10y; must file continuance to extend 10 more
WoE-Sheriff seizes & Deb. sells it; insurance proceeds not subject
WoG-lein on debts owed to debtor; can seize obligation for 3p to pay
SS-after WoE; places notice in paper then sells it
JDE-dep./interrog. asking about deb. assets
PR-if all else fails, check records for assets to place lien on
5
Q
Collecting Debts through Bankruptcy
A
Debtor has more debt than assets; once files, there is automatic say and creditors can no longer attempt to collect; trustee appointed; secured creditors paid before unsecured creditors; only discharges personal obligations
6
Q
Collecting Debt through Liens & Types
A
security interest placed on property in order to secure payment of a debt.
Types:
Real Estate - subject to conveyance even with a bankruptcy present
Personal Property -
Mechanic’s Lien - doing work on real property; can place lien on prop. until paid; must do so within 30d completed work & has 90d to sue/enforce
7
Q
Define Collateral?
How to distinguish between diff. collateral?
A
property that is subject to the security interest.
Distinguish:
purpose & use
actual use, not how they are normally used
travels in skies and navigable waterways then federal law preempts
8
Q
Three types of Collateral
A
Tangible Goods
Quasi-Intangible Goods
Wholly Intangible
9
Q
Define Tangible Goods
A
All things that are moveable including consumer goods, farm products, inventory and equipment.
10
Q
Farming Products
A
goods of a debtor who is engaging in a farming operation, which include crops (grown, growing, not planted yet), livestock (born or unborn), supplies used or produced in a farming operation, or the products of livestock or crops. Trees are not farm products until cut; before then fixtures
11
Q
Inventory
A
Goods, other than farm products, that are held for sale or lease.
Raw materials, work in process, or materials used or consumed in business
12
Q
Consumer Goods
A
Goods that are used primarily for personal, family, or household purposes
13
Q
Equipment
A
Goods other than inventory, farm products, or consumer goods
14
Q
A painting can be inventory, equipment, or a consumer good, depending on how it is used. Describe How!
A
If you sell art and you plan to sell this one – Inventory;
If you buy it to hang up in your home – Consumer Goods;
If you buy it to hang up in your office – Equipment.
15
Q
Define Quasi-Intangible
Types
A
object, such as paper, that representation obligation owed to the person owning or possessing the paper, but where the paper itself has no value Chattel Paper (record evidencing monetary obligation & SI in goods); Document (Doc. of Title or Warehouse receipt); Instrument (NI)
16
Q
Define Intangible Goods & Types
A
Valuable types of collateral that have no physical form.
Accounts(Receivable,Deposit); General Intangible (Liquor license, water permits, Intellectual Property Rights); Investment Property (securities, sec. accounts, commodities or comm. accounts)
17
Q
Changing collateral over time:
A sells a tractor to B and takes collateral in farming products and equipment. B
uses it in his business, but takes it home and only uses it to mow his grass for the last 3 years. He then takes out a loan with C, who gets a security interest in consumer goods. B defaults. Covered by A or C’s SI?
A
originally farm products then equipment now changed to consumer goods; C gets tractor
18
Q
To have a SI, you must have ______. When does it occur?
A
Attachment
occurs when the SI becomes enforceable against the debtor with respect to the collateral unless the agreement expressly postpones attachment.
Once attachment, if debtor defaults then may repossess even if not perfected
19
Q
Attachment Elements
A
- Value must be given.
- The debtor must have rights in the collateral. (legal title not required)
- deb. agrees to Sec. Agreement
a. debtor agrees to attachment of the security interest
b. the debtor has authenticated the security interest (usually signed security agreement) OR the secured party has possession of the collateral.
c. agreement must reasonably describe collateral
20
Q
3rd element of Attachment subelement of Reasonable Identification, define it & what is sufficient.
A
reasonably identifies collateral if it describes it by giving a specific listing, category, quantity, or any other method that is objectively determinable
“all the debtor’s property or assets” does not reasonably identify it.
“all inventory” or “all equipment” is sufficient.
Specific property use detailed description, serial #
Invest. Prop. - suff. stating security, security account, commodity, or describing underlying asset
Errors do not invalidate, but w/ serial # it would
21
Q
2nd element of Attachment rights in collateral define it & what is sufficient.
