R5 M6 - Secured Transaction

Question 1

Question 2

Article 9 of the uniform commercial code excludes certain types of interest from its coverage such as:

Answer 2

• A landlord’s lien
• The assignment of a claim for wages
• The sale of chattel paper as part of the sale of business out of which it arose.

Question 3

A security interest attaches when three key requirements are met under the secured transaction article of the UCC:

Answer 3

1. Agreement to create a security interest (The parties must agree to create the security interest.)
2. Debtor has rights in the collateral
3. Value given by the creditor (The creditor must give value such as a loan or other consideration, in exchange for the security)

Question 4

Under the Secured Transactions Article of the UCC, what secured transaction document must be signed by the debtor?

A.	Statement of assignment.

B.	Security agreement.

C.	Release of collateral.

D.	Termination statement.

Answer 4

Choice “B” is correct. The security agreement must be signed or authenticated by the debtor.

Choice “A” is incorrect. The Secured Transaction Article permits a creditor to assign all or part of his rights under a security agreement. A statement of assignment must be signed by the creditor, not the debtor.

Choice “C” is incorrect. The Secured Transaction Article permits a creditor to release all or part of his rights to collateral described in a security agreement. A release of collateral must be signed by the creditor, not the debtor.

Choice “D” is incorrect. A termination statement terminates a security interest in collateral. The termination statement must be signed by the creditor, not the debtor.

Question 5

What does filing a financing statement do?

Answer 5

Filing a financing statement is not a requirement for creating a security interest. Filing is one of the methods of perfecting, against third parties, a security interest.

Question 6

Under the Secured Transactions Article of the UCC, which of the following security agreements does not need to be in writing to be enforceable?

A.	A security agreement collateralizing a debt of less than $500.

B.	A security agreement where the collateral is highly perishable or subject to wide price fluctuations.

C.	A security agreement where the collateral is in the possession of the secured party.

D.	A security agreement involving a purchase money security interest.

Answer 6

Choice “C” is correct. Attachment of a security interest requires: (i) value given by the creditor, (ii) the debtor’s having rights in the collateral, and (iii) an agreement to create the security interest evidenced either by a written security agreement describing the collateral and authenticated (e.g., signed) by the debtor or by the creditor’s taking possession of the collateral. When a creditor takes possession, no written security agreement is required.

Choice “A” is incorrect. Attachment of a security interest requires: (i) value given by the creditor, (ii) the debtor’s having rights in the collateral, and (iii) an agreement to create the security interest evidenced either by a written security agreement describing the collateral and authenticated (e.g., signed) by the debtor or by the creditor’s taking possession of the collateral. The value of the obligation being collateralized is irrelevant. The examiners are trying to trick you here with the dollar threshold for the writing requirement under the Statute of Frauds for a contract for the sale of goods.

Choices “B” and “D” are incorrect. Attachment of a security interest requires: (i) value given by the creditor, (ii) the debtor’s having rights in the collateral, and (iii) an agreement to create the security interest evidenced either by a written security agreement describing the collateral and authenticated (e.g., signed) by the debtor or by the creditor’s taking possession of the collateral. It does not matter that the collateral is highly perishable, subject to price fluctuations, or subject to a purchase money security interest.

Question 7

The order of priority for the security interests in the store equipment under the UCC Secured Transactions Article is:

III. Purchase Money Security Interest (PMSI) attached on April 11, Year 4, and perfected by filing on April 20, Year 4.

I. Security interest perfected by filing on April 15, Year 4.

II. Security interest attached on April 1, Year 4, but not perfected.

Answer 7

A secured creditor wants to file a financing statement to perfect its security interest. Under the UCC Secured Transactions Article, which of the following must be included in the financing statement?

A.	A listing or description of the collateral.

B.	An after-acquired property provision.

C.	The creditor's signature.

D.	The collateral's location.

Explanation

Choice “A” is correct. Under the UCC Secured Transactions Article (Article 9) a financing statement must contain a general description of the collateral in which the security interest is being sought.

Choice “B” is incorrect. While an after-acquired property clause is permitted, it is not required.

Choice “C” is incorrect. A financing statement must include the creditor’s name and address, but the financing statement need not be signed by either the creditor or the debtor.

Choice “D” is incorrect. A financing statement may provide for the location of the collateral, but such information is not a requirement.