Secured Transactions

Question 1

What are goods?

Answer 1

Movable tangible property

Question 2

What are “rights to payment”?

Answer 2

Instruments, chattel paper, accounts, payment intangibles

Question 3

What is attachment?

Answer 3

Generally, a security interest that is enforceable against the debtor with respect to the collateral is said to have attached to the collateral. For the security interest to attach to the collateral, there must be :
value given by the secured party (usually money or a loan), the debtor must have rights (own the collateral) , and either a security agreement (valid +authenticated) or possession/control

Question 4

What is required for a security agreement to be valid?

Answer 4

*RAD: Security agreements must be RAD to be valid

SA must be in a record, contain a description of the collateral, and be authenticated (signed by the debtor, usually)

Question 5

Accessions are?

Answer 5

Goods that are united with another good but are identifiable. The security interest continuous in the accession.

Question 6

Commingled goods are?

Answer 6

A good that is united but the identity of the good is lost. The security interest transfers to the larger good.

Question 7

Proceeds are?

Answer 7

Whatever is exchanged for the collateral. The security interest in the collateral attaches to the proceeds automatically.

Question 8

What is Perfection, and how does it occur

Answer 8

Perfection of a security interest is generally necessary for the secured party to have superior rights in the collateral (against 3rd parties). A security interest is perfected upon attachment of the SI and compliance with one of the methods of perfection (FPCAS)

• Filing, possession/control, automatic perfection, or alternate perfection systems (like for car registration)

Question 9

Filing a financing statement can perfect all interests except those in?

Answer 9

Deposit accounts, cars, money, and letters of credit

Question 10

Where must a financing statement be filed to perfect an interest?

Answer 10

For everything except interests in real property, filing is in the central filing office where the DEBTOR is located. This is the state of incorporation for a corporation or the principal residence of individuals.

For real property interests, it is filed in the county where toe property is located.

Question 11

Financing statements require what information to perfect an interest?

Answer 11

The names of the parties, the description of the collateral and if it is for real property, name of the record owner and describe the property.

Question 12

A mistake in a financing statement will only affect perfection if it is?

Answer 12

Seriously misleading. An error in name will not be “seriously misleading” if a search under the real name reveals the record of SI.

Question 13

Financing statements lapse after ___ years but may be continued within ___ months before lapsing.

Answer 13

Five, Six.

Question 14

A security interest in money can only be perfected by?

Answer 14

Possession

Question 15

Interests in deposit accounts and letter of credit rights can only be perfected by?

Answer 15

Control
For deposit accounts can establish control if the secured party is the bank where the account is maintained, and other ways (pg. 8)

Question 16

A PMSI in ____ will automatically perfect.

Answer 16

Consumer goods.

Question 17

Priority between Perfected int v. perfected int? (Non-PMSI)

Answer 17

First in time to file OR perfect

Question 18

Priority between perfected v unperfected? (Non-PMSI)

Answer 18

Perfected wins

Question 19

Priority between two unperfected? (Non-PMSI)

Answer 19

first to attach or become effective

Question 20

Perfected v Lien creditor?

Answer 20

Perfected wins

Question 21

Unperfected v lien creditor?

Answer 21

Lien creditor wins unless the secured party has already filed a financing statement, the debtor has authenticated the security agreement, and the secured party hasnt given value yet.

Question 22

Sec int v statutory lien

Answer 22

Statutory lien wins if the lien 1) is effective based on possession of the goods, and the lien is for payment or performance of an obligation furnished in the ordinary course of business.

Question 23

Sec party v sec party over future advances?

Answer 23

First to file or perfect

Question 24

A buyer takes subject to a perfected security interest unless?

Answer 24

The secured party authorizes the sale is free and clear, the buyer is in the ordinary course of business, or it is a consumer to consumer buyer.

Question 25

What is a buyer in the ordinary course of business?

Answer 25

A buyer who buys goods from a merchant, in the ordinary course of that business, in good faith and without notice of the security interest.

A BIOCB takes free of the security interest, even if perfected, provided that the above factors are met.

Question 26

What is a consumer-to-consumer buyer?(AKA the “consumer buyer” exception to ordinary perfection priority rules)

Answer 26

Buyer buys consumer goods, for their own consumer use, from a consumer seller, without knowledge of the security interest. (This does not apply if there is a financing statement covering the goods).

In consumer buyer cases, the consumer buyer takes the goods free of the security interest, even if perfected, if the above factors are met (does not apply if there is a F.S. )

Question 27

A buyer takes subject to an unperfected interest unless?

Answer 27

The buyer gives value, receives the collateral, and doesnt know of the interest.

Question 28

PMSI v lien creditors

Answer 28

Same as usual, if perfected PMSI if unperfected lien creditors, but a 20 day grace period to perfect where the interest is considered perfected.

Question 29

PMSI v sec interests

Answer 29

PMSI in goods other than inventory takes priority over all other interests no matter when perfected if perfected within 20 days (otherwise its first in time to file or perfect).

Question 30

PMSI in inventory has priority over all other interests in that inventory when?

Answer 30

If the PMSI is perfected before delivery and the holder sends an authenticated notification to the other secured parties.

Question 31

PMSI v PMSI

Answer 31

Seller beats lender, otherwise apply the first to file or perfect rule.

Question 32

Are leases never governed by UCC art 9?

Answer 32

No, only true leases. Look to whether the “lease” is actually a secured transaction.

The test is whether the lease is “in economic reality” actually a secured transaction
* when lease cannot be terminated and the lessee has an option to own the goods for a nominal fee at the end of lease period (page 8).

Question 33

How are proceeds distributed after disposition?

Answer 33

1) reasonable expenses for collection/enforcement, 2)pay the debt to the foreclosing party, 3)pay subordinate interest if there is a formal demand, 4) return the surplus to the debtor. Senior security interests survive in the collateral!.

Question 34

Visualize the Exam Approach for Secured Transactions

Answer 34

1. Attachment (VRSA)
2. Perfection (filing a F.S. or control)
3. priority (of perfected & attached interests)
4. Proceeds distribution (if pertinent)

Attachment (VRSA)⇢Perfection⇢ (FPCAS)⇢Determine priorities⇢proceed distribution

Question 35

What information is non-essential to perfect but will cause the financing statement to be refused at the office?

Answer 35

Addresses of the parties and an indication of whether the debtor is an individual or a corporation.

Question 36

General rule statement

Answer 36

Article 9 of the UCC includes goods, other than farm products, that are held for sale. Because X sold Y it was ____ and covered by the security interest.

Question 37

What is a PMSI, and what are the implications of this classification?

Answer 37

A PMSI gives lenders a security interest in goods that are purchased with the funds borrowed.

* A sales telescope to B, B signs an agreement granting A a security interest in the telescope and pays the rest on “credit”. If he defaults, the seller can take back the telescope. Car loans would fall into this category?