A
debtor not required to own collateral outright for creditor to have SI;
nemo dat- cred. can only get rights deb. has;
may use goods as collateral with violable title;
goods stolen then cred. most likely has no rights bc debt. has no rights;
22
Q
2nd element of Attachment rights in collateral, consider rights passed on when selling goods on credit; or having a bill of title; or the owner consenting; or estoppel.
A
sell goods on credit, deliver them, retain title through K until paid - this creates a SI;
bills of title (vehicles) - possession of collateral is not enough; cred. should check title to see who really owns collateral; possession collateral w/o title does not create a valid SI;
Owners may consent to someone else using their prop. as collateral (think obligors);
conduct of the true owner allows another to appear to be the owner so that an innocent party is led to believe he is dealing with the true owner, the true owner is estopped to deny the creditor’s interest.
23
Q
A buys goods from Z on credit. In the contract, Z retains title to the goods until A pays in full. Z delivers the goods and A makes payments. Then, A gets a loan from B, using the same goods as collateral. A defaults on all obligations. Who has rights in collateral
A
B and Z would both have security interests in the goods because, even
though Z retained title, A had rights in the goods when he offered them as
collateral to B. This turns into a perfection issue and one of priority.
24
Q
Define PMSI… priority, filing.
A
created when a loan or credit is given to the debtor for the express purpose of
enabling the debtor to acquire specific property, and the loan is secured by that same property. 20d to file the
25
PMSI: Whats the effect of inventory or livestock
no 20d provision; must perfect immediately; must send notice 5y before debtor receives possession
Policy: stimulates commerce by not allowing the first creditor to file to not a monopoly on debtors assets, bc no other creditor would be willing to lend
26
Describe Tracing with respect to PMSI
How does the loan guarantee and transfer of title play into the equation
court looks for a “closely allied temporal proximity” between when the loan was made and the debtor purchasing/receiving the goods; money sent directly from creditor to seller - this evidences a link;
Title passes before the loan is made; loan cannot be a PMSI because loan didn't enable the buyer to receive rights in goods he already did not have.
However, if the bank gives a loan guarantee upon creditor request, courts have found this to suffice
27
Describe the dual status of PMSI
What happens with lien release
non-consumer goods, a loan can take the dual status; even if the loan is used for other purchases
lose PMSI character
28
Describe the process of refinancing when PMSI are involved
must be a non-consumer transaction; include same creditors;
Here, C has PMSI in A collateral; also has SI non-pmsi in A other property; agree to refinance - dual status rule prevails
29
Define Perfection
process that allows other creditors to receive notice of a security interest, once
that security interest has attached in certain collateral.
occurs once an interest has attached, and the applicable requirements have been satisfied, depending on the type of collateral
addresses the issue of priority by giving notice to other creditors
30
Perfect in the Debtor's Jurisdiction, how do we determine their jurisdiction?
Individual
Organization with one place of business
Organization with more than one
Corporations
Individuals – Individual’s principal residence.
Organization with only one place of business – That place of business.
Organization with more than one – Location of its Chief Executive Office.
Corporations – State of Incorporation.
31
May Perfect several ways, they are?
By filing, by possession, automatic perfection, control, goods covered by certificate of title
32
Describe Perfection by Filing
Whats it comprised of
Purpose
Errors (names, location)
File a Financing statement with the clerks office & information within controls
List: name of debtor, name of secured party, describe collateral covered,
purpose to provide info to purchasers and creditors
Errors must be seriously misleading
No trade or nick names, but if can reasonable search and find nick name then not seriously misleading; changed names depend on when the name change and SI occurred
Prop acquired before or 4 mo. after - good with the old; must use new after 4 mo.
ex. Terry not suffice for Terrance unless pulls it up
New location: 4 mo. to reperfect in new J & if lapse within grace period, then effective
Transfer Prop: 1 year to reperfect; new debtor does not take free and clear
33
Process of Filing
Perfection can occur before attachment but won't perfect until attachment
debtor must authorize filing of UCC1
office must file it, may not be effective if unauthorized, but can file a correction statement
AR file with Sec. of State
Real Estate & Fixtures go with county office
34
Perfection by Filing: Amendments, Continuation
New collateral and new debtor only effective to the new from date of filing; cannot delete all of one side without adding one replacement
Deb. moves - 4 mo.
Deb. transf. - 1 yr.
Continuation - 5yr effective after; must file again but no sooner than 6 mo. before expires; no file then lose interest and must file again
35
Perfection by Possession
some types of collateral actual possession is enough to give them notice; it must be continuous, possession lost then perfection lost
cannot money
Chattel paper - possess all documents
36
Automatic Perfection
PMSI in consumer goods perfects when it attaches; UCC-1 not needed
37
Perfection by Control
| Types of collateral that require it
simply creditor controlling access to the collateral, such as an account
banks accounts, securities, investment accounts, electronic docs, and Letters of Credit
-most effective way for these types of collateral
38
Perfection: Goods Covered by Certificates of Title
Timing Issue
Exception
some goods require certificate of title;
Timing - here valid application and app. fee must be delivered to the approp. authority
if they release on accident, then not perfected anymore
does not require to those goods subject to COT that are being held as inventory
Inventory - cars on lot being held for sale or lease then you can just perfect by UCC1
39
Define Priority
when there is more than one SI, need to figure out who has priority bc junior cred. left with nothing; go to first to file or perfect (can file without perfection) and if you do so then will take priority over subsequent creds bc they have notice
40
A and B agree that A will loan B money secured by B’s collateral. A and B execute a security agreement and A files a financing statement on January 5, 2007. C agrees to loan B money in exchange for a security interest in the same collateral. C and B execute a security agreement, there is delivery and C files the financing statement on January 10, 2007. A delivers the money to B on January 11, 2007. Who has priority A or C?
A filed first but did not perfect until delivery of $ on Jan. 11 because it must attach and value given; A has priority
A filed on January 5, 2007 but did not perfect until January 11, 2007. (Perfection must attach. To attach need authentication, give value and rights in collateral (9-308(a) and 9-203(b).) Still, A has priority because filed first 9-322(a) (1).
9-317 to 9-339
41
Priority of PMSI
secured party provides purchase money & files w/i 20d after debtor receives delivery take priority over all interest that arise in 20d period, except for livestock and inventory
42
A has a PMSI in goods. A executes the agreement and debtor gets goods on Day 1. A then executes a loan with C on Day 5 and C files a statement on the same day. On day 10, A files its interest. Who wins?
A wins, even though C perfected first
43
Priority of PMSI w/ respect to inventory or livestock
Inventory - must send 5y before debtor receives possession; perfected upon debtor possession; must state they has or expects to have PMSI in inventory - give priority or all inventory or proceeds of inventory
Livestock - same thing but notice must be received 6 mo. before
44
A takes over a restaurant that has equipment already installed that is owned
by B. B allows A to operate restaurant while they negotiate terms. After a month, A buys equipment on credit from B and B retains a security interest. When does the 20d period begin?
The 20 day period begins on the date they agree to the contract, not when A moved in.
45
Priority among PMSI
one gave loan to enable purchase
one secured price that enabled purchase
Secured price has priority
46
Priority among Investment Property & Deposit Accounts
multiple people on investment account: administrators of account then whoever got control first
Deposit accounts - first person with control get priority (banks automatically get control, they will always be 1st)
47
Priority with respect to Fixtures
Filing for fixtures (4 things)
sometimes real prop. and fixtures merge and creditors might have individual interest to each one, ct. must look at intent
indication collateral is fixture
filed in real property office
description of real prop.
owner of fixture is diff. from owner of real estate
Good to file UCC1 too in the individual debtors location
48
Define Fixtures
3 factors to determine if something is a fixture
SI & timing
goods so closely related to real property they are covered under real property
How securely the goods have been affixed to real property;
How closely related the use of the goods are to the use of real property; and
The intent of the party bringing the goods onto the land and affixing them.
• The last factor is the most important.
No SI in ordinary building materials that become fixtures
Consinder when PMSI in real estate happened and the fixtures were added, if PMSI then fixture then not covered under PMSI
49
What we are looking at is windows. Windows purchased as a separate movable good and then incorporated in a building on real property and they become affixed to real property. Question: Does the creditor which provided purchase money for the windows still have a security interest in those windows when it did not file a fixture filing
Answer: creditor loses secured perfected status because, even if it did file in real property office, we are talking about ordinary building materials.
! What do we get from this case? If you are providing money for building materials to be used on an improvement, best way to perfect is via the mechanic's lien laws.
50
Fixtures with respect to Real Property Creditors
PMSI in consumer good turns into fixture does prior creditor w SI in real estate trump your interest
3 requirements
PMSI in a consumer good, but then that consumer good turns into a fixture, there may be a prior creditor who has a secured interest in the real estate that would trump your interest.
o But, if the debtor has an interest or is in possession of the real estate and the interest in the real estate was created before the goods transformed into fixtures, the PMSI will have priority if he files a statement within 20 days of the goods becoming fixtures
Debtor has interest or possession of the real estate;
The interest in the real estate arose before goods became fixture; and
PMSI party files financing statement within 20 days of goods becoming fixture
51
Circular Priority
Red Flag
Ct. commonly ruling
Red Flag: at least 3 creditors and they are all fighting over the same property. Creditor A has priority over B, and B over C, but A does not necessarily have priority over C. Arises when one creditor does not renew
Ct. give out pro-rata awards among party who is least at fault
52
B files a UCC-1 statement on May 1, 2000. In 2004, D gets an execution
lien and files it. On June 1, 2005, C files a UCC-1 statement in the same property, even though he is aware of B’s interest.
C has priority over B because B’s statement expired when C filed his.
• B has priority over D because B’s perfection was still valid at that time.
• But, D has priority over C because the execution lien was before C’s.
So, C has priority over B, B has priority over D, but D has priority over C.
B loses because ucc1 expired
53
Disposition of Collateral: Lien creditor has priority over a security interest if they became a cred. before
SI was perfected
before debtor agrees to consensual lien
-basically if lien creditor existed before SI attached or before perfected then win
54
Exceptions to when a secured party's security agreement is not effective against the Buyer
Authorization - secured party auth. sale; deb. still liable to creditor
BIOCB
9-317 Exception
Garage Sale Exception
Lightly Consider
Waiver - vol. abandonment of right
Estoppel - reliance by debtor on secured party's act or omission
55
# Define BIOCB
Think Merchant (define it)
someone who buys in good faith, without knowledge that the sale violates the rights of another person, and in the ordinary course of business from someone who is a merchant.
GF - honesty in fact and observance of reas. comm. standards
No farm products
takes free/clear even if aware of other persons interest (not pawn brokers though)
56
S is the secured party. D is the debtor. D sells the collateral to B, who then sells it to C.
B"would"not"take"subject"to"D’s"interest"if"he"is"a" buyer"in"the"ordinary"course"because"his"seller"created"the"interest.""
o However,"C"would"be"subjected"to"the"interest"because"his" seller"did"not"create"the"interest."""
57
Secured Party v. Buyer: UCC 9-317 exception
buyer who gives value and takes delivery w/o knowledge of SI takes free and clear; must happen before perfection otherwise buyer would have notice; notice measured at time ownership transferred
58
B owns equip. that X has an unperfected interest in. Y wants to buy equipment, so B lets Y take possession and use it while they negotiate. X then sends notice to Y of his interest in the goods. Y subsequently purchases the equipment. How did Y fair?
Y does not take free and clear bc had notice when purchased it
59
Garage Sale Exception
| how does perfection effect?
Buyer of goods from a person who used the goods for family or personal use, B takes free of SI.
Even when the SI is perfected when:
w/o knowledge of SI
for value
primarily used for personal, household, or family purposes
before filing of UCC1 covering goods
60
Proceeds of sale
define
way to dispose
secured party rights
anything acquired on disp. of collateral, collected upon accounts, rising out of the collateral
sale, lease, license; insurance proceeds
secured party will have interest in sale of collateral they have interest in; cash or non-cash; damaged goods, then insurance proceeds
Can go after buyers so long as Secured party can trace it and buyer did not take free and clear; must trace from debtor to hands of 3p & must perfect w/i one year
61
attachment, perfection and priority with respect to proceeds
What happens to goods
attached or perfected then will also attach and perfected to proceeds;
perfected interest on goods expire at 21 days interest attached to proceeds, unless UCC1 filed on collateral or identifiable cash proceeds (money, checks, dep. accounts, not accounts receivable)
non-cash file within 20d
No SI in cash, sells property and does something else with the cash, there is not SI
62
Proceeds with respect to commingled goods
two sep. goods turned into 1 prop.; lose interest in org. good but gain interest in new property
new thing or property
pro-rata share of new good
63
A has SI in pigs. B has interest in hog feed. Pigs eat feed and get 10% fatter, then debtor sells them. B argues?
new thing the 10% fatness on the hog and may be able to get 10% of proceeds
64
Proceeds: Intermediate Balance Rule
place proceeds in account; account must maintain balance at all times; if dips below then SI in amount is lost; FIFO
65
```
Day 1 balance $100
Day 2 deposit $500 (proceeds) balance $600
Day 3 withdrawal $200 balance $400
Day 4 deposit $250 balance $650
How much can secured party get?
```
$400. No indication $250 deposit is from identifiable proceeds.
66
Other Transactions: Leases
labeled leases but not actually a true lease, just disguised security transaction
True lease - no need to perfect
Not true lease then you have a sale and seller need to perfect interest
Can precautionary file UCC1
Sale - passing of title from S to B for a price
Lease - transfer of right to possess and use a good for a term in return for consideration
67
Considering True lease v secured transaction we look at Economic Realities Test, what is it and how does a transaction fail
not a true lease if economically sensible thing to do is buy the goods at the end of the lease term, then secured transition
fail ER test:
lease can't terminate
term is equal or greater than economic life of good
bound to renew economic life or own it at the end
can renew for remaining economic life for little or not cost
lease can become owner at the end of term for little or no cost
Lessor has no intention of getting prop. back
So long as the leasee pays an amount less than the FMV then not a true lease
68
A agrees to lease goods to B for 3 years. A delivers goods and at the end of 3 year, B can buy all of the goods for $1. How's B sitting
Secured transaction and title deemed to pass on day 1 of lease, though B doesn't own good until $1 is paid after 3 years
69
Proceeds: Accounts Receivable
| Define it and parties
debtor often assigns rights to money he will receive in order to satisfy a pre-existing debt
Lender/Assignee - lends $ in return for borrowers AR
Borrower/Assignor- borrows $ and assigns AR
Account Debtor - person who owes AR to borrower ( cannot be prom. note or NI)
70
Can non-paid creditor go after account debtor?
Consider Direct payment & indirect payment?
How are Creditors rights tied to the Account Debtor
How does the amount of AR assigned effect perfection
Look at the recourse financing
Direct payment to Creditor; Indirect to debtor
Subject to debtor; this if Breach of K then can be sued by debtor
Significant amounts then perfect by UCC1; small portions of the account automatically perfect
71
Consignments
transaction where an owner (consignor) of goods delvers goods to merchant (consignee) for purpose of selling goods
72
Main issue with consignments
Merchant/consignee will use inventory as collateral for loan; but not owner of goods on consignment; owner should perfect interest in goods so creditor knows the owner does not have interest, if you don't do this then creditor can take possession
73
Exceptions to creditor prevailing over consignor
Notice - creditor got notice, put a sign up
Value - value of each delivery is less than $1k
Consumer Goods - consignor used them as consumer goods
Auctioneer - debtor not known to be selling goods to others; if merchant who sells property then this aspect of the exception doesn't fly
74
Define Default
this triggers enforcement; may now get a judgment, foreclose, repossess, or enforce the claim; determined by the agreement
Does not work with consignment, accounts, intangibles because cred. own entire interest or already in poss./control
Does not require you to perfect or priority to go after collateral, just need an attached SI
75
Why must you exercise good faith when dealing with default and define gf
potential to be a liable defense for debt.
| honesty in fact and observance of reasonable comm. standards
76
Difference between insecurity and acceleration clause
Insecurity - secure party has change in opinion about value of collateral or ability to pay
Acceleration - entire amount becomes due upon default
-used together to trigger default
77
Waiver of default
ways
late payment
courts handle non-waiver
may waive through conduct or course of dealing; allowing late payment; if accept late payment then must send notice of future strict compliance
late payment is significant time 6-12 months
most courts will allow waiver, even with non-waiver clause in K
78
Repossession
| ways to enforce and desc
default occurred, cred. can enforce SI and repossess prop.
| 2ways: judicial process, or self help
79
Repossession by Judicial Process & Self-Help
JP- take it court; record a judgment lien, take it to sheriff, and seize the property
SH- cannot breach peace; fact specific; violence or threat of violence with branched weapon; secured can be held liable for repo man actions; if appress BoP is occurring must back off; once have control of goods then cannot be BoP; must enter property in reas. manner, thus cannot effect property (soap on driveway)
consumer goods: default for 10d and debtor has 20d to cure; if cures during period then no acceleration
must act reasonably in storing and maintaing the property
80
Repo guy got the car & was driving off when debtor jumped on the hood on public road. BoP occur?
Nope public road and in control
81
Self-help, Breach of Peace Damages
```
restraining order
order preventing collection
possession of collateral
creditor can deficiency judgment
$500 fine
10% value in punitive damages
```
82
Disposing of Collateral & obligations
once cred. repossesses can dispose in comm. reasonable manner.
Obligations:
send reas. notice to debtor and all other secured parties
execute the disposition in comm. reas. manner
83
Disposing of collateral, who gets notice, what is it comprised of, how does the type of collateral effect it (cons./non-cons./perish), purpose, what is reasonable time for notice
notice to debtor, creditor, other obligors (individually)
comprises of time plane and manner of disp.
consumer transition - must give all req. info
perishable goods no notice
non-consumer allows mistakes
purpose allows debtor to exercise right of redemption or participate in sale
time - 10d before disposition
84
Manner of disposition
what factors to consider
low price
damages for notification failure
made in ways that are comm. reasonable with this type of property
Consider:
price obtained
merchants normal dipose this way
public or prive disp.
low- courts will look with more scrutiny, suspicion
Damages- cred. liable for damages if does not notify in comm. reas. manner
10%+time-price differential
85
Deficiency After Disposition
| absolute bar
sells prop in reas manner and doesn't satisfy obligation then debtor liable for remaining amount
bar- not sold in comm. reas. manner and can't prove if sold this way would satisfy debt
86
Strict Foreclosure
| requirements
cred repossess prop and debt is discharged
something in writing
provide notice to all other secured parties, they cannot prevent from happening
87
Right of Redemption
after repossession, but before disposition, debt. can get collateral back if pays off entire loan
88
1. Under Article 9 of the UCC, the “obligor” is:
A. The person who is owed the obligation.
B. The person who owes the obligation.
C. The person who has provided property to secure an obligation.
D. An obligation secured by personal property.
C
89
```
2. To create a security interest under Article 9 there must be:
A. Attachment.
B. A contract.
C. Collateral.
D. Perfection.
```
A
90
3. A Purchase Money Security Interest requires:
A. The value given enables the debtor to purchase the collateral.
B. That the collateral may not be inventory.
C. Perfection within 20 days after the debtor receives the collateral. No 20 day window for inventory or livestock.
D. A and C.
D
91
4. In March 1, 2002 David grants a security interest in collateral to Ben. Ben files a financing statement on March 2, 2002. On February 15, 2007 Carl acquires an execution lien on the collateral. On March 30, 2007 David grants a security interest in the same collateral to Anne. Anne has knowledge of Ben’s security interest but files her financing statement on March 30, 2007. Who has priority?
A. Anne has priority over Ben and Carl.
B Ben has priority over Anne who has priority over Carl.
C. Anne has priority over Ben who has priority over Carl who has priority over Anne.
D. Carl has priority over Ben who has priority over Anne.
C
92
1. “Secured party” is:
A. A person having an interest, other than a security interest or lien, in the collateral.
B. A person in whose favor a security interest is created.
C. A person who owes payment or other performance of an obligation.
D. A person obligated on an account.
B
93
2. “Chattel Paper” is:
A. A record that evidences a monetary obligation and a security interest in a specified good.
B. A right to payment of a monetary obligation.
C. A security, whether certificated or uncertificated.
D. A negotiable instrument.
A
94
3. For attachment a secured party must make sure:
A. That he files a financing statement.
B. That the debtor executes a security agreement.
C. That value is given, the debtor has rights in the collateral and that the debtor consents.
D. That new value is given, there are no other creditors with claims on the collateral, and that the debtor is not a consumer
C
95
4. Can you have attachment without authentication?
A. Yes, if the creditor takes possession of the collateral.
B. No, because there is no indication debtor has consented.
C. Yes, once you file a financing statement.
D. No, because a security agreement is required.
A
96
5. The Hyperion Water Company seeks a loan from Avco Bank to continue running its spring water business. Avco sends Gabe to inspect Hyperion’s facilities and Gabe sees several unmarked trucks parked in the parking lot along with water purification equipment inside. Avco agrees to loan Hyperion the money provided that Hyperion grants Avco a security interest in its equipment and trucks. Hyperion orally agrees to these terms although it does not own the trucks; the trucks were owned by Hyperion customers and were there to pick up water. If Hyperion defaults and Avco seeks to seize the trucks, the best argument for the truck owners will be:
A. Value was not given for the loan.
B. The debtor’s agreement may not be oral.
C. Fraud.
D. Hyperion had no rights in the trucks as collateral
D
97
Ed, who lives in Arkansas, asks Kim, who lives in Texas, to loan her money for a new business in Arkansas. Kim agrees if Ed will secure the loan with his car collection located in storage in Oklahoma. Ed agrees and a security agreement is signed. Kim provides Ed with the money. Where should Kim file her financing statement?
A. Texas.
B. Oklahoma.
C. Arkansas.
D. All of the above.
C
98
7. Hogart, Inc. and Better Bank enter into a security agreement whereby Better Bank agrees to loan Hogart up to a $500,000 business loan. Hogart and Better Bank execute a security agreement which provides for a security interest in all of Hogarts equipment and inventory and any proceeds there from. After all the loan documents are executed, Better Bank properly files its financing statement and releases the first payment of $100,000 to Hogart. Hogart uses the loan proceeds to purchase more equipment and inventory and makes some payments to Better Bank. Three months later, Hogart requests and Better Bank agrees to release another $200,000. The money is used by Hogart to buy more inventory and pay salaries. About two months later Hogart files for bankruptcy. Better Bank learns of Hogart’s bankruptcy the day after filing for bankruptcy and demands repayment of the $250,000 owned by Hogart. Hogart turns over its remaining inventory and equipment worth about $10,000 and funds in its bank account worth about $120,000. The trustee in bankruptcy seeks to have the bank funds returned as a preference payment. Better Bank may keep the bank funds if:
A. If the depository institution agrees.
B. It can trace the bank funds to its collateral.
C. A creditors committee agrees to allow Better Bank to keep the funds.
D. The loan amounted to a purchase money security interest.
B
99
8. Technon and National Bank agree that National will loan Technon money secured by Technon’s inventory. A security agreement is signed and National files a financing statement on January 4, 2007. Technon and Eager Loan agree that Eager will loan Technon money secured by the same collateral and sign a security agreement on January 6, 2007. On January 6, 2007 Eager also files a financing statement and delivers the loan proceeds to Technon. On January 9, 2007 National delivers the loan proceeds to Technon. If Technon defaults who has priority between National and Eager?
A. National because it filed first.
B. Eager because it delivered first.
C. National because Technon did not tell it about Eager.
D. Eager because National’s security interest did not attach.
A
100
. Bank loaned money to Earth Movers secured by equipment with after acquired clause. Bank’s security interest attached and was properly perfected on March 1, 2013. Subsequently, Earth Movers enetered into an agreement with Credit for another loan to purchase specific equipment. A security interest attached and Credit properly notified Bank that this loan was to buy specified equipment and properly perfected on March 20, 2013. Who has priority?
A. Bank as first to file.
B. Bank because of the after acquired clause.
C. Credit because it provided new value.
D. Credit because the loan is purchase money.
D
101
Assume the facts above, if Earth Movers have financial difficulties, and Credit consoldicated Earth Mover’s debt into a global financing plan (refinanced) and some of this debt Earth Mover’s owed to Credit was still PMSI, some not, does the PMSI status survive?
A. Yes, under the transformation rule.
B. No, under the transformation rule.
C. No, under the dual status rule.
D. Yes, under the dual status rule.
D
102
. How long does a secured party have to amend a financing statement after a debtor has changed its name?
A. Ninety days.
B. Five years.
C. Four months.
D. Twenty days.
C
103
. Bank loans money to Avco. The parties execute a security agreement where Avco provides several notes (evidencing third party debts to Avco) as collateral. Bank properly files a financing statement. Avco subsequently sells the notes to Finance-R-Us for 80% of their face value. If Avco defaults, who has priority on the notes, Bank or Finance-R-Us?
A. Bank because Finance has notice.
B. Finance because it purchased the notes for value and there is no indication of bad faith or knowledge it violated rights of Bank.
C. Finance because it is a buyer in the ordinary course.
D. Bank because Finance did not perfect.
A
104
. The trigger to enforcement is:
A. Default.
B. Perfection.
C. Priority.
D. Debtor’s consent.
A
